Should Agencies Use Two Different Appraisers in an Eminent Domain Case?
Yesterday's IRWA Chapter 1 seminar in Los Angeles was a great success, with an outstanding panel of speakers. The morning started with an informative presentation by Dave Guder of Southern California Edison about the Tehachapi Renewable Transmission Project and renewable energy sources in general.
The liveliest discussion, however, centered around a narrow issue that triggered some surprisingly animated responses. The issue involved a condemning agency's use of one appraiser for the initial eminent domain offer and deposit of probable compensation, and another appraiser as the trial appraiser. More specifically, the discussion focused on whether agencies should be allowed to use this tactic, and whether use of a second appraiser should insulate the agency's first appraiser/appraisal from discovery -- and, ultimately, from admission at the trial on compensation.
While both "sides" articulated good points, in my opinion, the discussion missed a couple of important things. First, from an agency perspective, current "best practices" involve using a different appraiser for the trial than the agency used for the offer and deposit in almost every case. The law allows this, and doing so renders the initial appraisal inadmissible at the trial on compensation.
No reason exists for an agency to expose its initial appraisal to cross examination, when the trial appraisal will almost always be different. The mere passage of time, along with the litigation discovery process, will generate information that warrants changes in the appraisal, and a talented landowner lawyer will be able to exploit any such changes at trial, even if the changes are easily explainable -- and even if the changes do not change the appraiser's ultimate conclusion of value. The agency should not put itself in the position of defending both its trial appraisal and an out of date, initial appraisal.
Second, regardless of the agency's plans for its trial appraisal, it is not at all clear that the initial appraisal can be insulated from discovery. The new rules on prejudgment possession [pdf] create the very real possibility of judicial scrutiny of the offer process which, by necessity, may result in scrutiny of the agency's initial appraisal.
Thus, while that early appraisal can be rendered inadmissible in the trial on compensation issues by changing appraisers, appraisers would be well served to keep in mind that even those preliminary appraisals may be scrutinized if the landowner raises right-to-take challenges or fights an order of possession. This risk that a poor initial appraisal may impact possession should provide agencies with ample incentive to do what they can to "get it right" the first time, even if they plan to switch to a different appraiser for trial.
The discussion that did occur at the seminar was also illuminating. From the "agency" perspective, the view generally was that the use of a new appraiser for trial is appropriate and reflects a sound practice, as the initial appraisal is often done:
- On a compressed schedule;
- With a limited budget; and
- With incomplete information.
In other words, the agency representatives defended the practice of switching appraisers and, more importantly, the rule that the initial appraisal is not admissible at trial where the agency does change.
From the "landowner" perspective, the view was that agencies should be encouraged to hire good appraisers to get detailed, accurate appraisals at the front end, and that agencies should not be permitted to insulate a "bad" initial appraisal from discovery simply by changing appraisers mid-stream. There was also the suggestion that where the appraiser changes his or her analysis from the initial appraisal to the trial appraisal, the appraiser should be forced to defend those changes in court.
One other point not discussed yesterday was that some very good technical appraisers are not viable trial appraisers, either because they lack the demeanor and temperament to be a trial witness, because they lack sufficient experience to qualify as an expert witness in court, or because they simply don't want to do that type of work. If agencies were forced to use a single appraiser, this would exclude many high quality appraisers from the process. And, from an economic standpoint, do we really want agencies to pay the top dollar that the best trial appraisers charge for all appraisal work, even they can find an equally competent, but less expensive, appraiser for the initial appraiser work?
One other point worth mentioning on this debate of obtaining a new appraisal after the offer/deposit appraisal is that if the property owner is dissatisfied with the agency's offer/deposit amount, the owner has the opportunity to seek an increase in the deposit of probable compensation (assuming the agency makes a deposit -- which it normally does to lock in the date of value and to obtain possession). While this strategy is sometimes not worth its expense, it can sometimes pay great dividends.
For example, in a recent case we were handling, the government agency made an offer and deposit of $4 million. Our appraiser concluded that the property was worth $7.5 million, and we sought an increase in the deposit. After making the motion for an increase, the agency ultimately determined that our appraisal was more accurate, and not only agreed to increase the deposit, but agreed to settle the matter for nearly the full amount.