Equipment Appraisal Blog | Understanding Machinery Appraisals

Many experienced and credentialed appraisers augment their services as expert witnesses in litigation matters such as prolonged business disputes and personal divorce cases. Working with clients and their attorneys leading up to a possible trial is common practice for valuation firms; however, these cases are often settled before testimony is required.

If the litigation does reach trial or arbitration, there is the likelihood that testimony will occur either during the trial or before, in a deposition format. As an expert witness, before the pandemic, it was generally a requirement to attend these hearings in person, which involved additional time and costs for travel and sitting in court waiting to testify.

Over the last 2+ years, there has been an abundance of “catch-up” work by the courts and attorneys given the delays in advancing cases during the pandemic. As a result, a high number of valuation assignments associated with these cases have moved to deposition or trial, creating an increased level of requests for expert witness testimony.

Fortunately, the opportunity to testify remotely online has allowed appraisers to avoid spending inordinate amounts of time traveling around the country to attend these in person and then having to sit idly waiting for their turn to appear as a witness.

One of the few silver linings associated with the pandemic was the widespread acceptance of a remote work model, which includes a significant amount of communication handled through an online format, such as Zoom or Microsoft Teams. This has now become commonplace for expert witness testimony and, as a result, has allowed appraisers to provide this service more affordably to their clients.

Based on my own recent experience, this process has by and large been successful, and the likelihood of creating a more permanent change to include remote testimony options at trial and deposition will continue to develop in the long term.

Like many other industries, technological advances over the last 15-20 years have played a significant role in creating efficiencies for appraisers to manage their workload and grow their businesses to new levels without spending a lot of additional time and expense to accomplish this. The opportunity created by remote expert witness testimony is one of these critical areas of advancement, and appraisers should take advantage of this as much as possible.

Accredited and certified appraisers are responsible for certain hours of continuing education to maintain their credentials. As part of this perpetual training and learning experience, there are numerous requirements we adhere to that pertain to each valuation assignment and scope of work effort. Two of these important prerequisites dictate that every report must have a specific use or uses, as well as defined intended users. If the client uses the report for another reason or discloses it to parties unnamed, this is a violation of the engagement terms.

Here is a great example of why this is important to an appraisal assignment.

Potential Future Business Disputes and Litigation Unrelated to the Prior Valuation

Let me preface this by saying there are many instances where an experienced appraiser will be engaged to value businesses, machinery & equipment, personal or real property, as an independent expert, in support of an existing dispute or ongoing litigation. This is one of the primary reasons to engage with an appraiser, to facilitate a settlement, or in support of a trial or arbitration.

There are times when, months or even years later, the client who originally engaged the appraiser for a completely different purpose, such as a sale, purchase, or refinancing, is involved with a future dispute that leads to litigation. Somehow, the old appraisal gets drawn into the case, likely, because the value of certain assets has become a factor in the dispute. Lo and behold, the report is now being thrown around the courts between opposing sides of the case. The appraiser is ultimately dragged into the conflict, unwittingly, and is being asked to present confidential data, and potentially be subpoenaed or testify at a later date.

As long as there are clear statements in the engagement agreement and report regarding the intended purpose and users for the valuation, in addition to a clause addressing client confidentiality, the appraiser is protected from involuntarily being dragged into the proceedings.

The prior client and appraiser need time to directly discuss the case and the reason why the original valuation report might be used. During this discussion, it should be determined who may be involved in engaging the appraiser for what is now considered a new consulting and updated valuation assignment. I’m highlighting this phrase so it is clearly understood, there needs to be a professional discussion between the prior client, attorneys and courts involved, so the appraiser can be comfortable that:

1. There are no potential disclosure issues involved.
2. They are the ones allowing (or disallowing) the prior report to become part of the case.
3. They are entering into a new engagement with the appropriate parties to present any data related to the prior work, begin a new consulting assignment, and/or update the report.

This is the appraiser’s work product, and there are obligations and privileges which need to be recognized by any and all parties now involved with the litigation dispute. Any future work requested should be compensated by the new clients, based on the current rates of the appraiser.

In summary, documentation requirements required by the governing appraisal bodies, such as intended users and report purposes, are important for the appraiser and their clients to understand so any future developments are handled professionally and sensibly.