Brokers Can Appraise Properties, but . . .Only in Condemnation Proceedings

The Commonwealth Court of Pennsylvania recently ruled that a valuation expert does not need to be a certified real estate appraiser to testify in a condemnation proceeding.

The case in question involved a broker in a rural community whose former client, a small business owner, asked him to testify on his behalf about a property's fair market value. Following the eminent domain law, a utility initiated condemnation proceedings to acquire a piece of the client's land for an electrical line. The Board of View, which is responsible for determining "just compensation", decided that the highest and best reasonable use of the property was for residential development.

The client owner had a defined plan to improve the commercial aspects of the property, and objected to the findings of the Board of View. As part of his evidence to refute the Board's determination, the client owner asked the broker to testify about the impact the taking would have on the fair market value (from which just compensation is calculated) of his property.

Should the trial court have permitted the broker's valuation testimony, even though he was not a certified appraiser? According to the Court's decision, the answer was yes.

The Court determined that the Real Estate Appraisers Certification Act and Regulations do not require an individual to hold a real estate appraiser's certification to offer an opinion about a property's fair market value in condemnation proceedings. While this decision might appear to set the appraiser's regulatory scheme on its ear, this exception is very narrowly tailored to condemnation proceedings.

The Act and the Regulations require a person to be a certified appraiser in certain transactions (not applicable in this instance) in which an appraiser is required, and in "real estate-related financial transactions," which include (1) the sale, lease, purchase, investment or exchange of real property; (2) refinancing of real property; or (3) using real property as security for a loan or investment, including mortgage-back securities. The Court concluded that condemnation proceedings do not fall within the definition of a "real estate-related financial transaction."

Interestingly, the Court thought it senseless to require valuation experts in condemnation proceedings to have a real estate appraiser's certification. Historically, real estate brokers were permitted to testify about a property's value. The Court envisioned times that a trial court would find a real estate broker to be more credible than a certified appraiser.

Whether an appraiser or a broker is offering an opinion, the expert's credibility will rule the day. Certainly a broker should expect to undergo vigorous cross-examination on issues of qualification, experience and methods of evaluation. If his background is limited, he should think twice before subjecting himself to such exposure.