Appraisal Foundation – February Q&A

The Appraisal Standards Board recently adopted changes to the Conduct section of the ETHICS RULE that will become effective January 1, 2010 for the 2010-11 edition of USPAP. The specific language that has been adopted, and which has initiated questions and concerns is:

If known prior to accepting an assignment, and/or if discovered at any time during the assignment, an appraiser must disclose to the client, and in the subsequent report certification: 1) any current or prospective interest in the subject property or parties involved; and 2) any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted except in the case when an appraiser has agreed with the client to keep the mere occurrence of a prior assignment confidential. If an appraiser has agreed with a client not to disclose thathe or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three year period.

The goal of maintaining public trust makes it important that the client have knowledge regarding an appraiser’s prior services associated with the subject property in advance of engaging that appraiser. The ASB has compiled the following list of questions and answers:

Question 1: I heard about the changes to the Conduct section of the ETHICS RULE and I am concerned. Is it true that I will not be able to reappraise a property for three years after a prior appraisal?

Response 1: No. The revised ETHICS RULE that goes into effect on January 1, 2010, will require appraisers to disclose any services regarding the subject property provided as an appraiser or in any other capacity during the three years prior to the new assignment. It does not include any prohibition against reappraising a property.

Question 2: I occasionally receive requests to appraise a property that I have appraised in the past. With the changes to the ETHICS RULE, I will be required to disclose any assignments that I performed within the three years prior to the date of acceptance of the assignment. Is such a disclosure not a violation of an appraiser’s responsibility under the Confidentiality section of the ETHICS RULE?

Response 2: Generally, no. The Confidentiality section of the ETHICS RULE prohibits, with some exceptions, the disclosure of “confidential information or assignment results prepared for a client.” The mere fact that an appraiser appraised a property is not confidential information as defined in USPAP. However, the appraiser must be careful not to disclose confidential information from a previous assignment in the new assignment.

Question 3: I am concerned that when I tell a prospective client that I have previously provided a service related to a property, it will lead to questions that I cannot answer without violating the Confidentiality section of the ETHICS RULE. I am sure the new client will want to know when I appraised it, and what my value conclusion had been. How can I address these questions and comply with USPAP?

Response 3: It is likely that many potential clients will ask such questions. However, without authorization from the original client, the appraiser cannot disclose the results of the previous appraisal or any other confidential information. One way to address this problem would be to explain that as an appraiser, you are subject to confidentiality requirements and cannot disclose that information. You could go on to explain that the confidentiality requirements are in place to protect clients, including the one who is engaging you for the new assignment.

Those parties who regularly order appraisals will become accustomed to the new disclosure requirements, and will likely stop asking after a relatively short time.Question 4: Some of my best clients require me to keep all information regarding any assignments that I perform for them confidential. The Comment states in part, “If an appraiser has agreed with a client not to disclose that he or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three year period.” Will this prevent me from appraising a property for a different client during that three year period?

Response 4: Perhaps, but USPAP does not require that the disclosure provide any specific details. For example, the disclosure, both prior to accepting the assignment and in the report’s certification, could include a statement similar to one of the following:

I have provided a previous service regarding the subject property within the three years prior to this assignment; or I have previously appraised this property in the three years prior to this assignment.

If an appraiser cannot make such a statement without violating an agreement with a previous client, then the appraiser must not accept the new assignment. Appraisers should review their client agreements to specifically determine what information they have agreed to keep confidential.

Question 5: Most of my assignments are completed using common residential appraisal report forms. I am concerned that my clients will not allow changes to the certification on the report forms. The Conduct section of the ETHICS RULE requires that I disclose prior services regarding the subject property in the certification. Does this mean that I will not be allowed to appraise a property for these clients if I had performed a service regarding that property in the previous three years?

Response 5: USPAP compliance is the appraiser’s responsibility and adding this information to the certification will be a requirement beginning January 1, 2010. While deletion or modification of client-imposed certifications are generally not allowed, most clients will likely allow additional certifications that do not constitute material alterations to the appraisal report. It is not uncommon for appraisers to add supplemental certifications and this may be necessary in some cases until commonly-used appraisal forms are revised to reflect the changes to USPAP.

Question 6: The Conduct section of the ETHICS RULE requires that I disclose prior services regarding the subject property provided within the three years prior to acceptance of an assignment. I am appraising a residential property on which I acted as the general contractor when it was built four years ago. Since this service was more than three years ago, am I correct in not disclosing that to a new client?

Response 6: USPAP establishes a minimum standard of three years, and that is what you are required to disclose. However, the overriding goal of USPAP is to promote and maintain public trust in appraisal practice. Therefore, when an appraiser believes that having provided a previous service that occurred prior to the three years may be relevant to the client, it would be important that the appraiser disclose the information.

Question 7: If the firm that employs me as an appraiser has provided leasing or property management services in the past three years for the subject property, must this be disclosed?

Response 7: Not necessarily. The ETHICS RULE requires disclosure of services “provided by the appraiser.” However, if an appraiser believes that the provision of a service by the appraiser’s firm or other related entity may be relevant, he or she should disclose that information to a potential client.

Question 8: If I will be conducting an auction of the subject property after the appraisal, does this have to be disclosed?

Response 8: Yes. This is an example of a “current or prospective interest in the subject property.” USPAP currently requires that such an interest be disclosed in the certification, but not necessarily prior to accepting the assignment. Under the 2010 requirements, the appraiser must also disclose this prior to acceptance of an assignment or upon discovery during the assignment.

Question 9: May the disclosure that must be made at the time of acceptance be oral? May it be made in an email to the client?

Response 9: USPAP does not specify how the disclosure upon acceptance or discovery must be made. It may be appropriate in some cases to provide an initial oral disclosure. If the client decides to proceed, it may be appropriate that the appraiser’s disclosure be restated in writing. One way to accomplish this is by including it in a letter of engagement. In other cases an email would be appropriate.

The Record Keeping section of the ETHICS RULE requires that the appraiser’s workfile include “all data, information, and documentation necessary to…show compliance with this Rule…” So, the disclosure prior to acceptance or upon discovery must be documented in the appraiser’s workfile.

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  1. David

    Here is a question for the Appraisal Foundation:
    Is it safe to say that the future of residential appraising is dead?
    Why do I ask? Who in their right mind would enter a profession that pays you a 40%-60% fee split of $200 with the trainee paying their own expenses and taxes out of their side of their $80-$120. I don’t see people falling all over themselves to get a crack at a job like that. Who in their right mind would take on the liability of training someone when the remaining $80-$120 that goes to the office doesn’t even cover their overhead. I wouldn’t take on that type of loss for my own son.
    Cheers my friends…to the future (or lack thereof) of appraising!

  2. David,
    I agree. I strongly advise any trainee or someone considering the profession to find anything else. Take a cap. rate course first and you will understand why this is no longer a viable profession. Most “professions” putting in the time that we do, earn very good livings and are not “managed”. With the current work volume it would take a trainee four to six years in my estimation- be a Doctor!

  3. Last I looked, no one is putting a gun to my head and making me work for those fees (and I don’t). While I beleive in the open market, there are too many people that are puting out a sub-standard product. This work may work for 8 out of 10 times, but those other two times are costly. Unfortunately, the public doesn’t know what they are getting, or should I say not getting. Good appraisers have to look elsewhere for work where a quality work product is needed and recognized.

  4. I teach appraisers, and I’ve been busy as I’m at the end of a CE cycle in my home state. This is a constant question and concern, coupled with: “Aren’t Fannie & Freddie just trying to see if they can do without us?” The HVCC has hackles up for the same reason; anytime you put a middleman in a transaction, there goes part of the fee. I have two kids. If either wanted to get into real estate, I would tell them to get into real estate sales. I consider myself fortunate to be primarily an instructor, especially in this atmosphere.


  6. Joe Appraiser

    First off, I question how this will reinstill consumer confidence in the market. Simply stating that you have or have not appraised this property within the past 3 years does absolutely nothing and means nothing to the consumer. I can see it now: Marge it says here in the report that the appraiser valuated the property 2.5 years ago. Well Fred I guess that means everything is okay and we can forget how E-Appraise IT, WAMU, Cuomo, and lenders over extending themselves in the subprime market, as a result of greed, created this mess. Knowing that the appraiser appraised the home 2.5 years ago is making me feel all warm and fuzzy inside. Marge put your shoes on I think its time for us consumers to start spending some money again and while were at it lets open up an investment account and start investing in the market. Boy I’m glad that appraiser put it in his report that he appraised this house 2.5 years ago, because that can mean only one thing. The market has recovered and everything is now peachy. I know its silly but not quite as silly as what those in the powers that be are trying to do to turn things around. Instead of punishing those that created this mess they have essentially rewarded them. The result of this has been: WAMU sold out for a pretty penny, EAppraise-IT was rewarded by creating a middle man requirement and now are busier than ever, lenders who overextended themselves in the subprime market were bailed out and the taxpayer and consumer will be paying the price for years and Cuomo isn’t taking any questions at this time. Do they think that the consumer and taxpayer are stupid enough to believe that a simple statement in an appraisal like that is going to have any impact on their opinions?
    The only appraisers that are going to accept cut fee’s are the ones that are green and wet behind the ears and those that couldn’t get work based on their knowledge, experience, and skills in the past. Maybe that is what they want, lower quality appraisals. That way they can be able to blame the appraisal industry and the next time they will be able to have written documented evidence of poor appraisals as proof. Since when is the industry interested in getting quality work? Appraisers are yet again under a thumb, its just a different thumb this time and this new thumb isn’t regulated…
    It almost appears that legislators went to lenders and asked them: what can we do to help you hide your guilt and ignorance if this were to happen again.
    How are the new rules and laws supposed to work when the old rules and laws were voilated and went unpunished? Is there going to be bailout funds for appraisers that go under as a result of these changes? I guess not because we don’t aren’t well organized and don’t contribute enough money to their campaigns… When are we going to get back to common interests instead of special interests?

  7. KUDOS to Dillon! I could not agree more, and have been preaching that mantra for years. Hopefully, the public will realize there is a vast difference between “a Number”, and “the Value”.

  8. Mark

    We are told that all of these new requirements are the result of massive appraisal fraud. However, as the owner of a busy NY mortgage company, I have seen very little fraud. What I did see was a ridiculous lowering of the qualifying standards for income, credit and assets that produced an unrealistic and totally unsustainable demand for real estate which pushed prices up as fast as we could complete the appraisals. Now that rational thought has returned to the banking industry, appraisers will apparently be the scapegoat for the collapse. Shame on Wall Street and the Banking industry for creating the very products that started the whole rise and subsequent fall.

  9. Lucia

    I don’t think this is worth crying about. The red tape is only starting and will get worse so if you want to stay in the game, you might as well get used to it. Just remember, everybody’s getting a pay cut these days and when the gov’t gets involved it drowns us in paperwork. We appraiser just happen to be sitting on the front edge of it and see what’s coming before most folks. Get ready, cut costs, live on less, and fix your teeth while you can.

  10. Hal

    Everyone is getting a pay cut?? I don’t think so. The appraisal fee is going up for the borrower, the fee down for the appraiser, but the AMC and bank are getting a pay increase! Get the gov’t involved, and all you get are scams and ripoffs.

  11. Paul

    I have been appraising over twenty years in Florida. I have not done any AMC work, I do foreclosure work, estate work and some real estate sales. I will not sell my services for a discount rate. You get what you pay for. I am lucky I don’t have do AMC work. They are killing our profession. If Cuomo didn’t have daddy using his connections he would be flipping hamburgers. Do anything you can to put the AMC’s out of business they will only have the newbies doing discount appraisals.
    As it is I think there may be to many AMC’s maybe they will destory each other.

  12. sandra fowler

    im in georgia, who has foreclosure work here. ive just lost my best customer to a bigger firm, im a one person office. ive been doing appraisals since 1989. help anyone?