What is the Deal with Contingency Fees?

What a contingency fee is & Why you should care.

First, let's define what a contingency fee is in the appraisal world: Any appraiser, who receives compensation based on their final value conclusions, is charging their clients a contingency fee. That is, instead of charging per hour/per item for their research, report writing and professional assessment, the appraiser is charging their client based on the final reported value. The practice of charging a contingency fee raises some ethical concerns inside of the appraisal profession and brings the credibility of the appraisal report into question. Consider the (hypothetical) situation below:

Mr. Rider needs an appraisal update on his Edmund Osthaus oil painting. Mr. Rider grew up hunting and this specific painting is very dear to him as he had once owned a speckled setter like the one depicted in his painting. Originally having purchased the piece for $10,000 at some point before the dog passed, Mr. Rider decides for himself, that over time, plus the added sentimental value of his pup (R.I.P. Lucky), must have at least tripled the value of his painting (right?). The appraiser signs on for the job (Mr. Rider agrees to the contingency fee schedule) and after some basic secondary market research the appraiser realizes that Osthaus' paintings have been selling for between $10,000 and $50,000 just in the last few years. Knowing well the value Mr. Rider expects to be reported and knowing the more its worth, the more they will ultimately be paid, the appraiser values the painting at $40,000. So everyone is happy (right?). Well, actually, no. Here's why:

Mr. Rider's insurance adjuster isn't happy because she has reason to suspect Mr. Rider paid to have his painting valued for more than it is really worth to replace (which, essentially, he did). Mr. Rider isn't happy when his insurance adjuster hires her own appraisal consultant to review the appraisal he just paid for (sounds like money wasted, doesn't it?). The consultant reviews the report and finds that the first appraiser listed only high comparable sales to justify Mr. Rider's painting being valued at $40,000, when actually the "comparable" paintings were significantly larger, in better condition, and more sophisticated in their composition. (For kicks, let's say the actual replacement cost of Mr. Rider's painting is $20,000.) Mr. Rider is less the money he paid to hear what he wanted to hear, his insurance agency is out the money they paid to have the suspicious appraisal reviewed, and both parties have wasted their time on what should have been a rather straightforward assessment.

So why not just hire a professional appraiser with an unbiased opinion on the reported value in the first place? An appraisal consultant, paid hourly or by the item, is not pressured by either party to report what that party wants to hear from them, because they get paid exactly the same either way. No time or money wasted, reliable results, and credibility that adds the value of confidence to your investments.

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