Bob Lear, Lear Appraisals LLC
Trial lawyers work with experts in many cases and the relationship can be difficult sometimes. The expert might not say what the lawyer wants the expert to say. The lawyer might ask convoluted and impossible-to-answer questions. Sometimes lawyers might find an expert to be controlling — the proverbial armchair quarterback (or vice-versa). Sometimes it is simply that one can never make contact with the other or someone is unreliable. Sometimes experts find lawyers to be manipulative and dishonest.
These are the typical horror stories of lawyer/expert experiences.
But many times the relationship can be fantastic. The lawyer recognizes and respects what the expert brings to the table and vice-versa. The lawyer and expert can combine into a smooth-running collaborative legal team far more powerful than either of the two alone.
Residential real estate appraiser, Bob Lear, is one of those experts who takes his work very seriously. He is extremely responsive. He knows how to talk to lawyers. He knows how to talk to humans, as well. By this I mean that, though I have not seen Mr. Lear testify at trial myself, I expect that Bob Lear would be very persuasive before both judges and juries. (You can reach Bob at: Bob Lear, SRA, Lear Appraisals, LLC, 3632 Larchwood Circle, Minnetonka, MN 55345. Telephone: 952-888-7741.)
ML: You get hired by lawyers a lot. How long have you been doing this?
BL: I have been an appraiser since 1992 and I have been doing litigation work for 15 years. For the past 3 years all I do is appraisals for legal purposes.
95% of that is divorce, approximately 4% is estate work and about 1% is business litigation.
ML: How many times have you testified at trial?
BL: Nine times in trial and about a dozen times for arbitration.
ML: Have those experiences all been pretty similar?
BL: Yes.
ML: How long were you on the stand when you’ve been called to testify?
BL: Anywhere from 5 minutes to an hour.
ML: Did you ever feel like someone scored points on you in cross-examination?
BL: I am certain they did, but they have taken my number all nine times in court. The time I was on the stand for an hour was in the case of a person who filed a complaint against me with the Commerce Department [discussed below]. The pro se litigant. You know how that goes. The judge was very patient.
ML: How many cases do you have on-going?
BL: About twenty. I am usually about 3-4 weeks out before I can start a project.
ML: How much time do you need to do an appraisal?
BL: Me, or appraisers, generally?
ML: How about you, personally?
BL: Well, I don’t do cookie-cutter homes usually. Cookie-cutter homes take me probably five hours, total.
ML: How do you define a cookie-cutter home?
BL: Tract housing, not custom-built, with a lot of comparables. Most of my work takes about 6-8 hours. The process includes looking up county data and comparables on the MLS, inspecting the home, doing exterior inspections on the comparables and then analyzing data and communicating it in a report form.
I add a half hour to all of my appraisals because I spend anywhere from 20 minutes to sometimes an hour with Mister and Missus. One of the reasons that I think I get a lot of work is that I can empathize with their situation. I have been divorced and I have worked as a family counselor. These people are in unknown territory. Some don’t want to talk to me and that’s fine. The appraisal takes less time. But most are much more willing to accept a final number if they get a chance to talk to me, to ask me questions and provide me input. I hear that some of my competitors are in and out of a home in 15 minutes. This doesn’t help the Clients feel comfortable about the process. I am in a home for one or two hours.
ML: What are your top five complaints about the lawyers who hire you?
BL: I will be honest. One of the reasons I stopped doing litigation, direct litigation, as opposed to divorce, is that the lawyers want THEIR number. In divorce, the parties and typically their lawyers want a real number. There are certain lawyers I will no longer work for because they want a certain number to support their claim. My attitude is, let’s just get to the real number. It is not rocket science what I do. These are opinions. There is always a range of values. But if you have 10 good appraisers go through a home they will be within 10% of each other if they do their jobs well.
My complaints about attorneys…well, that’s the big one. I really have no other complaints.
ML: Some lawyers might be cynical about appraisers, thinking they will give you any number that you’re paying for, is because of appraisal practices leading up to the collapse of the residential mortgage industry. the “mortgage meltdown.” It seemed that some appraisers would happily write appraisals that would back into any number they were asked to validate. Do you agree that some appraisers were doing that?
BL: 100%.
ML: That hurt the credibility of the profession of appraisals a great deal, wouldn’t you agree?
BL: I would agree.
ML: Is it your opinion that whatever problems that seeped into the appraisal industry have been eliminated because of all of the reforms and changes after the mortgage meltdown? Or are there still a substantial number of appraisers out there who will give customers any number the customers tell them to?
BL: “B.” There are enough people out there who will give you a number that you want. I refer to them as “hired guns,” and they will skew it to help their client.
ML: Isn’t it a licensed profession?
BL: Yes.
ML: Shouldn’t they be drummed out?
BL: Yes. There is a difficulty in that. You can’t legislate ethics and performance. That is the bottom line. They have done some things in the mortgage industry to change it, to take the greed and motivation out. But I think they just move furniture around the room.
And then you go to litigation and there are still people who are hired guns. The state regulators are overwhelmed, first of all. There are only two people in the enforcement section of the Commerce Department. They never really care about your final number. What they care about is how you got there and were you misleading or fraudulent. The state only finds out about these people when other people complain about them.
I had a complaint brought against me, my first one in twenty-some-odd years of appraising. A gentleman in a divorce complained about my final estimate of value. I was absolved by the state in the end. The gentleman had gone through four attorneys and was representing himself at this point. He may have had some mental stability issues, some might wonder. I have a degree in sociology/psychology so I have some insight. I worked in that area. In the end I was absolved by the state, as I said, but interestingly enough, you can always find something in an appraisal that might not comply perfectly with, say, a new law, or you did not word something exactly right.
There were a few things in the appraisal that the state investigator said, “Well, you need to change this because a law’s been tweaked…” or something like that. But they did not find anything wrong with the appraisal as a whole.
To be clear, there was only a 3-4% difference in our final estimate of value in this case where the gentleman complained. He was complaining about that.
ML: You were his expert?
BL: No, I was a neutral. He and his estranged wife were both my clients.
The issue was that he wanted me to look at a nearby home that had an accepted purchase agreement a few days after the valuation date. I told him that I would look at the property but I have to wait until the sale closes in order to obtain the final sales price. In the meantime there were two other homes on the same street that also went from being active listings to pending sales. These properties were nearly the same model as the subject so I used all three comparables as additional data to my first five comparables. The one he focused on did show a higher value of about $10,000 but it had been bought six months earlier and had been completely remodeled. His had only partial remodeling. Also, the other home backed to a golf course. His backed to a pond.
My point is that the State is overwhelmed. They do oversee. They do give fines. I think they have gotten rid of a lot of appraisers since 2009 or appraisers have left the business because it is no longer as lucrative. So I do think now there is a better pool of appraisers. But, like any industry, you can go search for what you need….It’s human nature.
ML: So, you’re saying there are still appraisers out there who will give you any dollar amount that you tell them to, the licensing authority will not strip them of their license if they catch these people, which they would only do if someone complained, but they are overwhelmed, have too many files, and also, since they do not focus on the valuation number, they just look at process, they might not find fault with someone even if their valuation number is not justifiable by any objective measure.
BL: They are looking for unjustifiable and misleading analyses. And I want to be clear, the State can and does strip people of their licenses. But it is like the legal industry, you have to be pretty bad before they pull your license…
ML: Absolutely, and bad ones might have to get caught a few times, too…
BL: Same with appraisers.
ML: As I recall you participate in a trade organization?
BL: Yes, the Appraisal Institute. It’s one of many organizations but it has the largest membership in the world. I am a “designated appraiser” for residential properties. And I could get the designation stripped if I had problems with state regulators.
ML: After our interview, you are off to Golden Valley for an appraisal, you mentioned. For a divorce?
BL: Actually, no. It is for estate planning. An elderly couple in a house that has extensive deferred maintenance. Their three adult children are trying to think through what they should do. Should the couple be in assisted living? Should they fix the house up? Sell it? Sell it as is?
ML: And, work like that, do you get your work from lawyers, generally?
BL: Now I do, yes.
ML: Exclusively?
BL: No. For example, this job in Golden Valley was word of mouth, a friend of a friend. I also get work from title insurance companies. That’s most of it now.
And, it’s funny, as much as I work with lawyers, you are only maybe the tenth or eleventh attorney I have met. If I don’t go to court, I don’t meet them. And that’s a good thing. It means the many lawyers who hire me just like my reports and that they make sense.
ML: I also get the sense that you’d make a great witness. You have a great voice.
BL: Really? Radio? I am outta here!!! [laughing]
ML: So there are times when you get push-back and clients argue with your valuation and want you to change it?
BL: Yes.
ML: And they might complain that you failed to look at a particular comparable piece of property or that you failed to evaluate it properly?
BL: Correct.
ML: Do clients ever take issue, and you are persuaded, and you change your appraisal?
BL: Yes. I am human. These are just opinions of values. And every home is a range. I think I have changed values maybe four times in my divorce work, never in my litigation.
One of my favorites in a divorce matter was a very difficult home on a small lake out in Waconia, and there was a pending sale down the same street on the same lake, otherwise I had to go to different neighborhoods to find other comparable properties. When a property is pending, the final sales price is not available. The divorcing husband, an engineer, followed the pending sale and called me three weeks later when the property had closed with the final sales price. In the appraisal I had adjusted downward 4% of the asking price, because that’s what the market was…but this one closed for 13% less. So, I re-calculated that comparable, and in light of this new information, my final value came down 2%. It might not sound like much, but it was a million-dollar property so that was $20,000.
I think good appraisers will look at their stuff and say… lawyers might not want to hear this… there is always more than one side, these are opinions, and I am ok to say, “Maybe I am wrong on this…”
In fact, I am doing one right now. It relates to water and mold. I have been tracking data on these for years. I kept coming up with the same answer: there is no on-going stigma to a house from a finding of mold, once it is repaired.
I have been asked to review an appraisal in which the appraiser found there was stigma related to mold in the home reducing the home value 10%. But there is no proof.
Appraisers say, “Based on my experience, I think it is 10%…” But where’s the data?
ML: This is the perfect example how you could have significant variation between two good-faith appraisals by competent appraisers, right? There is no good strong data as the impact on value of “mold stigma,” right?
BL: Actually, I have data on over 25 sales over the past 12 years. The data indicates that once the problem is repaired there is no ongoing stigma. An example, a home inspector identified mold. It was determined that it would cost $60,000 to fix. The buyer says, “I will buy the home, knocking $60,000 off the purchase price in order to fix the mold problem.” I have example after example of that. So the data suggests that “cost of cure” is generally the amount that mold or water penetration affects the property value.
The Appraisal Institute has a library, called the Lum Library, and it is an on-line collection of appraisal scholarship. Studies that I have read indicate that the effect of an environmental issue on property values relates to how much P.R. the environmental problem had. Take Three Mile Island, for example, this had a big negative impact on nearby property values.
In South Minneapolis, there is an area where there are high levels of arsenic in the ground. Nobody really knows about it and it does not seem to affect property values. You probably won’t even notice it unless you have allergies to arsenic.
ML: How about high-profile crime that occurs in a home? How does that affect property value?
BL: I have never done one of those so I haven’t done the analysis. I have heard that this does affect property value. I have heard of homes that could not be sold, so they had to be torn down. That is what I have heard but I have never done the analysis.
Residential properties, which is what I do, is different from commercial properties and there’s more psychology and uncertainty in these valuations.
Take, for example, LEED-certified homes [Leadership in Energy and Environmental Design], this certification does not actually increase home value.
ML: Well, but doesn’t it increase the value of the home because it lowers costs of heating and air conditioning?
BL: It’s an interesting question. We’re seeing geothermal homes and solar paneled homes being constructed, but at this point I have not seen any of them add value.
The market is changing. We’re getting more environmentally concerned. I personally would love to see that it does add value. But I have not seen it yet in the market.
I am actually doing another geothermal property in about a week. It will be interesting to have another look at that.
ML: Do you look at all at heating costs when appraising a property?
BL: No. Because home-buyers don’t. Part of it is that all of the homes used as comparables are in the same climate of course…
ML: But if one home is LEED-certified, presumably it means it will have lower energy cost.
BL: I have only done one LEED-certified home in a middle class neighborhood. The others were in upper-class neighborhoods. And in upper-class neighborhoods, they don’t care as much. They have got the money. The house in the middle class neighborhood sold for a similar price as the other homes, so it appears that buyers don’t pay a premium for these types of properties.
ML: Ever surprised at trial?
BL: No. But in an arbitration, the first one I was ever involved in, I was surprised. It was an arbitration concerning property near the Mississippi River. It had to do with flooding. I was there all day and was the last witness to go on. The other side asked me about my “cost approach.” I now know that it is not as accurate of method of valuation as the market approach (sales comparison approach) when a property is more than seven years old. This particular property was a 1950’s home. I really should not have completed the cost approach. The first question that came from opposing counsel focused on the cost approach. The lawyer handed me a book, a book we use called Marshall & Swift Cost Analysis, and she asks me, “Can you show me what page you took these figures from?” And I just froze. It’s a really thick book, and not the version that I had actually used, but fortunately the arbitrator came in and said, “You know, we’ve covered this. We really don’t need to again. It’s late. I want to get going.” So I dodged a bullet. That is the only time that I have been surprised by the questioning.