Last month the Fourth Circuit upheld a district court decision (Mann v US) supporting the IRS in denying unreasonable charitable deductions for the donation of a house scheduled for demolition.  Professionals in the building material reuse industry have been aware of abuses for sometime.  Here is the reaction of Marianna Sparks of Property Pro’s – Appraisers of Architectural Salvage.

It is important to understand that the culmination of the Mann and the Loube cases is nothing new or surprising to the reuse industry.  Many architectural reuse appraisers and industry stakeholders recognized the problems with the nonprofit and the appraiser involved for over ten years.  It is with great satisfaction that these improper practices have been revealed as such and legal precedence has been set.  It is also important to note that the reuse industry is largely composed of participants eager to elevate our industry by seeking out and promoting best practices. 

Due to a lack of oversight and/or recognized best practices however, outliers are able to plant themselves within the reuse industry for years, often times in plain sight, without any ramifications.  The appraiser in the Mann and Loube cases is a great example of this.  It is important to note however, that issues in our industry are not limited to reuse appraisers.  There are some nonprofits, deconstruction contractor’s, project coordinators, and contractors that contribute.  Keep in mind that in most cases the appraiser is receiving the smallest financial gain.  Receiving a donation or landing a deconstruction job has a far greater payday than the appraisal fee.  When it comes to securing a donation, the nonprofit and deconstruction contractor typically have the most to gain….and the most to lose.  So it makes sense that seeking out appraisers who consistently bid jobs promising high values would be tempting.  The nonprofit and deconstruction contractor have little skin in the game.  They are not bound by USPAP and if anything goes south, it will be on the appraiser.

This is very similar to the place real estate appraisers found themselves in before the financial crisis of 2007-2008.  I started appraising real estate in 1995 and very similar to the reuse industry, I experienced great brokers and some not so great.  But all of them were motivated by closing the deal.  If the appraiser could not get the value they needed in the initial comp check, most brokers would just find an appraiser that could, providing no income for the ethical appraiser and a paid assignment for the one who inflated the value.  Because of this, in 2009 the Home Valuation Code of Conduct was created by the NY Atty General, Freddie Mac, Fannie Mae, and FHA.  This was replaced by Dodd-Frank in 2010 and finally the federal government created appraiser independence requirements to prevent lenders from influencing appraisers to inflate property values.  The precedent has been set and should be a significant consideration in the reuse industry framework.

A lot of emphasis is being placed on proper protocols within our industry and the pros and cons of specific practices are being considered.  Appraisal associations, the IRS, TAF, USPAP, and industry stakeholders are all contributing to this effort.  While the Mann and Loube cases do little to affect change within the reuse appraisal specialty, simply having the outcome available to set precedent is a powerful tool and eliminates the unchecked perpetuation of the practices and methodologies outlined in the case.

Marianna Sparks of Property Pro’s has an MBA in Global Management.  She has been a real estate appraiser since 1995 and an architectural reuse appraiser since 2000.

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