Appraisal experts operate in differing fields of expertise
(discipline) including Real Property, Business Valuation, Personal Property and
Machinery and Equipment. Occasionally,
there are misunderstandings regarding the appraiser’s function within an
appraisal assignment.
I periodically receive calls from prospective clients who
state: “I need an appraisal and I need the value to be $fill in the blank. My response to them is always the same, “I’m
sorry, but that’s not what I do.” This
is why.
In 1987 The Uniform Standards of Professional Appraisal
Practice or USPAP as authorized by the US Congress were established in
order to promote and preserve the public trust. Prior to that time, the appraisal profession had come under intense
scrutiny during what has come to be known as “the S&L Crisis.” This crisis was in great part the result of
several factors including; pressure from lenders to deliver anticipated
results, appraisers accepting contingency or undisclosed fees, a financial
interest in property being appraised or reporting a predetermined result in
favor of a client. UPSAP as
adopted by both the Federal and all State governments raises the bar on ethical
behavior, impartiality and professional competence of all appraisers.
USPAP defines an appraisal as “an opinion of
value” and requires that an appraiser be unbiased and impartial. The use of the word “opinion” is crucial
since there are several methodologies or approaches an appraiser may employ and
the appraiser must be free to choose which of these best serves any specific
appraisal assignment.
The impartiality of the appraiser is tantamount to the
entire appraisal process. The
value conclusions of any appraiser must be his own and independently
derived. Clients are always free to
discuss their thoughts on the process, but in the end, the appraiser is legally
bound to avoid any undue influence in order to arrive at a fair result,
especially where third parties are concerned.
A third party is defined as anyone who may be affected by an
appraisal result. Common examples are;
banks and financial institutions in collateral lending situations, parties in
property settlement cases including divorce or partnership buyouts, insured or
insurers in loss claims or the public at large in eminent domain or property
tax assessment appeals.
In order to avoid even the presumption of bias, USPAP requires
that appraisers certify the following in their reports;
1. There is no present or prospective interest in the property being appraised.
2. There is no personal bias with respect to the parties or property involved.
3. The engagement was not contingent upon developing a predetermined result.
4. The compensation is not contingent upon developing a predetermined result.
All real property appraisers are licensed by the states
where they practice and as a condition of their license, compliance with USPAP
is mandatory. Unfortunately, there
are no licensing requirements for the other appraisal disciplines. Regardless
of the property type you need appraised, make certain the appraiser complies
with USPAP. Your project and your
organization deserve nothing less.
