- Be Aware of These RED FLAGS
by George Maurice, AACI, P.App
Canadian Appraiser, Volume 51, Book 1 (2007) p. 31 [pdf]
- Appraisers - a key element in real estate fraud prevention
by George Maurice, AACI, P.App
Canadian Appraiser, Volume 51, Book 3 (2007) p. 30 [pdf]
- Client Failed to Use an Appraiser Westra Law Office (Re) - [pdf]
- Chang v. Registrar, Real Estate and Business Brokers Act, 2002, 2010 ONSC 3162 (CanLII)
- Reporting Economic Crime On-Line (RECOL)
Appraisal fraud takes many forms. Any intent to mislead the reader of a report by an act of omission or an act of commission can lead to criminal and civil action against an appraiser as well as potential discipline before the Institute’s professional practice committees. Appraisal fraud is more often committed by third parties. Someone obtains a copy of an appraisal report, and manipulates the data to change the conclusions in order to obtain a mortgage on the property. The most egregious form this has taken is Appraiser Identify theft; where a third party simply creates the report under your name or on your business name and letterhead.
Appraiser coercion and influence is where you may be pressured into doing something that contravenes the Institute’s Code of Ethics; appraisal standards, or your professional values.
Undue Appraisal Independence may be viewed:
- by improper influence, through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, or bribery from a party with a direct interest in the property or the transaction
- by influence of an appraiser or otherwise to encourage a pre-determined value, a direction in value, or a specific result
- by any suggestion that an appraiser’s livelihood may be jeopardized including non-payment, failure to timely compensate an appraiser for work completed or denial of future work
- by threat or intimidation of the submission of a complaint to the Institute if a pre-determined value, a direction in value, or a specific result is not obtained
Undue appraiser influence takes many forms. At the very low end, when an appraiser receives a request from an appraisal management company or a lender that states what the value of the property is, or should be, this may be considered as improper influence. A professional, is expected to ignore these statements and to produce the appraisal report in an unbiased manner. It would be unethical for an appraiser to contact the client to say that you are unable to confirm their preconceived notion of value and seek further instructions.
In the middle ground, there may be the perception that a client’s instructions may alter the definition of fair market value, or unduly restrict you in some fashion. For example, they might suggest that you are only permitted to use a comparable within a certain geographic radius of the subject property or that the adjustments cannot exceed a pre-determined percentage. As a professional you should endeavour to satisfy your client’s request, however, where it is not possible it is important to recognize that it is your professional opinion of value and that in your report you should set out the reasons how this criteria affected market value or how difficult this made the assignment. It would be inappropriate for you to simply comply with these requests without an independent analysis of market conditions. Inclusion as a hypothetical assumption may also not be appropriate.
The high end of undue appraiser influence may be where your client directs you to use a specific comparable or to rely on unsubstantiated facts, or the suggestion that failure to meet their value requirements may affect livelihood of an appraiser by refusing to use their services in the future or having them stricken from a lenders approved list of authorized appraisers.
As a professional appraiser it is everyone’s ethical obligation is to confront these challenges to your integrity and to not succumb to them.
September 20, 2010