DEMONSTRATING THE RELEVANCE OF ETHICS IN IMA ACCREDITATION, DESIGNATION AND CPD

Jeffrey S. Climans, M.A., MRICS, M.I.M.A.

Introduction

Professional associations with a mandate to provide accreditation, education and regulation, expect their members to adhere to a code of ethical conduct. Successful completion of a mandatory annual refresher course on ethics is a requirement in the continuing professional development (CPD) curriculum of many global organizations such as The World Bank. The Royal Institute of Chartered Surveyors places a similar emphasis on incorporating ethical content in their annual requirement for continuing professional development.

The IMA requires its members to make a career-long commitment to ethical conduct. The IMA’s Ethical Guide for the Assessor is a compulsory course for accreditation and designation as a practicing (A.I.M.A., M.I.M.A.) professional, while CPD requirements include reflection on the IMA’s Code of Ethics and Professional Standards

A common theme shared by these organizations, including the IMA, is that ethics is an active skill rather than a passive outlook. Along the spectrum of skills applied by property assessors and appraisers, ethics is a judgmental skill that has tangible expression in quantitative work, similar to judgments used to make adjustments to recognize a property’s “inferiority”, “superiority” or “marketability”.

Classifying ethics as a judgmental skill leads to the question of what circumstances might present an ethical dilemma or compel an ethical choice? How do we know when we are obliged to make a decision that should be shaped by our ethical values, or does ethics impinge on every aspect of professional conduct? In order to examine those questions and review our relationship to ethics as a core component of the IMA’s mission, a real-world case study can offer guidance.

A Case Study of Ethical Choices in Valuation Practice

A well-known company was named in a civil lawsuit in U.S. Federal District Court filed under provisions of the HelmsBurton Act of 1996. The defendant was alleged to be conducting business on property that was confiscated from a U.S. person, which was considered trafficking in stolen property under provisions of the Act. If the allegation was proven in court, damages could be assessed at 3-times “…the fair market value of that property calculated as being either the current value of the property or the value of the property when confiscated plus interest, whichever is greater ”

The First Ethical Dilemma – Protecting Professional Integrity

The first ethical issue was whether an assessor retained by the defendant would incur reputational risk accepting a retainer to provide services to an organization that had been accused of trafficking in confiscated property. While it is not uncommon for property valuations to be performed in politicized and publicized cases, these circumstances required the application of professional skills as a footnote to historical events that violated international law.

The ethical issue was addressed by structuring a contract that limited the scope of services on behalf of the defendant to include: (1) a critique of the professional services offered by the plaintiff’s valuation experts; (2) a peer review of the ways in which the plaintiff’s experts applied their valuation methodology including the sources and uses of data; and (3) an assessment of the relevance of their calculations, findings and conclusions to estimate the fair market value of the subject property in the time periods prescribed in the Act. In other words, an ethical lens was applied to define the scope of work as a peer reviewer in relation to professional practice generally and valuation of the class of property and type of market specifically.

The Second Ethical Dilemma – No Property Market

The second ethical issue arose when considering how to critique the plaintiff’s valuation methodology in unprecedented circumstances. The subject property in the lawsuit was confiscated in the same period as other actions by the Cuban government to abolish the country’s property market, seize properties nationwide without due process or compensation, nationalize financial and regulatory institutions, and repudiate foreign debt.

Recognizing that the plaintiff’s valuation experts were required to conduct a valuation under unprecedented circumstances, was there an ethical duty to “soften” the critique of their valuation methodology and its application to recognize that conventional notions of a working property market, metrics regarding activity in that market, and other conventional guidelines of professional practice were not available or did not apply in Cuba?

Using an ethical lens to address those unique circumstances meant abandoning a “textbook” valuation approach and allowing for a narrative that conformed to the qualitative and quantitative limitations in that market including: (i) motivations of buyers and sellers in the valuation years; (ii) conditions facing buyers and sellers in the valuation years; and (iii) factors that would be relevant in valuing the specific trade-related property at the heart of the litigation. In combination with those context-sensitive judgments, an ethical perspective also helped outline related issues for consideration including the rationale for: (i) use of the market, cost, or income approach when valuing a commercial airport; (ii) assumptions used in a discounted cash flow or income capitalization applied to a trade-related property; and (iii) adjustments to property revenues and expenses to account for market distortions caused by the Cuban government’s actions in and between the valuation years.

The Third Ethical Dilemma – Maintaining Professional Standards

The third ethical issue was presented during questioning from the plaintiff’s attorney during the deposition phase. The issue was whether to acknowledge that a recorded transaction between a buyer and seller a few years prior to the confiscation represented “fair market value” and could serve as a benchmark for an estimate of value in one or both valuation years.

The convenient answer would not, however, have been the ethically responsible answer. Reported transactions in any market must be vetted against several factors before accepting that they represent “fair market value” including such things as: (i) did the purchase price account for tangible or intangible assets that were associated with the business operating the property as distinct from the property itself; and (ii) were the buyer and seller motivated by factors that would not have been present in the actions of “typical” buyers and sellers.

Drawing on the ethical responsibility to uphold professional standards at every stage of a valuation assignment resulted in a principled resistance to pressure to acknowledge that the only measure of the property’s fair market value prior to its confiscation was the last recorded sale, absent any objective review of the circumstances surrounding that transaction.

Concluding Thoughts

The IMA’s curriculum acknowledges that professional ethics is a tangible skill that is expressed in valuation practice. It has the unique attribute of being a qualitative skill that can directly influence the quantitative outcomes of valuation work and the conduct of valuation practice.

Therefore, the IMA’s code of ethics should continue to be applied as a lens through which its members interpret instructions received from clients and employers, and as a guardrail when giving directions to others, making it an essential component of entry to the profession and ongoing career development.