Ethics & The Evolution Of The Marketplace
By: Andrew Hartigan, MAI “Ethics is knowing the difference between what you have a right to do and what is right to do” (Potter Stewart) and is defined as “moral principles that govern a person’s or group’s behavior” (Oxford Dictionaries). When it comes to ethics within real estate appraising, there is no more important factor driving the appraisal process. Ethics is imperative to not only maintaining one’s own commitment to professionalism but the overall commitment to the profession. The practice of appraising is based on providing an opinion. Without ethics and reputation, an opinion is worthless. In many cases, a poor opinion can be detrimental. It can negatively impact not only the individual appraiser but the community in which a particular transaction is located leaving that community in disarray. Appraising relies upon a high level of public trust and confidence in the fact that the appraiser acted both ethically and professionally. When that public trust is violated, our professional and personal ethics are subject to scrutiny. The appraisal profession as a whole has adapted to the changing marketplace over the past 30 years which has placed a great amount of pressure on us individually as well as our profession as a whole. Some examples were the Savings & Loan Crisis of the 1980’s and the Great Recession of the late 2000’s. This most recent near global economic collapse tested our profession as our ethics as a whole were scrutinized. Questions of who is to blame plagued the economy. Was it the bankers for providing loans to unqualified borrowers? Was it the appraisers for being influenced by the banks to provide inflated values within appraisal reports to support the underwriting? Or was it the government’s lack of foresight when passing controversial legislation? I believe that the answer revolves not around a particular profession or policy but professional ethics in general. Ethics in real estate appraising is no different than ethics in other professions such as a nurse, military official, or teacher. We feel comfortable with our men and women in service because public perception is that they hold themselves to high standards under a number of extremely stressful situations. This perception can be easily tarnished and cause general public confusion, as seen currently with the good men and women within the country’s police force. There are many good men and women in our police force but public perception over a few situations has tarnished their reputation as a whole. This could easily be the case for the appraisal profession as well. It is plausible that some appraisers act unethically without knowing they are doing so. Do I understand my limitations and am I honest to myself in whether or not I hold the necessary competency to complete this assignment? Lack of competency could be due in part to general ignorance or just a lack of effort necessary to becoming competent. Systemic ignorance is becoming an increasingly difficult issue to address. Fifty years ago, the effects of lead based paint on household walls or asbestos pipe wrapping were not considered factors that affected value. Today, these items should be addressed with proper adjustments due to the increased cost to cure. Currently, our profession is struggling to understand the contributory value of factors such as a property being LEED Certified or containing particular energy saving features. This is in part due to the lack of quality data available which is directly related to the infancy of these features. Regardless of whether or not these factors are new to the market place, the appraiser is not excused from the responsibilities of locating market data associated with the overall impact on value (if any exists). Often, this may lead appraisers to mishandle these adjustments because they lack the requisite competencies in terms of supporting these adjustments. Is increased education enough in preventing this lack of knowledge issue? One result of this most recent recession is the support for increased requirements in becoming an appraiser (college education, classroom education & experience log). Do increased requirements ward off unethical appraisers or does acting unethically go deeper than the amount of education one receives? Many years ago, I was presented with the concept that as a person ages and becomes more connected with society (i.e. job, kids, house, etc.), that individual tends to lead a life consisting of less deviance because they have more to lose. Does that fear associated with losing those things worked so hard for lead to higher ethical standards? Is it safe to assume that after decades of pursuing the MAI designation, we as appraisers become magically ethical? It is also plausible that some appraisers act unethically with full knowledge that they are doing so via providing dishonest reports for self-interest, which may revolve around monetary interests or the self-interest of servicing the client to ensure future business. When being engaged in an assignment, we ask ourselves “how can I assist the client in reaching his or her primary objectives?” Does this assistance come in the form of providing a higher value for a client trying to secure a particular loan which would benefit not only the borrower, loan originator and appraiser but the community at large? Or does this assistance come in the form of a “Robin Hood” appraisal in which an appraiser “low balls” the value so that the owner’s real estate taxes do not get too overwhelming forcing the doors to close? It is a reality that if we cannot assist a client in their objectives, they will be less willing to ask next time. In conclusion, we as appraisers are faced on a daily basis with an ever changing marketplace that requires us to remain competent and up-to-date in a wide array of areas so that we can live up to the task of maintaining our high level of professionalism and public trust. We must continue to examine the evolution and regulatory mutations of our profession. We cannot be complacent on how things have been or currently are as the world around us rapidly changes. We too must change and adapt in this truly global economic environment in order to continue our commitment to ourselves and our profession. Although change is constant, change cannot apply to our ethical character. Our rock-solid ethics must be the cornerstone of what we hold most dear to ensure that the public trust in which our profession relies on remains exactly that… rock-solid. A wise man (MAI) once said, “Appraising is not an exact science. Acting ethically can provide not only self-satisfaction but self-worth with the knowledge that a reliable product was provided to the marketplace.” Sincerely, Andrew G. Hartigan, MAI Andrew G. Hartigan, MAI, Senior Executive-Valuation Services, leads the Valuation-Advisory department of Inland Real Estate Advisors, Inc. providing valuation and consulting services for clients across various industries throughout the U.S. Mr. Hartigan’ s experience includes investment real estate analysis, financing, IRS audits, ad valorem, estate planning, and institutional portfolio management.