Appraisal Report Templates: Help Ensure Completeness, Professionalism
(by William M. Novotny, ISA AM, GCA and David J. Maloney, Jr., AOA CM) The appraisal report is the appraiser’s final work product. Documenting the appraisal investigation to various degrees of detail depending on the report type (self-contained vs. summary vs. restricted use), the appraisal report provides structure and a foundation for the appraiser’s opinion so that it can be properly understood when read by the client and other intended users. Many appraiser opt to make use of appraisal templates to help ensure complete and professional appraisal reports while at the same time minimizing time spent wasted on repetitive report writing tasks.
- The appraisal report must identify and demonstrate an understanding of the appraisal problem. How will the report be used? Will the report be used for tax purposes in an estate settlement of for a charitable donation? Does the court need to know the value of lost or damaged property for litigation purposes? Is a client planning to liquidate properties within a given time frame? There are many different uses of appraisals, and each use has its specific requirements.
- The report must properly identify and address the problem posed by the client and must communicate the appraiser’s answer to the questions posed by the client. For a donation appraisal and for estate purposes, the appraiser will be required to determine fair market value. For litigation, the appraiser must understand the legal requirements of the assignment such as a possible mandated definition of value that must be used or whether or not to apply the broad evidence rule. For a liquidation appraisal, the appraiser must determine the time frame for reasonable exposure time, market acceptability and marketing options, the needs of the client (such as need for a quick sale, or refusal to sell for less than market value), and the definition of value that would best address the requirements of the assignment such as orderly or forced liquidation value or marketable cash value.
- The report must be relevant to the “intended use” of the appraisal. The intended use of an appraisal forms an important part of any assignment. It not only guides the appraiser in his scope of work decision but also in the amount and detail of information to be included within the report. The appraisal report must be meaningful to the client and not misleading. Based on its content, the client should be able to regard the appraiser’s analyses, opinions and conclusions as complete, accurate and authoritative.
- In its final form, the appraisal report must demonstrate the appraiser’s objectivity, independence and diligence. It must be well-organized and well-written. It should not only inform the reader of the appraiser’s conclusions but also on what supports (or limits) those conclusions. It must contain sufficient information to allow the client and other intended users of the report to understand the assignment results, and how the appraiser’s opinions were developed consistent with the requirements of Standard 7 of the Uniform Standards of Professional Appraisal Practice (USPAP) – in short, the report must be credible, i.e., worthy of belief.
- Standard 8 of USPAP gives guidance as to what information is required to be contained in an appraisal report to help ensure that the report is complete and credible. Complying with USPAP will also help ensure that your appraisals are prepared consistent with current appraisal theory and typical appraisal methodology. According to USPAP, here is a brief listing of information that should be included in all appraisal reports:
- State whether the report is a self-contained, summary or restricted use report
- State the identity of the client and any intended users, by name or type
- State the intended use of the report
- Summarize information sufficient to identify the property including relevant quality, physical and economic property characteristics
- State the property interest appraised
- State the type and definition of value and cite the source of the definition
- State the effective date of the appraisal and the date of the report
- Summarize the scope of work used to develop appraisal
- Summarize any significant professional appraisal assistance that was provided by another appraiser
- Summarize the info that supports your analyses, opinions and conclusions
- Summarize the approach to value taken and reasons for excluding an approach
- State the value opinions and conclusions reached
- Clearly and conspicuously state applicable assignment conditions including:
- extraordinary assumptions
- hypothetical conditions
- limiting conditions
- jurisdictional exceptions
- State that the use of the above assignment conditions might have affected the assignment results.
- Complete a signed USPAP certification statement in accordance with SR 8-3
In addition to the above information required by USPAP, appraisals done for certain Federally-related appraisals have additional information that must be included as well. The Pension Protection Act of 2006 requires that a qualified appraiser include the following within a qualified appraisal being done for purposes of income tax deduction for charitable contributions:
- A declaration of the appraiser’s background, experience, education and any memberships in professional appraisal associations
- A statement that the appraiser understands that a substantial or gross valuation misstatement may subject the appraiser to a civil penalty under IRS Code §6695A
Report templates are useful to the appraiser to limit liability and to insure completeness. They also provide the general context and premise for the assignment. The template allows the appraiser to begin with typical formal communications, boilerplate statements, and relevant issues appropriate to a specific assignment type. The challenge is to weave into the report template the necessary communications that is specific to the appraisal assignment at hand and with answers to the client’s questions about value in such a way that is consistent with the requirements of the USPAP.
Appraisal reports can be considered a blending of:
- Client-specific information such as client’s name and address
- Assignment-specific report elements which may need to be changed from appraisal to appraisal such as the type and definition of value, scope of work, description of the relevant market(s) explored, appraisal methodology, report format option used (i.e., self-contained, summary or restricted use)
- Item-specific information elements (e.g, item description, condition, quality, value-relevant attributes, value conclusions)
Note that boilerplate statements that are included in a report template reflect such issues as disclaimers, terms and conditions of use. When relevant, boilerplate statements can be used over and over again without modification (e.g., “No change in the appraisal report shall be made by anyone other than the appraiser. The appraiser shall have no responsibility for any such unauthorized changes.”) Boilerplate statements are either relevant or not relevant to a particular assignment. If not relevant then they must be deleted from the appraisal report. If relevant, leave them in.
Ideally, the appraiser’s first appraisal report should be done under supervision with a mentor or with an instructor in a professional educational setting, but only after receiving proper training in appraisal theory, principles, methodology and report writing. That first appraisal report should be solidly written (and consistent with the requirements of the USPAP) because it can then be modified as necessary to form a template to expedite the preparation of subsequent appraisal reports.
In addition to designing your own appraisal template, you may be able to borrow one from an instruction manual, or from a mentor or an experienced appraiser; however, an important learning opportunity is lost using these shortcuts. Developing the first appraisal report template on your own is a significant landmark in the development of the professional appraiser. It demonstrates a proper understanding of the appraisal process, ethical and competency requirements, required report elements, and of the reporting obligations that must be embraced by the appraiser. The final appraisal report template you develop should be reviewed by an experienced appraiser, course instructor, or mentor to ensure they are proper and complete.
More than one template can be prepared (one for each appraisal “intended use”) for use over and over again. For instance, a template can be designed for future use with insurance appraisals. Another template can be customized for use with federal donation appraisals. Yet another might be written specifically for use with divorce appraisals. Once designed, report templates are not stagnant. They evolve throughout an appraiser’s career as regulations and appraisal methodology and practice change.
When the template is put to use, assignment-specific report elements such as intended use, intended users, markets explored, value type and definition, etc. may or may not need to be edited for each appraisal assignment. Scope of work, client-specific information (such as the identity of the client) and item-specific information (such as property descriptions and value), of course, will change, but boilerplate disclaimers and terms and conditions can normally be used without change. Even the required USPAP Certification Statement can often be left as-is in the template, though even it might need to be modified, for instance, if the appraiser did not personally inspect the property being appraised.
Each template must be edited carefully not only to remove narrative that is not applicable to a particular assignment but also to add narrative that is pertinent. For instance, if the template includes a statement regarding the use of a sampling technique, and the appraisal at hand did not make use of a sampling technique, then reference to the technique should be removed. On the other hand, if the appraisal opinion makes use of professional appraisal assistance provided by another and no mention of such assistance exists in the template, then that information should be added.
Each word and sentence in the final report should be relevant, necessary and specific to the particular assignment. The template provides a beginning place to start only. It must be carefully developed into a final appraisal report that is specific to the intended use of the appraisal and to the questions posed by the client.
A career as an appraiser is based on the development of proper reports and the careful development of credible opinions. Good report templates help the appraiser to prepare complete reports which are in compliance with USPAP and which meet the expectations of typical clients and other intended appraisal report users.
© 2008 William M. Novotny and David J. Maloney, Jr.