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[Commercial Grade] Schmoozin’

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John tries to comp some tickets.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC [1] and he is, on Thursdays, one of the smartest guys I know. …Jonathan Miller

HUD announced yesterday that it settled a case against a property appraisal firm for paying kickbacks to a mortgage company for referrals [2]. “Kickbacks” for settlement services are illegal for obvious reasons. While the headline suggests some sleazy backroom dealings, the facts (as presented) are that Grasso Appraisal Services of Burlington, MA sent restaurant gift certificates to East-West Mortgage Services over a three year period, totaling $4,000. [3].

We’ve spoken frequently on Soapbox about the problems with mortgage brokers and appraisers who, with a nod and a wink, make the deals “work.” There is no such allegation made here, though. Nowhere in HUD’s release does it suggest any improper appraisal work was done and, in fact, the settlement agreement between HUD and Grasso specifies that the parties acknowledge no admission of any wrongdoing. The only allegation is that a “kickback” was made.

Don’t get me wrongI don’t condone kickbacks. When, though, does a “kickback” differ from “schmoozing?” (For the record, I don’t do either.) It is not uncommon for an appraiser to take a group of clients to an exclusive private golf course, followed by dinner and drinks. The tab for one day could be $4,000! Some appraisers have turned schmoozing into a full-time job. (Marketing, they call it.) Do golf outings and four-star dinners lead to a better client-appraiser relationship and, ultimately, more work. I suppose so, otherwise they wouldn’t do it. How about a couple of tickets to a Yankees game? Is “comping” a couple of ball-game tickets different from restaurant certificates?

The real difference, I guess, it that a kickback implicitly suggests a quid pro quo, whereas basic business schmoozing is, well, schmoozing.