Multiple Appraiser Reconciliation Approach

[JCurtis]

Hello! I am looking for information about using multiple real estate appraisers in the context of a purchase agreement. More specifically, the idea I have is that the buyer and seller each hire their own appraiser. Then the two appraisers designate a third appraiser that they can both agree on who will review the two separate appraisal reports and reconcile them. The third appraiser's reconciliation amount would then be binding on the buyer and seller.

If you could direct me to some sample language that does something like this, that would be great.

It seems to me that there are basic things that should be addressed like requiring MIA certification for all, requiring that the third appraiser not be employed by either of the parties, etc.

I would also be interested in any online articles discussing this kind of an approach.

Finally, if you have any thoughts on the pros and cons of an approach like this, that would also be helpful.

Thanks very much!!!

 

[timd354]

You would be much better served by asking a real estate attorney to draft or recommend language to include in a real estate contract. Most appraisers have no expertise or training in drafting contracts.

Hello! I am looking for information about using multiple real estate appraisers in the context of a purchase agreement. More specifically, the idea I have is that the buyer and seller each hire their own appraiser. Then the two appraisers designate a third appraiser that they can both agree on who will review the two separate appraisal reports and reconcile them. The third appraiser's reconciliation amount would then be binding on the buyer and seller.

If you could direct me to some sample language that does something like this, that would be great.

It seems to me that there are basic things that should be addressed like requiring MIA certification for all, requiring that the third appraiser not be employed by either of the parties, etc.

I would also be interested in any online articles discussing this kind of an approach.

Finally, if you have any thoughts on the pros and cons of an approach like this, that would also be helpful.

Thanks very much!!!

 

[Lee Lansford]

Is this the "National Appraiser Recovery Act" that I've been hearing so much about?



Sorry.

If you can convince the lending community--with their emphasis on "fast & cheap"--to agree, I'm with you 100%.

 

[Laughing Heir]

Hello! I am looking for information about using multiple real estate appraisers in the context of a purchase agreement. More specifically, the idea I have is that the buyer and seller each hire their own appraiser. Then the two appraisers designate a third appraiser that they can both agree on who will review the two separate appraisal reports and reconcile them. The third appraiser's reconciliation amount would then be binding on the buyer and seller.

If you could direct me to some sample language that does something like this, that would be great.

It seems to me that there are basic things that should be addressed like requiring MIA certification for all, requiring that the third appraiser not be employed by either of the parties, etc.

I would also be interested in any online articles discussing this kind of an approach.

Finally, if you have any thoughts on the pros and cons of an approach like this, that would also be helpful.

Thanks very much!!!

I would recommend against reinventing the wheel. This concept already exists, albeit a tad different from the model you suggest, and is commonly used for guaranteed buyouts by corporate relocation firms.

I personally don't place too much weight on the value that a review adds to the process. In lieu of a review, a third appraisal (by a third appraiser) would triggered if the spread between the first two opinions of value exceeded XYZ% a la the ERC model.

For an appraiser to competently reconcile two appraisals against one another and form his or her own opinion of value is going to cost a lot of money. There are a lot of moving parts to this system; if the property is unique you could have a huge spread between the two opinions and you could get a million different appraisals and by the end you won't know if the sky is blue, purple ...

It is an interesting concept and I give you kudos for asking the question. I'm sure that more experienced (and thoughtful) appraisers will be along to articulate their opinions.

Good luck!

 

[Lobo Fan]

You are seeking legal advice and this may not be the best place. There are too many appraisers with an "MIA" (sic) designation. I think you meant MAI. A certification of some sort would be a good idea. I for one would prefer not to accept an assignment where a purchase price is determined by my appraisal. Purchasing decisions often include issues not addressed in an appraisal, such as emotional appeal.

Unless it is a very unique property, the first two appraisals should be fairly close. Appraisers are not supposed to advocate for anyone or any single position. It is not like hiring a lawyer. It is very possible that your appraiser could come in higher than the seller's.

I appreciate your putting so much faith in the appraisal process, but the ultimate decision to buy, and the terms and price are your responsibility.

 

[Pittsburgh Pete]

As a variation on a theme, we have a current assignment on several apartment buildings where one brother is buying the interests of another brother. Rather than go with the process you propose (with sounds good and should get you a reasonably good answer to the question "what is the property worth'), each brother was to select an appraiser--if it turned out to be the same one they would go with that appraiser. However, if each picked a different appraiser, those two appraisers put their heads together and selected a third appraiser--that turned out to be me. As a result, there is only one appraisal fee to pay and each brother's selected appraiser had an input into the selection and a certain comfort level.

 

[Peacemaker]

I think that's great that you want to be so thorough, in regards to the appraisal.

But if there's a lender involved, they are going to hire the cheapest appraiser they can find for their appraisal (they can't use any of yours) without regard to their qualifications and experience, and you may or may not get a good appraisal from this person. But at least you'd have good ammo to argue with them if you need to.

I once was hired by a seller to appraise his house this way, the would-be buyer also hired an appraiser. The seller called me a couple days later laughing, to say the buyer's appraiser actually came in higher than I did. Although we were only a few thousand dollars apart on a $400K deal so there was no need for a third appraisal.

I don't know how much help anyone here is going to be as far as providing verbiage for your contract, we aren't lawyers. But good luck.

 

[hastalavista]

If the property you are considering is a commercial property, then using MAIs makes sense.
If the property you are considering is a residential property, then you'd be better off requiring an SRA designated appraiser.

A word about designations: MAI and SRA are designations earned through the Appraisal Institute. There are other professional appraisal organizations that have their designations as well.

A designation in and by itself does not guarantee quality or competency. What it does mean is that the appraiser has met certain education and professional course work requirements. In addition to using the designation criteria, you should also interview the candidates to ensure they have experience in the market and property-type you are considering.

As far as the agreement goes, what you outlined is good enough to engage the appraisers. If you want to make sure it is legally binding with the seller, then consult a lawyer.

Many commercial contracts have stipulations such as you outlined; where the tenant has a lease-option-to-buy, the process of valuing the property is set-up in the lease. For many types of properties, the requirement is to use a designated appraiser.

Good luck!

 

[Webbed Feet]

<.....snip.....> Finally, if you have any thoughts on the pros and cons of an approach like this, that would also be helpful.

Thanks very much!!!

I believe you need to go back to the drawing board. No "Third" appraiser in his or her right mind would agree to take two appraisal reports by other appraisers and "reconcile" the results of those appraisals into a new third appraisal signed by the third appraiser.

You can't possibly comprehend much about such things as required signed minimum USPAP certifications or Extraordinary Assumptions being required to be "based" on something credible.

 

[Lost Cause]

If you can convince the lending community--with their emphasis on "fast & cheap"--to agree, I'm with you 100%.

I suspect that lenders will have nothing to do with this.

The OP should be aware that an appraisal obtained in the manner proposed would be fine for the participants in the sale, but unacceptable to a lender. Lenders are prohibited by regulations from using a borrower-ordered, or borrower-selected, appraiser in making their lending decision.

But reading the original post doesn't indicate any intention to use the appraisal for anything other than setting the price.