Consulting Assignment with a subsequent Appraisal Assignment: Conflict of Interest

[ZZGAMAZZ]

I performed a few appraisals for a broker who now wants my advice about how to maximize his ROI based upon various potential improvements to a residential property he owns, e.g., garage conversion to ADU, updating or adding on to the Main DU, etc. I presume it would be a "consulting assignment" that includes my opinion of market reaction to the various alternatives.

[Newby] Questions:
--Do I need to maintain a workfile? If so, just copies of emails, etc.?

--After the project is completed and the client attempts to obtain a loan with an "As Repaired" value, may/should I accept the appraisal assignment if I disclose [the specifics of] my prior involvement, or would the distinct appearance of a conflict of interest not be sufficiently addressed by that disclosure? That is to say, does the prior involvement disclosure shield an appraiser from the liabiity of being accused of an inappropriate behavior, either judicial or regulatory? [ As an aside, I'm currently breaking the news to the client that even though he provided a construction quote much higher than the original quote...the more n more he proposes to spend doesn't necessarily mean that the market will value the property higher, if the market simply can't bear the value he anticipates--presuming that a "predetermined notion of value" is acceptable during a consulting assignment????

 

[George Hatch]

A regulated lender will probably not engage an appraiser who has previously been working directly for their borrower.

 

[J Grant]

I performed a few appraisals for a broker who now wants my advice about how to maximize his ROI based upon various potential improvements to a residential property he owns, e.g., garage conversion to ADU, updating or adding on to the Main DU, etc. I presume it would be a "consulting assignment" that includes my opinion of market reaction to the various alternatives.

[Newby] Questions:
--Do I need to maintain a workfile? If so, just copies of emails, etc.?

--After the project is completed and the client attempts to obtain a loan with an "As Repaired" value, may/should I accept the appraisal assignment if I disclose [the specifics of] my prior involvement, or would the distinct appearance of a conflict of interest not be sufficiently addressed by that disclosure? That is to say, does the prior involvement disclosure shield an appraiser from the liabiity of being accused of an inappropriate behavior, either judicial or regulatory? [ As an aside, I'm currently breaking the news to the client that even though he provided a construction quote much higher than the original quote...the more n more he proposes to spend doesn't necessarily mean that the market will value the property higher, if the market simply can't bear the value he anticipates--presuming that a "predetermined notion of value" is acceptable during a consulting assignment????

IDK why it is a consulting assginment but whatever-

If I did the appraisal or consulting assignment for the party, I would not want to do a subsequent loan appraisal even if the lender had no problem with it - too many things could go wrong -

 

[Surf Cat]

Sounds like market value "subject to" plans and specs on a GP form to me.

The broker would have to give you plans on what he wants to do (ADU, additions, rehabbing) as well as a materials list cost breakdown if he wants a full report from you. Maybe a 216 on what the main unit and ADU would garner in rents.

If he just wants to put his feet up on the desk and lean back in a chair and have you tell him "what about this, how much for that?" over a couple beers and have you look up comps.... I suppose that would be Consulting.

 

[George Hatch]

Appraisal Consulting isn't (wasn't) about valuing a property as such. It's about related analyses, like HBU or rent analyses of different property types or what type of apartment mix is in demand for a given neighborhood. Like when I would tell someone the 5un property might actually be more marketable and more valuable if converted to 4-units (to qualify for residential loan rates/terms rather than as a commercial rate/term). Or suggesting that the 8-un multi-family consisting of (4) duplex structures might be worth more if mapped as a condo project and sold off individually. Or telling them it would be faster/cheaper to map a 1ac lot for 10 detached condo units with a common private street than to do an actual subdivision map.