How to Massacre Opposing Appraisal Experts
America may be the land of the brave but it is also the land of braggart appraisers. They often crow about their many trials and how they have never lost. One cannot be sure if this bellowing is to intimidate other appraisers or the reflection of massive egos – or maybe both.
However, often these high profile battle hardened appraisers are the most vulnerable. If you find yourself on the opposite side of a court case as an expert witness – don’t be intimidated.
Your job is to arm the attorney who retained you with silver bullets.
Do Your Homework
So, let us dive into specific techniques that are effective in crossly examining appraisers (pun intended).
Appraisers, like most expert witnesses, have an extreme self-image. They also tend to have a great level of confidence but, in reality, lack a comprehensive education and training. Yes, they will point to their credentials, awards, experience, and political prowess in appraisal or gemological associations. And, to be truthful, some are indeed the real thing.
Like Medals on a Salvation Army General
Check each professional credential claimed. It has been my experience that two out of every five appraisers lie, embellish or invent professional designations.
That is right, two out of every five!
But, if you have co-experts, be sure to insure that they haven’t embellished their professional profiles. The old saying “do not throw rocks if you live in a glass house” applies.
An attorney, realizing that she can massacre the opposing expert, will do one of two things. She will either keep the expert from testifying or terrorize him or her on the witness stand. If she is going to impeach the appraiser, a good attorney will allow the expert to brag about his credentials. Then, like a parent producing a report card full of Fs, divulge to the court that the so-called credential claimed is non-existent (created, embellished or lapsed). His credibility will be worthless. A polished attorney will not guild the goose as the jury may feel sorry for the witness. Better to allow a noticeable pause and then end the cross-examination with a “no further questions!”
The above moment is better than a scandalous soap opera scene.
The effect is devastating and the expert will feel like the attorney just peed in his pool of appraisal knowhow.
This is the second biggest problem that appraisers have. They simply do not understand that the effective date (the date of value) is not one of logic or choice. One size does not fit all. The likelihoods are great that the effective date will be incorrect. The assignment dictates what the effective date is. It is mandated by law. Remember in whose arena the report is being severely studied.
Which Value Definition?
If there is one mistake that an appraiser will consistently make, it is in the choice of value definitions. Even most of the highly trained appraisers fail here.
It may best to explain this by example. I will use jewelry, as that is my specialty. The principles presented here work for every appraisal specialty.
Let us say someone is accusing a jeweler of swapping their diamond – the old case of the switcheroo. Instead of, or in addition to, a criminal action they are suing the jeweler. In other words, you are an expert involved in a civil suit. Since stealing cannot be the cause of action in a civil case, conversion is the obvious choice.1 A typical case uses as many causes of action (reasons for suing) as possible. Here is where the catch is. Causes of action, in every jurisdiction, mandate a specific effective date and value definition.
Let me repeat that. CAUSES OF ACTION, IN EVERY JURISDICTION, REQUIRE A SPECIFIC EFFECTIVE DATE AND VALUE DEFINITION!
Let’s check this out … and study an example.
Here are the jury instructions for conversion in California.
CONVERSION - Value Defined
You are required to measure Plaintiff's damages, if [he/ she/it] is entitled to any, by the value of [describe property] at the time it was converted. The value of the property is its fair market value, which is the highest price that the property would bring on an open market in a sale by a willing seller to a willing buyer. You are not to award Plaintiff as damages the cost of the property. Cost is not the same as value. However, you may consider the cost of the property as evidence of its value to be considered with the other evidence in determining value. Other points to be considered in determining the value of the property are the [use or condition or depreciation] of the property.2
We now know that we are to use fair market value at the time the property was converted.
But wait, I said that a typical lawsuit can have other causes of action. What about these additional causes of action? In our study case an attorney might add breach of contract, breach of bailment, fraud3 or misrepresentation? Did the appraiser understand how to handle benefit of the bargain or out of pocket damages in those states who embrace it?4 Did he or she include the other value definitions and effective dates that match the other causes of action?
The appraiser in rendering an appraisal that is for an anticipated litigation must employ multiple effective dates and value definitions. All causes of action have their own requirements for effective dates and value definitions. I named this the “The Broad Market Value Definition Rule.” It is a powerful counter punch and if not understood and employed by the opposition – can be a decisive knock-out punch.
Fair market value is not some universally defined definition. It varies. Yes, there are numerous fair market value definitions and numerous other value definitions in the legal arena.
In brief, the odds are great that the opposition's appraiser will not have the correct dates and required corresponding value definitions nor understand what they require. When you discover that the opposition rendered an appraisal whose effective dates and value definitions are not in compliance with the causes of action - let the attorney know. These are silver bullets.
If you skillfully sought out the required value dates and definitions and used them in your report - enjoy the day.
Value Methodology or Mythology
Last, but not least, is the actual value approach to value. Although there are several approaches, two stand out, namely the cost and the market activity approaches.5
Many appraisers use the cost approach when they should be using the market activity approach. Without a doubt, each approach can produce quite different value conclusions. Get this right.
The cost approach is simply estimating what it would cost to reproduce or reconstruct an item. The market activity approach involves analyzing market activity to render a value, either by analyzing sales data, et cetera or by duplicating the approach dealers take.
The cost approach should only be used whenever there exists no market activity for the item, the data in the marketplace is misleading or the item is truly unique.6 Otherwise, the market activity approach is proper.
Remember California’s jury instructions for conversion? It specifically stated "open market." That is a strong indication that the market activity approach should be used.
What about uniqueness? Each item has value factors or elements. Value elements are what makes the piece valuable. Even if an item seems unique, once one decides what its value factors are, they only need to seek other items that have the same elements to have comparatives. If the match is not perfect, then the appraiser must do what appraisers do, adjust. The more comparatives obtained, the better the value conclusion is.
The attorney, with your input, can ask the appraiser if the item is appreciating or depreciating. If he or she used the cost approach, they will have to state exactly what part of reconstruction or reproduction depreciated or appreciated. Did the price of gold go up? Did labor costs increase? The answer cannot be that such items have increased in value in the market – as that is not the cost approach, is it? An item does not appreciate by mere virtue of existence. For example, to appreciate in value there must exist market demand (market activity).
Here is one last small piece of advice. Often appraisers have the tendency of stating fair market value in their reports and using liquidation data for their opinions. Appraisers tend to feel that they must somehow select a value that is fair (equitable or just). A sharp attorney will remind them on the witness stand that it is the court's job to decide what is fair and the appraiser's job simply to report their opinions. Opinions based upon analysis of market activity!
Look in the Mirror
Maybe you are thinking “I cannot render an airtight appraisal with proper value definitions and the linked effective dates for a multiple causes of action case.”
You have one of three choices, namely