Walk-Throughs: Performing as an Appraiser vs. as an Estate Liquidator
(by Dave Maloney) Appraisers often conduct walk-throughs as a cost-effective way for the client to obtain the information he or she is seeking. These types of assignments often call upon the appraiser to develop opinions of value and report them orally, i.e., to perform an oral “appraisal.” At other times, these walk-throughs turn out to be not “appraisal” assignments being performed by an “appraiser”, but rather “pricing services” being provided by an “estate liquidator.”
Performing Walk-Throughs as an Estate Liquidator
Sometimes estate liquidators who are also appraisers are called upon to perform as appraisers. Sometimes they are not, such as when they are asked by the client to perform as estate liquidators instead. If they are appraisers belonging to certain appraisal societies, they must comply with USPAP if developing “opinions of value” for the estate sale client, but if, instead, they are performing a “pricing service” as an estate liquidator, then they are not so bound. Indeed, in the latter scenario USPAP does not even apply. USPAP applies only to appraisal practice services and not to offering “pricing services.”
Appraisers who are bound by their society must comply with USPAP when developing opinions of value (whether in writing or orally) whenever they are performing as an “appraiser”. But sometimes we appraisers are also estate liquidators (or dealers, auctioneers, etc.) and are performing not as an appraiser but in some other capacity such as an estate liquidator when doing a walk-through. As noted, if that is the scenario, neither appraisal societal standards nor USPAP applies to the individual who is, in effect, performing a “pricing service” while acting as an “estate liquidator” as opposed to performing an “appraisal” while acting in the capacity of an “appraiser.”
Assume that I am a known appraiser called in by the client to perform as an estate liquidator and to conduct a walk-through pricing service so the client can prepare his items for an upcoming weekend yard sale. Notice I differentiate between the roles in which I am performing. I am a known appraiser (so the client might be under the impression that I will adhere to appraisal standards), but I am not performing as an appraiser. Instead, I am performing as an estate liquidator. I make this differentiation because USPAP would normally apply if I were performing as an appraiser. But for this assignment I am not performing as an appraiser.
Actually, there is one USPAP requirement that does apply when performing in a capacity other than as an appraiser—to not misrepresent myself as performing as an appraiser. USPAP requires that “appraisers” not be advocates for the client; be independent and objective; cannot accept contingency fees; and must maintain a special appraiser-client relationship. But in this scenario, none of these apply because I am not acting as an “appraiser.” I am performing as an “estate liquidator” in which capacity I can be an advocate, I need not be independent, I can accept contingent fees, and I have no special relationship with the client. (For more about the appraiser-client relationship see http://www.appraisalcourseassociates.com/2011/12/10/481/.)
So, I am performing as an estate liquidator conducting a walk-through “pricing service” for a client wanting to sell. Do not call this an appraisal. It is not. An appraisal is an opinion of a defined type of value. I am not appraising. I am suggesting prices for the client to stick on his items to help ensure that he can sell them in a limited period of time over the upcoming weekend. It is simple as that.
What I am providing is not “appraised value.” It is not “fair market value.” In fact, it is not any type of “value” at all. It is my suggested “asking price” – a price that will entice would-be buyers to purchase within a very short period of time – a time frame which is not a “reasonable exposure time”, which does not allow proper marketing, and which probably forces the client to sell in a marketplace (yard sale) which is NOT the most appropriate marketplace (which is defined as the market in which the property could be sold most lucratively.) Chances are that my suggested asking prices are much, much less than the “market value” of the items had there been “reasonable exposure time” and they had been “properly marketed” within the most appropriate open market in which buyers and sellers are knowledgeable of the relevant facts and neither is under compulsion to act.
Walk-throughs performed by an estate liquidator who was tasked with helping to identify and price items for an upcoming sale is a valuable and necessary service for sellers who typically are not knowledgeable of what they own or of how much to ask for it if selling over a weekend where time is limited.
Performing Walk-Throughs as an Appraiser
But such a scenario is a world away from an assignment in which one identifying himself as an “appraiser” is performing an oral “appraisal” walk-through for a client who, say, just inherited a garage full of stuff and wants to know the market value (or fair market value or replacement value, etc.) of the items. Now we are talking about an assignment in which the individual is performing as an “appraiser” and is tasked with developing an opinion of a defined type of “value.”
If I am a known appraiser who is expected to act like an appraiser when performing a walk-through (i.e., independent, unbiased, not be an advocate, respecting confidential nature of the appraiser-client relationship, not charging a contingency fee, etc.), I must comply with the requirements of USPAP if belonging to a society with such a mandate.
Assuming that is the case, I must first define the appraisal problem. In other words, I must identify certain elements of information before I can proceed such as the intended use (does the client intend to sell? does the client “just want to know”? does the client want to acquire insurance coverage? does the client want to donate the items?) I also need to identify the assignment conditions. For instance, a client in a hurry to sell needs “forced liquidation value.” A client who has all the time in the world to sell or maybe is not selling at all might need, instead, “market value” or “fair market value” or maybe “replacement value.” (The type and definition of value to be developed depends on the intended use of the report.)
As noted, knowing the intended use allows the appraiser to identify the type and definition of value to provide. For instance, if the client states that he must sell in a hurry and intends on conducting his own estate sale, the appraiser should develop an opinion of forced liquidation value. To do that, the appraiser would turn to the most appropriate market in which to conduct research. And what market would that be? I would choose a market that reflects what items sell for during the last day of an estate sale when prices are reduced. That would help (but not guarantee, of course) that a sale will be made during the limited period of time. Using with the appraiser’s opinion of forced liquidation value as a starting point, the client might want to increase his asking prices with the expectations that he will have to reduce the prices towards the end in order to negotiate a sale.
Knowing the type and definition of value is essential in order for the appraiser to identify the appropriate market in which to research to locate comparable market data on which to base an opinion of value. If I know the client needs forced liquidation value in order to sell in a short period of time and I mistakenly research the retail dealer marketplace, then I blew it. My values will be way too high. In a similar fashion, if I identify forced liquidation value as the type of value the client who is seeking insurance coverage needs, then I have undervalued the items given the intended use of “acquiring insurance” which would require the development of “replacement value” instead.
Consider the person who inherits the contents of the estate of a deceased relative or otherwise comes into possession of an assortment of items and wants a cost-effective way learn the value of the property. The new owner may have little knowledge about the property but may be curious about the items though he or she has no need for a written appraisal. The client wants to learn more about the property without incurring the expense associated with a written appraisal: What is the item? Who made it? How old is it? Is it collectible? Is it historically significant so that it should be kept and passed on to the next generation? Should it be given away to the Goodwill or Salvation Army? Should it be donated to a local historical society, or consigned to the trash? and, of course, What’s it worth?
Many appraisers offer these “walk-throughs” services in which the appraiser examines the items and verbally describes the property as the client takes notes or records the appraiser’s comments. The appraiser answers the above-type questions and may give opinions of value (if asked to do so by the client) as he or she proceeds. The process goes fairly quickly and minimizes cost as the client pays only for the time the appraiser spends on site.
Other than to the extent necessary to fulfill USPAP’s RECORD KEEPING RULE requirement that the appraiser prepare a written summary of oral reports for retention in the assignment workfile, the appraiser need not document the subject property’s characteristics as the assignment does not require a written report — only verbal descriptions and, as is often the case, oral opinions of value.
As noted, if the appraiser DOES provide opinions of value during the walk-through then that constitutes an appraisal in which case the appraiser must comply with USPAP’s RECORD KEEPING RULE by adding a written summary of the oral report to the assignment workfile within a reasonable time after issuing the oral report and by including in the workfile a signed and dated USPAP certification
The written summary would include (perhaps as a hand-written attachment or as an audio recording, if such was used) the oral opinions of value along with item descriptions sufficient enough that the items can be recognized by the client, e.g., “sofa $25,” “brass floor lamp $15,” “washer & dryer $150.”
On the other hand, if during the course of the inspection the appraiser provides only factual information (as opposed to an opinion of value) such as stating, “Singer treadle sewing machines normally sell at retail for between $100 and $150,” then the appraiser has not performed an appraisal and is not bound by USPAP since there are no standards that pertain to simply stating factual information – only to stating opinions of value.
Not all appraisers should be doing walk-throughs. Walk-throughs are done without the benefit of the appraiser performing research to confirm an opinion. Rather, the oral opinions of value issued during walk-throughs are based solely on the appraiser’s knowledge, experience and past market-related personal observations. Common furniture, household goods and other depreciable property may present no challenge to the experienced appraiser issuing oral appraisals without confirming research. However, appreciable property may challenge the appraiser’s existing knowledge. In such cases, the appraiser should decline to appraise the item, should conduct research later and notify the client of his findings, or should refer the client to a specialist appraiser.
As noted above, when conducting “walk-throughs” the appraiser may or may not be functioning in the role of an appraiser performing appraisal practice. The individual (even though known to be an appraiser) may, instead, be performing in the role of an estate liquidator or an auctioneer. If so, the appraiser’s obligations to adhere to all or only parts of USPAP may vary. For more about an appraiser’s USPAP obligations, watch my training video: http://www.youtube.com/watch?feature=player_embedded&v=O_SHxY6IItg.
© David J. Maloney, Jr. 2012