Homebuilding and Residential Development: Expert Witnesses and Litigation Consultants - Know Your Facts!
TASA ID: 1440
I believe that honesty is an absolute; someone either is or is not honest, there are no degrees of or partial honesty and one cannot be honest in some aspects of life or business and not in others. And, I believe that honesty, both personally and in their work product, is the essential requirement for any expert witness and litigation consultant.
The primary concentration of my business is acting as a strategic consultant to the homebuilding and residential development industries. I truly enjoy assisting in the conceptualization, creation and realization of successful new home communities that result in places and homes in which people wish to live. But I am also involved in expert witness and litigation consulting assignments when I find that the need for establishing the “truth” is, to me, both obvious and compelling.
Perhaps, I am naïve, but when I accept an expert witness or litigation consulting assignment, I make certain that the attorneys and clients fully understand that until I complete my due diligence, I cannot guarantee that my opinion will support their position. And, I assume that other witnesses and consultants would follow the same process, as I believe that it is both dishonest and a disservice to the client to first accept an assignment and then work, taking whatever steps may be necessary, sometimes in opposition to the “truth,” to create an opinion that supports their client’s position.
I certainly will not suggest that the expert is always right, as there are always two sides to any dispute and both sides cannot be correct, in either fact or in the eyes of the judge or jury. But when an expert fails to have prepared a credible opinion based upon discernible and verifiable facts utilizing proven and accepted methodology, i.e., the “truth,” the outcome should be foreseeable and obvious.
I recently was retained as a litigation consultant and expert witness for a multi-million dollar trial concerning a proposed residential development. Interestingly, I had some familiarity and previous experiences with the company retained as an expert by the opposing side in the case:
- I first was asked to review one of this company’s reports for a second home community many years ago by a friend and respected competitor who had been brought in to assist with a struggling development. I found that the original strategy had proposed a development based on a target market segment that did not exist in any meaningful numbers in that metro area. Needless to say, the community had suffered seriously and now required substantial and expensive repositioning.
- Subsequently, I was asked to review this company’s report for a proposed primary-use major community which was under development. They had recommended a TND community (traditional neighborhood design or “new urbanism”), apparently at least in part as one of the development partners had a fondness for this concept and already had an existing community of this type in the local area. My review of the local marketplace revealed that the two existing TND communities, including the developer’s, were struggling (one of them quite badly) compared to the more common conventional design communities as the local market had simply not responded to this concept. Additionally, my research suggested that the price points that this company had recommended were not achievable in this location in any meaningful numbers.
It appeared to me that this company had failed to perform proper due diligence and; therefore, lacked the essential understanding of the conditions and geographic preferences of the metro area and, specifically, the local sub-market in which the property was located. My recommendations, accepted rather painfully by the client, were for the redesign and repositioning of the property into a conventional suburban community, keeping only a small TND village center that was already partly under construction. The resulting revised community, when brought to market, was highly successful, substantially exceeded sales absorption and profitability projections, and winning several major national awards.
Based on these previous experiences, I personally did not hold the work product of this company in the highest regard, as I was not certain that “truth” was evident but I was truly not prepared for what I read in their expert opinion in this case, as it appeared to me to be pure fantasy.
In the preparation of my opinion, I followed the same accepted industry standards for analyzing any proposed development – utilizing due diligence to provide a fact-based platform upon which to create a strategy (development program) that has a reasonable likelihood of achieving success or, in this specific example, to verify that the proposed development would not have been successful.
Proper market research and the analysis thereof will:
- Identify the development potential;
- Define the target market(s) to be served;
- Define the products to be provided;
- Predict market absorption of the product;
- Assess the financial feasibility of developing the product; and
- Support the conversion of the product value into revenue (support the sale and marketing of the product).
Proper strategic planning for residential real estate development will assess the current market and competitive situation for the property, as well as future new supply possibilities, and include two components:
A. Research the site, the market and the players
Research would include three components (and many sub-components thereunder):
I. Site Analysis (i.e. “Location” as all value in real estate is derived from location)
II. Market Analysis
III. Builder/Developer Factors
B. Develop a logical strategy program for the development based on proper analysis of the research.
Once the market research is completed and analyzed, and if the underlying conditions suggest that the proposed development is feasible, a conceptual pro-forma development concept is created that identifies the specific market(s) to be targeted. This conceptual development provides full product definition and details for use by the design professionals (land planners, engineers, landscape architects, and architects). The conceptual development concept also includes preliminary cost analysis to verify that the proposed development can be brought to market at the indicated accepted price.
The pro-forma concept is then tested, proven and refined through appropriate consumer research which can include focus groups and consumer panels, personal interviews and email/telephone, and mail surveys.
Only after all of these steps have been completed and the concept verified can it be reasonably assumed that any proposed development is viable. A similar process is required for commercial usage or any other real estate development.
When I completed my due diligence for the subject property in this litigation, it was apparent that the proposed development was simply not feasible and could not succeed under any possible realistic scenario, having failed in every single factor listed above and in every component thereof, and my expert opinion so stated.
As expected, the other side’s expert opinion came to a different conclusion but that report did not examine or consider any of the factors that I had analyzed (and, in fact, dismissed them all as irrelevant). Instead it constructed a hypothetical demand scenario based upon a series of what I saw as improbable, unfounded and unsubstantiated sequential assumptions – what appeared to me to be nothing more than wishful thinking, albeit crafted in a very creative fashion. I also believe that it further included a number of structural and substantive errors which required the opinion to be revised twice and, even then, still retained several of these errors.
The facts (“truth”) were seemingly ignored and an opinion created that apparently satisfied the opposing side’s attorneys as it was introduced into evidence as the primary basis supporting their claims for lost profits and exemplary damages. It appeared to me that this company had first accepted this expert witness assignment and then proceeded to cleverly and creatively craft the necessary opinion to support their side’s case, not only ignoring but in direct opposition to the “truth.”
Needless to say, my analysis and rebuttal of this report which I prepared for my side’s counsel was lengthy and detailed and together with my expert opinion it helped to form the basis of their motion for summary judgment.
I am pleased to report that the judge granted the motion for summary judgment and the claims for lost profits and exemplary damages were dismissed in total, effectively ending the case; except for a few minor ancillary claims which were subsequently settled. Furthermore, and even more satisfying to me personally, the opposing expert witness and their opinions were struck down under a successful Daubert challenge.
So maybe, just maybe, there is some justice in the world. A work product lacking in truth proved to be worthless and the attorneys and their clients failed to get what they needed and paid for. But that’s just my opinion.
This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances. Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.
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