This Valuation Legal Brief – California covers the latest legal matters concerning real estate valuation services in California.
California Assembly passes bill (AB 1850) with exemption for contractor appraisers from AB 5!
Good news for California appraisers! The California Assembly has voted (76-0) in favor of a bill that will provide an exemption for contractor appraisers from the “ABC test” in AB 5. The bill is now before the Senate. It’s important to appraisers because many in California work as contractors rather than employees. The problem for appraisers and the companies/firms that engage them is that California’s new contractor law AB 5 makes it difficult to justify classifying someone as a contractor under the law’s strict “ABC test.” Other professions received exemptions in the law, but not appraisers. Fortunately, the recent bill – AB 1850 – passed by the Assembly fixes some of the problems and includes an appraiser exemption. If passed by the Senate and signed by the governor, as expected, the law should become effective January 1, 2021. However, the bill shouldn’t be taken as creating a blanket exception for treating appraisers as contractors in all roles: First, the traditional tests for determining whether an appraiser is a contractor or employee will still apply (making it difficult for firms to treat “staff” as contractors). Second, there are specific requirements to be met in AB 1850.  

To learn about details of AB 1850 and classifying appraisers as contractors in California, you can watch a recorded video of the relevant part of my California Legal Update webinar from June 11 — AB 1850 passed in the Assembly later that same day.  <watch my recorded webinar covering AB 1850 or download my presentation slides here> 

Are commercial appraisers – like their residential counterparts – required to be paid overtime?
A commercial appraiser employee at a large national firm for over 10 years (but actually registered as a trainee appraiser) in the Bay Area thinks so. She’s pursuing a lawsuit on her own behalf and on behalf of a proposed class of other appraisers at the firm. The thing is – her lawsuit is not the only one. There are two other similar suits by appraisers involving the same firm (Cushman & Wakefield), pending in Colorado and Washington D.C. All three cases are slowly heading to trial – the outcome could be very significant to other commercial appraisal firms. The lawsuit in California, however, is a bit broader because California employment law has additional requirements such as reimbursement of employee business expenses under California Labor Code section 2802. <read the commercial appraiser overtime class action complaints here>

My virtual CE classes in June.
I have 3 more live virtual CE classes for California appraisers in June. Students receive a free copy of my book Risk Management for Real Estate Appraisers.
1. June 16, “Hot Topics and Myths in Appraiser Liability” focused on commercial appraisers (3 CE hours, BREA No. 16CP119903002), $45. 
2. June 23, “Disasters, Hybrids and Weed: Special Legal Issues for Appraisers” (2 CE hours, BREA No. 19CP119903004), $35.
3. June 30, “Liability Issues for Appraisers Performing Litigation and Other Non-Lending Work” (3 CE hours, BREA Course No. 18CP119903003), $45

Or, consider taking my regular 4-hour online course: “Appraiser Liability 101: Essential Concepts.

A new case in Los Angeles and a new appellate decision in San Francisco highlight problems in commercial rent reset arbitrations involving appraisers.
If you handle commercial rent arbitrations or for that matter any kind of arbitration, two interesting legal developments recently occurred. The cases are worth reading if you do arbitration work. They highlight the importance of appraiser arbitrators carefully reading and adhering to the arbitration clauses and instructions applicable to their engagement as arbitrators. Failing to do so can result in vacatur of your arbitration decision and force the parties to re-do the expensive process from the beginning with a different arbitrator – and make them very unhappy with you and your firm. (Read about vacatur in Chapter 9 of my friend Paula Konikoff’s book Appraisers in Arbitration, Appraisal Institute 2018. She’s the paramount expert on appraisers as arbitrators. I’ll have a drawing for a free copy of her book in my June 30 virtual CE class “Liability Issues for Appraisers Performing Litigation and Other Non-Lending Work.” Paula was kind enough to let me contribute a liability chapter to her book.)

Here are the two new California legal matters that highlight the problems (again, both are worth reading if you handle any kind of work as an arbitrator):

Rittersbacher Sunset v. Golden Crest, Petition to Remove Appraiser Arbitrator, Los Angeles Superior Court, May 28, 2020. This is a new case at the trial court level. In connection with a commercial rent reset arbitration pertaining to the “Standard Hotel” property in West Hollywood, the parties were required under the lease arbitration provision to each retain their own appraiser arbitrators. They did that – the landowner’s appraiser came up with a $61 million value as the basis for determining rent, while the land lessee’s appraiser came up with $11 million. The parties are now apparently at a stalemate because, while the arbitration provision requires the appraisers to appoint a “neutral” deciding appraiser, the land lessee’s appraiser allegedly refuses to do that. <complaint available here>

California Union Square v. Saks and Co., Cal. Ct. App. Decision, June 12, 2020. In connection with a retail lease rent arbitration for a department store property in San Francisco’s Union Square, the tenant (Saks) succeeded in getting a decision by the appraiser arbitrator in favor of the landlord (California Union Square) vacated by a trial court as a result of the appraiser arbitrator’s failure to abide by the instructions and limitations in the arbitration provision and instructions. The Court of Appeals upheld the vacatur<opinion available here>

Can appraiser-owned appraisal firms profit from non-appraiser “evaluations?”
I think so. Millions of evaluations (within the meaning of the federal Interagency Appraisal and Evaluation Guidelines) are ordered each year by lenders and mortgage investors. Their use will increase with the higher appraisal thresholds now in place. In California, like in most other states, a licensed or certified appraiser cannot legally perform an evaluation without complying with USPAP and the other requirements for a true appraisal. However, there is no bar against an appraiser-owned appraisal firm offering the service of evaluations performed by non-appraisers in their office (and meeting the other requirements in the Interagency Guidelines). An appraiser named Deb Clark in Wyoming figured this out and figured out how to bring significant new revenue into her firm by offering evaluations — she captured evaluation revenue while also increasing her firm’s appraisal revenue. Seeing that result, she co-founded, a company that will teach and provide tools to appraisal firm owners about taking the business of evaluations into their own hands. Her logic is appealing: if evaluations will be ordered, appraiser-owned firms are in the best spot to offer and profit from them. She’s hosting a free webinar “Evaluation Secrets” on June 19 to explain more. <evaluation webinar link>

That’s it for this Valuation Legal Brief. I’ll have more new legal developments in the next brief. Please consider taking one of my upcoming virtual classes.

Thank you,
Peter Christensen

Peter Christensen

I am an attorney. The matters that I handle and the clients whom I serve are focused on valuation services. My work ranges from the regulatory and structural details of providing valuation services to professional liability and disciplinary issues.