I would like to add a little more information that I have gained from a person directly involved in the situation. Bernard Ewell, ASA was an expert witness at the trial for the appraiser/dealer Peter Eller. Mr. Ewell passed along some additional information that was not reported in the news article and video.
Ewell stated to me
The appraiser/dealer Eller was hired to give advice and when he asked if he could make an offer was told to go ahead and do so. The plaintiff said she never intended to hire him as a professional.
The seller of the paintings (plaintiff) was a senior computer expert at Sandia National Laboratory. She had a week to consider Eller's offer and she did absolutely no research on the artist whom he had identified as the creator of the two paintings. She is also friends with two prominent art dealers and did not call them. It is a classic case of a failure to do due diligence costing a lot.
Fellow appraiser Jerry Sampson posted a comment on the blog stating he thought both were at fault. I tend to agree. Ewell also made the interesting comment that the woman was seeking $5,000,000.00 from Eller, charging him with fraud and negligence, and received only a small percentage of the asking amount with a $15,000.00 award for negligence. The jury appears to place the majority of the blame with the seller/plaintiff for not taking the information originally supplied by Eller and doing further research or contacting other experts.
Given the seller/plaintiff knew the artists name as it was provided by dealer/appraiser Eller, additionally she also had an offer from the dealer/appraiser showing the paintings were more than her "paint by numbers" assessment, knew other art experts and failed to investigate the artist further, I tend to agree that much of the blame lies with her. But I do also have issues with the appraiser with the such a wide range of values in this case, from the $4,500.00 offer to purchase and acceptance, to his sale for $35,000.00, to the additional sales (which I dont have figures for but assume them to be above $35,000.00) and then the sale at auction for $661,000.00.
The case does show how cautious the dealer/appraisers must be, when representing themselves potential clients of appraisal services and those wishing to sell. The statement I made yesterday where if a client wants an appraisal, I state I will then not make an offer to purchase the property usually works well. Typically these early discussions include scope of work, types of value, intended use of the report and appraisal fees.
It does get a bit more complicated when you are an appraiser/dealer and the client decides no appraisal is needed and wants or requests an offer. Here the appraiser/dealer needs to be very clear what role is being assumed and what need is being filled.
As a dealer/appraiser I represent myself as a dealer when the client is seeking to sell, does not want an appraisal, and either has a price in mind or asks me to make an offer. I prepare myself before hand with the type of property being offered, and if I am interested, stress to the client that I am not acting as an appraiser and should I be interested in purchasing, there would be no charge for my inspection time or offer. Of course there is always the possibility the client used this offer as a starting point to offer it to other dealers etc, or to gain a value, but that is part of the business.
I also relay to the potential seller that as a dealer in making an offer I may be impacted by current cash flow considerations, space limitations, restoration costs to sell as retail, similar items in inventory, ability to resell in a timely manner (difficulty in this current economic climate), availability and demand for similar items of property, and that as a dealer I also have to make a fair return on investment to cover overhead and hopefully a profit as well. There may be multiple reasons and implications for an offer, be it low or high, plus the need and desire of the seller to sell quickly or take additional time and effort to maximize the offer and sale.
It now appears obvious in this case from the information we have, the seller decided to take the quick and fast offer. She has clearly paid the price for that decision.
It is an interesting situation, and given many appraisers are dealers, great caution is advised Keep in mind that the the lines can easily be blurred from the perspective of an outsider/non-professional .
1 comment:
Todd,
You make some excellent points regarding the efforts you go through to ensure the client understands the role in which you are performing, i.e., as either a dealer or as an appraiser.
Allow me to put this issue in terms of USPAP.
We must begin with USPAP's definition of the term "Appraiser":
APPRAISER: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.
Comment: Such an expectation occurs when individuals, either by choice or by requirement placed upon them, or upon the service they provide by law, regulation, or agreement with the client or intended users, represent that they comply.
The operative words are “expected” and “represent.” When the client expects the individual to perform as an appraiser (i.e., independently, impartially and objectively) because of representations made by the individual that they will so perform, then the individual is obligated to comply with USPAP whenever developing and reporting (orally or in writing) an opinion of value. Included, of course, is the USPAP requirements prohibiting undisclosed interest in the subject property.
To not comply with USPAP while expected to act as an appraiser would constitute a misrepresentation and would be a violation of public trust.
Regarding one who is a known appraiser who is also a dealer, the ETHICS RULE of USPAP states:
An appraiser must not misrepresent his or her role when providing valuation services that are outside appraisal practice.
What does this mean? Individuals known by the public to be appraisers (perhaps as a result of the individual’s self-promotions, or by membership in an appraisal society, or by his or her Web site, etc.) often perform services in other roles outside of appraisal practice. Those other roles might include also being a dealer, auctioneer, estate liquidator, etc.
When one known to be an appraiser performs in a role outside of appraisal practice such as when performing as a dealer, he or she must not misrepresent that they are performing as an appraiser because they are not. They are performing as a dealer. So, the individual must clearly communicate with the client so that the client is aware of exactly in which role the individual is performing. Once done, the dealer can proceed to make offers to buy since he is performing as a dealer and not as an appraiser. Remember, USPAP applies only to appraisers who are performing appraisal practice.
Why is this separation of roles important? Because if performing as an appraiser, USPAP prohibits certain actions which are typically acceptable practice if performing as a non-appraiser. For instance, if performing as an appraiser, USPAP prohibits an undisclosed interest in the subject property, contingency fees or commissions, bias or advocacy. If performing as an appraiser, there is also a requirement for appraiser-client confidentiality that must be respected. None of these factors apply if performing as a dealer or in some other non-appraiser role. In order to maintain public trust in the appraisal profession, it is essential that the client is made aware of exactly which role it is in which one is performing.
When performing services outside the role of an appraiser such as when an appraiser is performing as an estate liquidator, dealer or auctioneer, the sole USPAP obligation is that the appraiser not misrepresent his or her role.
Such dual-role appraisers should be careful to separate these conflicting roles in their self-promotions so that clients do not become confused regarding which role the appraiser is performing. Separate Yellow Pages ads, business cards and Web sites for each of the appraiser’s professions will help to eliminate this confusion.
-Dave Maloney
www.AppraisalCourseAssociates.com
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