The following is a guest blog by Paula K. Konikoff, JD, MAI, AI-GRS.
Appraisers expanding their practices into the area of arbitration can expect to play one of two roles: arbitrators or expert witnesses.
They are most often engaged in arbitrations addressing rent re-sets required by ground leases, large space leases and net leases on whole properties. They can be retained as valuation experts, or they can be retained as one of or the only (sole) arbitrator.
In either case, the valuation expert is most often “acting as an appraiser” for purposes of complying with standards, either the Appraisal Institute’s Standards of Valuation Practice, or the Uniform Standards of Professional Appraisal Practice, commonly known as USPAP. This means that the valuer must comply with the ethics and competency requirements
The difficulty can be in determining which role the client wants the appraiser to fill, and figuring out what the documents require. Once that is resolved, appraisers will be able to determine which tasks need to be done, what role they will play and with which parts of valuation standards they will need to comply.
Giving a Decision or an Opinion?
As an arbitrator, appraisers are asked to make final, generally binding, decisions to resolve a dispute. This is done through arbitration, an alternate dispute resolution process where parties agree to be bound by the outcome rather than go to court. This process typically costs less than a trial, and the outcome is generally known more quickly. Courts appreciate the use of ADRs because they help reduce the court’s caseload. The arbitrators’ decisions are presented to the parties in documents called “awards.”
Expert witnesses typically offer an opinion of value in an arbitration. They are providing appraisal and/or review (called “rebuttal” in arbitration) reports and possibly giving oral testimony at the arbitration hearing.
The Role Defines the Tasks
Before the arbitration, it is important for valuers to know if they are serving as an arbitrator or as an expert witness. The tasks they are expected to complete are different for each role.
If the valuer is serving as an arbitrator, tasks might include establishing ground rules for process, conducting a preliminary hearing to clarify issues to be arbitrated, number and length of briefs to be submitted, dates for submission and replies, times for property visits, location and length of arbitration hearings, general housekeeping issues, conducting arbitration hearings, rendering a decision and writing final award. Note that none of the tasks as an arbitrator are covered by any specific performance standard.
If serving as an expert witness, tasks likely will include developing appraisal opinions in compliance with USPAP Standard 1 (SVP Standard A), and reporting those opinions in compliance with USPAP Standard 2 (SVP Standard C).
This decision regarding the work to be done by a valuer in an arbitration is often based on the arbitration or appraisal clause in the lease being arbitrated. These lease clauses may create as much confusion as clarity as they were written many years ago using terminology that that may now be outdated. It also is rare that appraisal professionals were consulted when those clauses were drafted, so the intent of the clause may be more apparent to a lawyer than to an appraiser. However, these points typically get resolved after discussion among the parties, attorneys and valuers involved.
For more details on serving as an arbitrator and an expert witness, see the Appraisal Institute’s Guide Note 16 “Arbitration” on the AI website.
Paula Konikoff, JD, MAI, AI-GRS, is an adjunct professor at New York Law School, a certified USPAP instructor, a certified instructor for the Appraisal Institute and chair of AI’s Professional Standards and Guidance Committee. In her private practice, she provides litigation support services in matters involving valuation and standards questions, and serves as an arbitrator. Along with Stephanie Coleman, MAI, SRA, AI-GRS, AI-RRS, Konikoff gave the presentation “Serving as an Arbitrator v. Performing an Appraisal: Practical Considerations” at the 2016 Appraisal Institute Annual Conference.