Real estate appraisers who are able to detect fraud can avoid inaccurate information that could compromise the valuation analysis, according to a new book from the nation’s largest professional association of real estate appraisers. Published this week by the Appraisal Institute, “Fraud Prevention for Commercial Real Estate Valuation” describes common methods of deception used in fraudulent schemes involving commercial properties and land. Author Vernon Martin, Certified Fraud Examiner, writes that by thinking critically and challenging assumptions, commercial appraisers can keep out of trouble, whether it is trouble for themselves or for others who rely on their work. The book presents various situations and conflicts of interest that have the potential to exploit the appraisal process for dishonest purposes.
“Appraisers who are prepared to detect and prevent real estate fraud can protect their businesses and their professional reputations,” Appraisal Institute President Joseph C. Magdziarz, MAI, SRA, wrote in the book’s foreword. “The best way for real estate professionals to deal with the problem of real estate fraud is to learn more about it.”
Suspicious Activity Report (SAR) filings relating to commercial real estate fraud nearly tripled between 2007 and 2010, according to the Financial Crimes Enforcement Network’s “Advisory on Activities Potentially Related to Commercial Real Estate Fraud” issued in March 2011. The U.S. Department of the Treasury established FinCEN in 1990 to provide a government-wide, multi-source financial intelligence and analysis network.
Of the filers who reported dollar amounts involved, the greatest concentration (45 percent), reported suspected fraud in transactions valued less than $1 million. Nine percent of transactions were valued at $10 million or more. Approximately half of the reports named subjects located in five states: Georgia, Illinois, Florida, New York and California. The top four reported categories of commercial real estate fraud were: false documents, misappropriation of funds, collusion-bank insider and false statements.
Martin, author of the book, has been a practicing commercial real estate appraiser since 1984 and is currently president of American Property Research — an advisory practice he founded in 2006 — in Los Angeles. He previously served as chief commercial appraiser at three national lending institutions and as fraud solutions product manager at First American Real Estate Solutions, now known as CoreLogic. He received his master’s of science degree in real estate from Southern Methodist University and an undergraduate degree in urban geography from the University of Chicago. He taught real estate valuation at California State University, Los Angeles, from 1998 to 2005 and has published numerous articles in professional journals, including The Appraisal Journal.