1. 1 Critiquing Appraisal Reports A Non-Testifying Expert (As quoting the attorney in cross examination. ) IBA Symposium June 23, 2006 Robert J. Strachota

2. 2 Responsibilities of the Appraisal Reviewer Accept that appraisers have differences of opinion. Do not make the review a personal matter. Be objective and non-emotional about the report Recognize the Unique Profession of being a Review Appraiser Be honorable and professional.

3. 3

4. 4 Appraise the Appraisal Read the appraisal carefully and mark critical issues. Note all spelling errors. Identify poor grammar and look for sentences, phrases or paragraphs that seem to drop in and are disconnected from the text. Statements left in from a previous report Descriptive errors – subject, sales, age of business, equipment listing, etc. Date errors – date of death, event, divorce, etc. Missing requirement for USPAP compliance.

5. 5 Leave the Bias at the Door It does not help the attorney to tell him you are “right” and the other side is “wrong.” As an advisor, you should not be trying to ‘build up’ your own report. It is not enough to tell the attorney something is wrong, you must educate the attorney as to why it is wrong and what impact it has on the overall report and value conclusions. DO NOT substitute your opinion for the other appraiser’s opinion. Respect the fact the other appraiser has a different opinion but look at the foundations of that opinion.

6. 6 Understanding the Appraisal Identify Judgment Errors Condition of the Business Size of Trade Market Use of Guideline Companies (comparables) Inconsistent methods of valuation relative to the circumstances of the business. Inconsistencies in different parts of the appraisal, i.e., industry growth rate vs. projection of subjects income.

7. 7 Evaluate the Appraisal Theory Conduct a Test of Reasonableness, ask; Questions about the data, reasoning, analyses, and conclusions presented in the report as well as the reasonableness of the assumptions and limiting conditions. Test whether the methods and techniques employed in the appraisal are appropriate to the assignment. Reviewers must determine whether the data has been analyzed in a logical manner and whether the conclusions are consistent with the data presented. Inconsistencies arising from the use of non-standardized reporting formats also require interpretation and verification.

8. 8 Evaluate the Appraisal Theory - continued Determine whether the appraiser has examined all relevant economic indicators, considered all elements of comparison, and applied all available techniques appropriate to the appraisal problem. Determine whether the value conclusion and estimated cash flows reported, establish an appropriate level of underwriting confidence in the loan-to-value and debt service coverage ratios and other risk management criteria. The descriptive portions of the report should alert a lender to any special risks associated with the business.

9. 9 Identification of the Appraiser Is the appraiser qualified to conduct appraisal? Who did the work? What other experience does the appraiser have in this industry?

10. 10 Standard of Value Is the correct standard of value being uses? Market Value Fair Value Investment Value Liquidation Value Synergistic Value

11. 11 Purpose of the Appraisal Is the purpose of the appraisal clearly presented in the Letter of Transmittal? Is the value a 100% interest? Is the value a minority interest Discounts? What is the date of the appraisal? Is the data adjusted in the report consistent with the date of the Appraisal?

12. 12 Scope of Work Was the business inspected? How about the remote locations? If the physical premise of the business described? Does the report describe the extent of research into physical or economic factors that could affect the business? What was the extent of data research? Does the assembly of pertinent assignment information coincide with a correct identification of the appraisal problem?

13. 13 Scope of Work - continued Was the data gathered that is needed to resolve the appraisal problem? Is the scope of the work outlined consistent with the intended use of the report? Do any of the assignment conditions affect the gathering of factual information? Are there any? Hypothetical Conditions Extraordinary Assumptions Jurisdictional Assumptions Supplemental Standards

14. 14

15. 15

16. 16

17. 17

18. 18