Roman armies were led by an Aquila¹ - an eagle symbol that was the standard for the soldiers. And it was at all costs never to be lost in combat. This symbol was not merely a unit emblem but had a quasi-spiritual tone to it. For example, after losing three Aquila in the Teutoburg Forest annihilation, the Roman military spent decades attempting to recapture them.² Although appraisal standards are not meant to be quasi-spiritual, nevertheless, they are to be taken very seriously.

Appraisers that amass and advertise multiple professional designations and appraisal society memberships often forget that it is standards that will dismantle them. Sometimes we need to see something from an opposition perspective to understand how to bolster our own tenets. How appraisals are closely reviewed in litigation gives us an interesting but humbling and valuable insight on how to bulletproof our day-to-day valuations. Remember, essential to any appraisal is the ability to defend it!

        Adherence is for Everyone

As an expert witness, for example, you may be asked to review the opposition's appraisal. Of the many facets to the review assignment, one is to check if the opposing gemologist-appraiser adhered to the standard or standards asserted in the appraisal. In other words, has the appraiser done what he or she stated they did via the Supplemental Information Letter (SIL)³ and appraisal certification statement they have included in the report? Even if the gemologist-appraiser is not a member of a valuation society, they can assert compliance with a society's standards.⁴

Do not hesitate, continuing our expert witness scenario, to check the opposing experts' credentials. Again, even if an opposing expert is well known, meticulously check credentials. You have one in five odds that one&39;s stated membership or professional designation will not be as asserted. Appraisers often keep professional designations that are expired. A membership prevarication, for example, in an appraisal is not just a severe blow to the opposition but it also allows an attorney to apply the falsely referenced society's standards to the appraisal! As Ralph Kramden used to say, "How sweet it is!"⁵

        Dual Citizenship

The expert witness appraisal review would not stop with the specific statements encountered in the SIL attached to the valuation but extend her or his review to all the mentioned standards.⁶ Thus, if the appraiser did not comply with a specific standard within an embraced set of standards, under testimony that single failure would be devastating to an expert witness on a witness stand.

To state that one rendered the appraisal with a society's standards allows the reviewer to check that society's required standards against the appraisal being reviewed.⁷ If the gemologist-appraiser stated they rendered the valuation in compliance with more than one valuation society, then the standards of all declared societies can be researched to see if compliance is indeed in place. If one is a member of more than one society that mandates adherence to their standards, and there is a conflict between their standards, that appraiser has a dilemma. It is a silver bullet for the retaining attorney and uncomfortable for the opposition&39;s expert witness unless he or she wrote the report to comply with each of the opposing standards. If you are a member of multiple societies - compare their standards to discover differences and a conformity approach to bridge disparities.⁸

        Good for the Gander

Reviewing the opposition is not where the process ends. The astute gemologist-appraiser reviewer needs to review his or her team's reports. Did anyone not adhere to their stated standards? And, of course, you must review your own valuation to ensure compliance or compliances.

        I Agree

What most gemologist-appraisers do not know is that their appraisal, specifically SIL, is an agreement. It may be better to refer to a published precedent setting case⁹ to fully grasp this concept. An appraiser appraised artifacts for their client to obtain insurance. The property was stolen. The insurer paid the insured and the claim was settled. Then the property was recovered. Technically, the insurer owned the artifacts since they paid the claim.

The insurer found that the recovered property was worth one-tenth the 1.8-million-dollar appraised value that was determined in the appraisal. The original appraised value did equate to indemnity, thus the insurance company sustained a significant loss. The insurance company decided to sue the appraiser and they lodged the lawsuit in a federal court.¹⁰ Since the appraiser was not in the same state as the insured and insurance company, federal court was the proper court to try the case - this is called a diversity of citizenship. The federal court will use federal court proceedings but decide the case based on state laws. But which state's laws?¹¹ The appraiser's business was in Virginia, most of the inspection of the property took place in New York, and the owner lived in New Jersey. The insurer wanted New Jersey because any third party can sue an appraiser. The appraiser wanted New York, because third parties cannot easily sue the appraiser. In New York to be sued by a third party, the appraiser must have been aware that the appraisals were to be used for a specific purpose (obtaining insurance); a known insurance company was intended to rely; and there must have been some conduct on the part of the appraiser linking him to that insurer (called privity), which evinces the appraiser's understanding of that insurer's reliance.

The federal court decided that since most of the appraisal work occurred in New York, the New York laws would be the basis for the litigation. Appraiser safe. Case closed!

Not so fast! Just because New York does not allow third parties to sue an appraiser, did not end this case. The attorneys for the insurer read the appraiser's report and discovered a compliance statement. "The appraisal in question certifies that it was made in accordance with the ethical code of the [redacted]." They ordered a copy of his society's standards matching the appraisal's effective date. The standard stated, "It frequently happens that an appraisal report is given by the client to third parties for their use. These third parties may or may not be known to the appraiser but, regardless of this fact, they have as much right to rely on the validity and objectivity of the appraiser's findings as does the client. Members of the Society recognize their fiduciary responsibility to those parties, other than the client, who make use of their report."¹² The appraiser could then be sued by a third party in a state where third parties cannot sue appraisers since the compliance statement established privity. "Such a duty could create a relationship which satisfies the . . . criterion."¹³

        Your Binary Standards

Basically, as a gemologist-appraiser, you are contractually bound to any standards you state a compliance to in your appraisal reports. Read them carefully and understand them completely. Take a class or whatever it takes to fully grasp the standards declared. And adhere to them. Standards are not the problem, not understanding them is the problem.

Secondly, for appraisals to be used for obtaining insurance, always determine a value that would achieve indemnity. The hapless appraiser of the case law analyzed above would not have had a problem, regardless of the compliance statements or third-party liability laws if the determined value had achieved indemnity and not been excessive.

Remember that the reason for having professional standards is to provide guidance to appraisers so they can render reports that serve the public interest. Embrace standards!

Written by Bill Hoefer