"Successfully using forensic appraisals in the tax courts requires that the property owner understand the issues involved."

Successfully using forensic appraisals in the tax courts requires that the property owner understand the special issues involved with these types of appraisals, as they differ significantly from typical real estate appraisals.  The differences cover the gamut of legal issues from communication between the client and the appraiser through the legal admissibility of appraisal methodology.

Forensic appraisals must be performed in conformity with the rules of the court.  Typically, this is most significant in relation to confirming the price of a sale or lease transaction.  Further, the appraisal techniques utilized must conform to court precedent.

Hiring the forensic appraiser is the first step.  The appraiser should be a professional with significant experience in the type of property under review.  An appraiser who testifies that he is appraising a property type for the first time can expect significant cross-examination.  Do not take a maiden voyage with an appraiser at this time.

In the hiring process, another area of inquiry revolves around whether the chosen appraiser has previously testified under oath in a similar assignment.  It is not unusual to find certain high profile appraisers who testify often in similar cases.  Prior testimony and appraisals should be fully explored so they cannot be used by the opposition to damage the case being made by the property owner.  This is especially important when appraisers work for both taxing jurisdictions and taxpayers.  Differences in appraisal theory and methodology from case to case can be damaging.  

Any time a property sale is to be relied upon as a comparable in a forensic appraisal, that sale requires proper confirmation.  Confirmation means the appraiser must speak directly with the buyer, seller or broker in the transaction and secure a copy of the deed.  In addition, a proper legal description for the comparable property should be listed, including all of the recording information.

In the case of market comparables, verification is also required for credibility purposes.  A review of the closing statement and contract of sale would be helpful to ascertain whether any usual conditions of sale were involved.

Often overlooked is the importance of determining whether the comparable sale property was leased at the time of sale.  If the property had been leased, securing copies of the leases becomes a material factor.  A property leased at below-market rates will sell at a price less than market value.  Likewise, a property leased at above-market rates will be sold at a price above market value.

An appraiser should physically inspect any comparable used in the appraisal.  Such an inspection should include both the exterior and interior.  Beside inspection, the appraiser needs to determine if there are unusual financing conditions that could affect the price of the comparable.

A critical difference stands between forensic appraisals and those not used in court.  In a court case, no expert may testify in terms of opinion or inference unless they provide the underlying facts and data used to form an opinion.  This essentially means that a lifetime of experience is of no consequence to a forensic appraiser  unless ample data to support each element of the opinion of value can be provided.

Once a forensic appraisal assignment is outlined and explained to the appraiser, a minimal amount of communication should take place between the appraiser and the client regarding the elements of the assignment.  This is due to the issue of attorney/client privilege.  Any communication between the client and the appraiser is not privileged and, therefore, subject to discovery by the adversaries.  Any appraisal conclusions or opinions should be communicated only to the attorney.  In that way, those conversations are privileged and protected by law.

The nature of the assignment and the appropriate legal precedents affecting value should be fully communicated to the appraiser by the attorney prior to the commencement of the appraisal.  In this regard, some of the more critical elements to be examined by the appraiser early in the process include plans and specifications, operating history for several years, prior sales history, all environmental reports and engineering reports, current survey and title policy, all current leases, and construction costs if the property is relatively new.

A forensic appraisal requires close cooperation between the owner, attorney and appraiser.  With the three parties working hand-in-hand and exercising proper diligence, a successful result will be assured.

John Garippa is the senior partner of the law firm of Garippa, Lotz & Giannuario with offices in Montclair, New Jersey and Philadelphia. He is also the president of American Property Tax Counsel, the national affiliation of property tax attorneys and can be reached at john@taxappeal.com