Appraisals and the Courts

February 21, 2008

Appraisals are viewed with a good deal of suspicion and rightly so. There is inherently a degree of latitude in a determination of market value and appraisers have been used as tools in banking and savings and loan scandals over the years. All that aside, it is impossible to determine market value with the same sort of precision and verifiability as a scientific conclusion.

A recent Division III Court of Appeals case, Washington Beef, Inc. v. County of Yakima (Feb. 14, 2008) reveals the vagaries of the discipline almost to the point of parody.

There we have the county assessor determining determining the value of building and equipment at about $35 million and the owner’s expert valuing the same assets at about $7 million. The owner’s valuation involved the “income approach” which capitalizes cash flow, basing the vlaue on the amount of money the asset is expected to generate. The county used the cost approach which estimates what it would cost a purchaser to acquire the assessed asset. There was credible expert opinion supporting each approach to the valuation of the assets under consideration.

The trial court, when asked to determine the outcome, concluded that neither side was right and came up with a valuation the was supported by none of the experts, but far closer to the county’s position than the taxpayer’s.

The court of appeals began its analysis with the proposition that appraisals are more of an art than a science. It had to remind itself of this at one point in its decision when it attempted to apply the “law of appraisals” to the baffling calculations before it. Finally, the court not seeing any obvious errors made by the trial judge in his independent calculations, affirmed his decision. You can almost hear the collective sigh.

The reader is left with the impression that appraisals are certainly not a science and with no appreciation of them as an art form. They appear to be more of a crap shoot.

Campaign Finances

February 21, 2008

The Wall Street Journal has in interesting article on finances and the two campaigns of nomination for the Democratic Party candidacy, particularly the measures being taken by the Clinton campaign. Remember at the beginning of the campaign when it was said that Clinton modeled her tactics after those of Bush; that is, to amass a war chest that would overwhelm the resources of every opponent. Super Tuesday, where she fought Obama to a virtual draw, marked the depletion of that war chest. Since then Obama has won every primary and has been attracting money at about a $1 million a day pace, far outdistancing Clinton. Clinton is shackled by campaign finance laws insofar as she has big money backers who have already given the maximum allowable amount $2300 and tapped out their networks of donors.

There is speculation that Clinton’s campaign will shift into attack mode in an effort to change the momentum of the campaign. In this light Clinton’s backers now seem to be falling into step with those of Bush’s supporters in 2004 by forming a 527 group of questionable legality. These groups were given an exemption form campaign contribution limits with the proviso that they were prohibited from influencing elections. Swift Boaters determined that violating the constraint was worth the post-election fines and such groups are commonly regarded as a thinly veiled means of avoiding campaign financing laws.

The spin on this has begun as well with Clinton’s spokesman Howard Wolfson saying that Obama used a 527 in California and that it spend millions on his campaign. In truth he had asked all 527’s supporting him to cease operating and the California group spent about $50,000, not the millions attributed to it by the Clinton campaign.

Two interesting question emerge: How will Obama stand up under the pressure of attack?; and What limits will Clinton put on the attack?