Would You Like Your $5,000 With or Without Strings?
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I attended the IRWA Chapter 1 (Los Angeles chapeter) lunch meeting today, and listened to my partner, Rick Friess, speak about the Pitfalls of Prejudgment Possession [PDF]. The most lively part of the discussion centered on the requirement that condemning agencies offer the property owner $5,000 to obtain his or her own appraisal, and whether the agencies can condition that money on anything. There was clear agreement on the fact that to date, no case has interpreted the requirement, and that there is at least some ambiguity about what, if any, conditions may be imposed.
Typically, agencies ask for any or all of the following:
- A copy of the engagement letter/proposal from the appraiser;
- A copy of an invoice for the work; and/or
- A copy of the actual appraisal report.
Here’s my take on this. I think the appraisal report itself is pretty easy. I see no basis for an agency demanding a copy of the actual appraisal report. After all, the agency is not typically providing its appraisal report to the property owner, and we have strict expert disclosure rules that control when a party must exchange an appraisal report; forcing an “early” exchange is not fair, and probably violates the rule of a $5,000 offer (or at least the spirit of the rule).
As for engagement letters and invoices, I am much less troubled. The agency should have a mechanism to ensure that the money is actually going to an appraiser, not simply into the landowner’s pocket. On the other hand, as a landowner, I might not want the agency to know which appraiser I hired until the expert exchange. A middle ground might be a redacted copy of the proposal and/or invoice that excludes the appraiser’s name.
From a more practical standpoint, however, it is hard to imagine why an agency would demand any meaningful conditions on the $5,000. In the event the agency needs prejudgment possession, attaching strings might give the landowner a chance to argue that the agency did not comply with the precondemnation requirements, and that it should not be entitled to prejudgment possession. Spending $5,000 to avoid this possible result makes considerable sense, especially if the timing of possession is a critical path item for the construction schedule.
On the other hand, no reason exists that the agency could not ask for the voluntary disclosure of the appraisal report, as long as payment of the $5,000 is not conditioned on the landowner doing so. And, where there is a likelihood of an early settlement, the landowner may be well served in providing the appraisal, or at least a summary of it, for use in negotiations. After all, the whole point of these requirements is to facilitate early resolutions, and exchanging more information that is legally required (by both sides) may help achieve that goal.
Very interesting observations. I wanted to mention that we were recently retained by a property owner to prepare a valuation pursuant to his anticipated reimbursement from [the condemning agency] for a fee of $5,000. Unfortunately, the property owner was not pleased because our value conclusion was less than the offer he had received. As a result, he continued to complain and refused to pay the remaining balance of $2,500 after our retainer of the same amount. In the end, we settled on the $2,500 retainer being our fee. We will not be accepting these assignments in the future due to the property owner's expectation that they will benefit from a higher value, whether or not deserved.
Ben -- I'm sorry to hear about your bad experience, but I'm not sure the answer is never to agree to this type of appraisal in the future. The sad thing here is that assuming you performed a competent appraisal (and I have no reason to believe that you did not), the system worked. The purpose of the $5,000 is not to allow the property owner to obtain a higher appraisal, but for property owner to have a meaningful opportunity to evaluate the agency's offer. This is precisely what happened. Based on your appraisal, the owner should be satisfied that the agency's offer was fair, the owner should accept that offer, and you should be reimbursed by the agency for the $5,000.
It sounds like you ran into an owner who simply wants more money. I'm guessing that the owner won't agree to pay $5,000 because the owner is not being reimbursed by the agency. Instead, I expect that the owner plans to shop for a new appraiser to see if he or she gets a "better" answer from a different appraiser, and that the owner will seek reimbursement for that second appraisal (assuming the number is higher).
The lesson here may be to make sure the landowner understands up front that there is no guarantee that your appraisal will come in higher, and that your job (the one the agency will ultimately pay for) is to help the landowner figure out if the agency's offer was fair. If you get pushback on that general concept, you should probably steer clear. But I would hope that the problem you report is a rare occurrence, and not indicative of a pattern. If this really is a pervasive problem, I hope others will also comment on it. -- Rick
I have had mixed experience. The perplexing experiences are those where Caltrans gets its reimbursment agreement and then doesn't pay, or the appraisal contract is for $5,000 or more but the agency will only cut loose the amount of the retainer if it is less than $5,000. I generally include in the answer to the complaint in eminent domain a prayer for payment of the $5,000 which occasionally evokes a response from the agency's lawyer to the effect, "Oh, didn't you get paid?" Too bad it's only $5K, which is not enough to justify somebody prosecuting a writ of mandate to compel the payment.