The Impact of 'Client Pressure' on the Appraisal of Commercial Properties

Increased competition, falling real estate market values and management fees dependent upon appraised values may create a deadly cocktail for independent real estate appraisers. These factors may encourage appraisers to succumb to client pressures to overvalue properties as well as impair the public perception of appraiser independence. This dilemma is evidenced most clearly by the widely publicized Prudential vs. Mark Jorgensen lawsuit (Williams 1993). This research explores the behavioral effects of the potential risks that may be affecting the appraiser's judgment process: risk of client loss and risk of disciplinary action due to violation of the Appraisal Standards of Professional Practice should the appraisal be shown to be significantly incorrect at a later date. These risks have been documented in the auditing literature with the behavioral research methodology that has been used in this study. This paper reports the results of a survey of real estate appraisers who were put into a role playing scenario and asked to accept additional data from their client and revise a value upward in one of their appraisal reports. Two non-appraisal factors were varied to determine if either or the combination of the two would influence the appraiser's willingness to revise the report. They were client size as a percentage of annual revenues (to proxy client pressure to opinion shop) and the size of the adjustment (to proxy risk of disciplinary action). Preliminary results indicate that client size is a statistically significant factor whereas neither the size of the adjustments nor the interaction of the two variables seems to influence the appraiser's willingness to succumb to the pressure to change the value