Appraiser Expert Witness Misuse of Data

What are the most common ways appraiser expert witnesses misuse data in formulating their opinions?

Jack Friedman, PhD, ASA, CPA/ABV lists some of the misuse of data by appraiser expert witnesses:

Use of Erroneous Data

  • Implausible debt-to-total capital ratio
  • Regulatory agency guidelines ignored
  • Data or proposal supplied by another party unwisely used:
    • Direction of economic change
    • Writing up books, not audit
    • Real estate appraisals with extraordinary assumptions given to business appraisers

Irrelevant Data

  • Land sales on commercial streets used as comps for residential property
  • Comp land sales with different highest and best use
  • Comp land sales from geographically different economic market
  • Irrelevant sales data used as comparables

Further Misuse of Data

  • Value change attributed to wrong cause
    • Tangible value (nuclear waste storage certificate)
    • Employee retirement reduced income (not mold)
    • Regulations caused issues (not professional malpractice)
  • Unrealistic hypothetical conditions and/or extraordinary assumptions
    • Mitigation land bank
    • Outdoor storage
  • Construction classification (Class D) substituted for market acceptance classification (Class A)

Use of Unreliable Data

  • Report unchanged though sales price later confirmed is half of price reported
  • Unlikely assumptions about validity of contract
  • Time period for damages extended well beyond reasonable period
  • Principal cause of depreciation disregarded
  • Cited publications don’t support testimony
  • Claimed building inspection not performed
  • Data or information omitted

Self-Contradictory Data

  • Internal inconsistency: trends, market conditions
  • Testimony contradicted by expert’s own publications
  • Different value given by previous reports from same person or firm

Conclusion

When working with appraisal expert witnesses, lawyers should take a long hard look at the data supplied and relied on.