Cruickshank, Garth & Romano is a new real estate appraisal and consulting firm. Richard Romano, a principle of the firm, had just completed a preliminary evaluation of a property for a new client, Watson & Musico. However, his client refuses to accept the appraisal and requested the value be increased by $4.5 million or else they would take their business elsewhere. Richard's decision on his client's estimate could have great impact on Cruickshank, Garth & Romano's success and its ability to develop new clients. The new firm could ill-afford to pass up on doing Watson & Musico's business but Richard also wanted to complete the appraisal according to his best estimate of the current market value of the property. This paper will analyze the ethical issues and alternatives for this case.
John Mortimer controls Watson & Musico Developments and is well known for his abrasive style and aggressive approach in business dealings. His firm is rumoured to have a highly restricted cash flow because of its aggressive leasing policy. Because of the depressed real estate market, Mortimer is refinancing all of its properties to reduce its debt service requirements and to generate cash. Since, the amount that could be borrowed from the bank is positively correlated with the appraised value, Mortimer would like his property to be valued as high as possible. Therefore, he would want Richard to value his property at his requested value of $35 million.
Richard Romano is one of the three principals at Cruickshank, Gath, & Romano. With eight years of experience and recognized by industry insiders as one of Canada's leading real estate experts, Richard wants to complete the appraisal according to his best estimate of the property's current market value. However, he also wants to satisfy Watson & Musico's request to raise the value since their business could give his new firm a major boost in reputation and revenue. If he doesn't comply to his client's request, they might take their business elsewhere.
Other stakeholders include Cruickshank, Gath & Romano, banks, the Appraisal Institute of Canada, and competitors. Cruickshank, Garth & Romano's success as a new firm would be influenced by the satisfaction of its clients. The firm would want Richard to be both ethical and reputable while also being able to establish good relations with his clients. Banks would want Richard to give his best estimate of the current market value of the property, $30.5 million, since this would give them a better idea of how much to lend to Watson & Musico and the risk factor associated with it. The AIC would want Richard to give his best estimate as well because otherwise, he may risk discrediting the association since he is a member. Competitor would want Richard to lose his client's business and would want him to refuse to increase the valuation of the property.
What Changed to Cause the Ethical Issues?
Chris Cruickshank, Wayne Garth, and Richard Romano are...