Appraiser Need Not Be Licensed in Virginia, Sort of: Va. S.C.

Testifying as a real estate appraiser in Virginia does not require being licensed as an appraiser in the state, the Virginia Supreme Court has ruled, reversing the trial court.

In Virginia International Gateway v. City of Portsmouth (No 180810, VA 2019), Virginia International Gateway, Inc. (VIG), the owner of a marine container terminal in the City of Portsmouth, believed that the City's property tax assessments of $361 million in real property and $30 million in personal property in the 2015-2016 tax year were above market value and filed applications to correct the assessments.

The City denied VIG's assertion and counterclaimed that the real value was actually several hundred thousand dollars more than assessed.

The trial court combined the two cases.

At trial in late 2017, VIG offered the testimony of Glen Fandl, a taxation consultant and real estate appraisal expert witness who had experience evaluating complex industrial properties, and the testimony of Maarten Verheijen, a Dutch broker specializing in buying and selling container handling equipment used by marine ports to serve as a marine equipment appraisal expert witness.

The VIG property included 610 acres of wharf, buildings, ship-to-shore (STS) cranes (which were considered fixtures) and rail-mounted gantry cranes and rubber-tire gantry cranes, which were considered personal property.

Fandl made his preliminary valuation in 2015 as part of his review of the City's assessments. While Fandl held an active New York real estate appraisal license for all the years in litigation, he did not hold a Virginia license until he secured a temporary one in 2016, for one year. After obtaining the license, Fandl conducted a formal appraisal, which he acknowledged at trial was based on his initial valuation, although updated to conform with USPAP and other formal appraisal requirements.

At trial in 2017, the City objected to Fandl's testimony and expert qualification because he was unlicensed in Virginia at the time of the trial. The trial court initially overruled the objection, reasoning that, while a license is required to work as an appraiser, “to qualify as an expert in this court is my determination.”

Fandl and Verheijen's combined appraisals valued the terminal's real property at $197 million — nearly $164 million less than the City's appraisal.

While the City did not challenge Fandl's methodology, its machinery and equipment valuation expert witness, David Cole, challenged Verheijen's methodology.

Verheijen included in his valuation of the STS cranes the cost of transportation and electrical conversion because he determined that the primary market for the cranes would be overseas. Although Cole had no specific expertise in container handling equipment, or maritime machinery generally, he objected to Verheijen including transportation costs as that would employ the “fair market value removed” method, a valuation method that did not comply with the definition of “fair market value” required for Virginia appraisals.

Verheijen admitted that he did not know USPAP, or Virginia valuation methods, but he insisted that the transportation costs were essential in valuing the STS cranes as it would be a “risky and expensive proposition” to transport them overseas — sometimes costing more than the value of the crane itself.

Verheijen also provided an appraisal for the personal property, the gantry cranes, again including transportation costs for the rail-mounted gantries as he found no domestic market for them.

In its final order dismissing VIG's applications as well as the City's counter claim, the trial court reversed itself and disqualified Fandl. While it maintained that Fandl was “[eminently] qualified to testify,” it found recognizing Fandl as an expert in real estate values in Virginia would be an abuse of the court's power because during his initial work he was unlicensed, and again unlicensed when he testified.

The trial court additionally rejected Verheijen's opinion on the personal property's value, largely because of the transportation-related costs rendered Verheijen's testimony “flawed.”

VIG appealed.

The Virginia State Supreme Court went at length through the development of the state's statutory scheme and precedents relating to unlicensed appraisal testimony. Virginia Code § 54.1-2010(B), which took effect on July 1 1995, read:

Nothing contained herein shall proscribe the powers of a judge to determine who may qualify as an expert witness to testify in any legal proceeding. This provision is declarative of existing law.

However, the case of Lee Gardens Arlington Limited Partnership v. Arlington County Board, 250 Va. 534 (1995), which was decided after July 1, 1995, overlooked the new Code, leading to circuit courts' “erroneous conclusions.”

The state Supreme Court noted that licensure status is not irrelevant, remaining an important consideration in assessing a prospective expert's qualifications. However, the Code stands “for the proposition that a trial court cannot refuse to qualify an otherwise appropriate expert solely for the lack of an active Virginia license at trial.”

The trial court's exclusion of Fandl, the state Supreme Court found, was an abuse of discretion, reversing and remanding the case.

Real estate appraisers are normally required to be licensed in the state in which they are providing appraisals. While this Virginia exception exists, an appeal would likely have been unnecessary had Fandl been licensed during the time of his work and the trial in Virginia — which would have saved the significant costs of appellate litigation.