Identification of the Appraiser’s “Client”

Identification of the Appraiser’s “Client”

(by Dave Maloney) Critical to proper appraisal problem identification as well as to the proper establishment and maintenance of the all-important appraiser-client relationship is the identification of which party is the appraiser’s “client.”

Appraisers have certain obligations to the client and to no other. Not only is the appraiser prohibited from disclosing the client’s confidential information, the appraiser is also prohibited from disclosing assignment results to any party other than the client (unless otherwise permitted to do so by the client). Is the client the owner of the property? The party who pays the appraiser for services rendered? The party who engages the appraiser? The property owner’s agent who hired the appraiser?

Below is an excerpt from the 8th edition of my book, Appraising Personal Property: Principles & Methodology (Appraiser’s Press 2017) explaining issues surrounding the identification of the “client” in accordance with the current definition of the term as written in 2018-2019 USPAP.
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Client

USPAP defines Client as:

CLIENT: the party or parties who engage, by employment or contract, an appraiser in a specific assignment.

Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent. (2018-2019 USPAP)

Note that the appraiser’s client is the entity that engages the services of the appraiser. One party might engage the services of the appraiser (and therefore be established as the appraiser’s “client”) while another party might be the owner of the property being appraised and the one responsible for paying the appraiser’s fee.[1] Often, these two parties are one and the same. Regardless, it is the party who engages the appraiser for the assignment (not necessarily the one paying for that assignment or owning the property) with whom the appraiser establishes the important appraiser-client relationship.[2]

Connected to each assignment is the appraiser-client relationship.[3] Such a relationship carries with it significant ramifications regarding trust, confidentiality, disclosure and liability. The appraiser has that relationship only with the identified client and with no other individual or party.

At times, there might be confusion as to the identity of the client. Who is engaging the appraiser? Who owns the property? Who is paying the appraiser? Who is acting as agent? Here are some examples:

  • For an appraisal being done to acquire insurance coverage for high-value personal property, the appraiser’s client, the property owner and the party paying the appraiser are usually one and the same. No confusion here.
  • For a divorce appraisal, however, the property owner and the person paying the appraiser is the spouse, but the party engaging the appraiser might be the spouse’s attorney acting on behalf of the spouse. In such a case, the spouse is the property owner and is paying the appraiser, but the attorney is the appraiser’s client since it was the attorney who engaged the appraiser.
  • In the case of an appraisal of a decedent’s estate, the property owner and the entity responsible for paying the appraiser is “the estate of John Doe, Sr., deceased.” But it is the decedent’s son and executor, Mr. John Doe, Jr., who engaged the appraiser; therefore, the appraiser’s client is Mr. John Doe, Jr.
  • Questions regarding who is an appraiser’s client frequently relate to assignments in which an appraiser is contacted and hired through an appraisal management company (AMC). As an intermediary between the interested parties (e.g., a property owner seeking an appraisal and the online appraiser), AMCs facilitate (often via an online appraisal service for personal property appraisals) engaging the appropriate appraiser and coordinating the appraisal assignment from start to finish.[4] The AMC serves as the agent for the party seeking the appraisal. Since, in this capacity, the AMC engages the appraiser, the AMC (and not the property owner) is the appraiser’s client and can be identified as such in the appraisal report.[5]

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[[1]] An example might be an attorney who engages the services of an appraiser (on behalf of his client) as an expert witness. By engaging the appraiser, the attorney becomes the appraiser’s client. Services are billed by the appraiser to the attorney who turns around and sends the invoice to his client, who then pays the appraiser directly. (2018-2019 USPAP FAQ #120). Note, too, that the act of the property owner or any other entity paying the appraiser does not make them the client. (2018-2019 FAQ #117)
[2] A party does not automatically become the appraiser’s client merely by the act of paying the appraiser for services rendered. The client is the party who engages the services of the appraiser. (2018-2019 USPAP FAQ #117)
[3] There are no provisions in USPAP for terminating the appraiser-client relationship; accordingly, associated obligations such as workfile and confidentiality requirements apply regardless of the status of the client—even if the client is deceased or has gone out of business. (2018-2019 USPAP FAQ #67)
[4] Personal property AMCs receive payment for appraisal services directly from the party requesting the appraisal. This is usually the property owner. The AMC, in turn, then pays the appraiser for appraisal services rendered.
[5] Despite the AMC being the party engaging the appraiser, there is nothing in USPAP that would preclude either the AMC or the AMC’s client from being identified as the appraiser’s client. (2018-2019 USPAP FAQs #119 and #120)

© David J. Maloney

 

Citations and Declarations for the Donation Appraisal

Citations and Declarations for the Donation Appraisal

(by Dave Maloney) The requirements for including citations or declarations in any personal property appraisal report normally originate from such sources as USPAP, the IRS, a law or regulation, a societal mandate, or, albeit it rarely, even the client. But given the plethora of applicable IRS regulations, rules, publications and forms, it is often in the donation appraisal report that we find the appraiser demonstrating the greatest of originality in the design of sometimes rather elaborate (and unnecessary?) citations and declarations.

Understanding which IRS regulations, forms, publications, notices, or revenue procedures are required to be cited in a donation appraisal report and which appraiser declarations are mandated for a donation appraisal report can be a challenge—particularly at this point in time during which we are operating under temporary IRS “Guidance” as we await final approval of new Treasury Regulations. The new Regulations will contain changes affecting the appraiser that were generated by the passing of the American Jobs Creation Act of 2004 and the Pension Protection Act of 2006. Continue reading “Citations and Declarations for the Donation Appraisal”

Competency (part 2 of 2)

COMPETENCY RULE or SCOPE OF WORK RULE: Which Rule Rules? (part 2 of 2)

(by William M. Novotny, AQB Certified USPAP Instructor. This is the second part of a two-part article focusing on the generalist appraiser and the issue of competency. For Part One, go here.)

This article builds upon the competency issues developed and discussed in Part One, and it explores those issues further by means of two hypothetical appraisal assignments performed by John Morgan, a hypothetical, experienced generalist personal property appraiser. In these two mini-case studies John must deal with critical competency issues for an insurance total loss appraisal assignment and for a separate equitable distribution appraisal assignment.

Hypothetical Insurance Assignment: A Competency Disclosure or a Scope of Work Disclosure?

In this hypothetical insurance assignment fictional appraiser John Morgan was contacted by Rachel Barnes, a senior insurance adjuster, to appraise some items of personal property involved in a fire loss claim.

The insured in this case owns specialized items of personal property including some antique furniture, decorative art, a Japanese folding screen (Byobu) and a very large HO brass scale model train collection with an extensive tabletop model train layout. John Morgan is asked to appraise the property that suffered damage as a result of exposure to fire, smoke and water, and by subsequent asbestos contamination caused by a remediation crew removing drywall and accidentally distributing asbestos-laden insulation.

The claimed items were a total loss and are covered under a standard homeowner’s replacement value insurance policy. According to the policy, in case of total loss appreciating items of property are covered up front at their replacement value, but for depreciating property the insured is only entitled to the item’s actual cash value up front until such time as the property is actually replaced and a purchase receipt is submitted. At that time the insured is paid the difference between actual cash value and the actual replacement cost.

John has handled similar assignments for this client, adjuster Rachel Barnes, in the past. The client again came to John because of his demonstrated knowledge and experience with many different property types. But upon examining the damage claim, John recognizes two properties which may present competency issues: the model train and the Byobu.

Continue reading “Competency (part 2 of 2)”

Competency (part 1 of 2)

COMPETENCY RULE or SCOPE OF WORK RULE: Which Rule Rules? (part 1 of 2)

(by William M. Novotny, AQB Certified USPAP Instructor. This is the first part of a two-part article focusing on the generalist appraiser and the issue of competency. For Part 2 of this article, go here.)

Both the SCOPE OF WORK RULE as well as the COMPETENCY RULE of USPAP contain disclosure requirements that are particularly relevant to the generalist appraiser.

  • The SCOPE OF WORK RULE disclosure requirement mandates that sufficient information be disclosed to allow users to understand the scope of work actually performed in the assignment. A scope of work disclosure typically addresses such issues as the type and extent of research performed, or the assistance that was provided by an expert.
  • The COMPETENCY RULE disclosure requirement calls for the appraiser to disclose a lack of knowledge and/or experience to the client before accepting the assignment, at whatever point in the appraisal process that it becomes apparent to the appraiser that his or her lack of knowledge and experience will prevent the development of credible assignment results. This is referred to as a “competency disclosure.”

The SCOPE OF WORK RULE applies at all times, and requires the appraiser to do whatever is necessary to develop credible assignment results and to disclose the scope of work performed in the appraisal report. The COMPETENCY RULE requires the appraiser to have the knowledge and experience to complete the assignment credibly and to make a disclosure to the client and in the report when unable to do so.

This paper explores critical considerations that go into making a COMPETENCY RULE disclosure. It also examines related USPAP requirements that have particular relevance to generalist personal property appraisers who often encounter objects about which they have limited experience. It is when such properties are encountered that an appraiser must choose whether or not to expand the scope of work or make a competency disclosure to the client.

Continue reading “Competency (part 1 of 2)”

What Makes an Appraisal Worthy of Belief? USPAP!

What Makes an Appraisal Worthy of Belief? USPAP! 

(by William M. Novotny, AQB Certified USPAP Instructor) The Uniform Standards of Professional Appraisal Practice (USPAP) establish minimum requirements for appraisers in order that they are better able to act ethically and competently when serving the public. By complying with USPAP, appraisers can clearly demonstrate to clients that their opinions, analyses and conclusions are worthy of belief—a benchmark by which public trust in the appraisal procession is measured.

But more than appraisal skill and expertise are required to render credible appraisal assignment results. In order to consider the assignment results credible enough to be relied upon, clients must believe that the appraiser has performed the assignment in an ethical, competent, objective and unbiased manner. By complying with USPAP and certifying in the assignment report that they do so, the appraiser provides the client with reason for having such a belief.

Continue reading “What Makes an Appraisal Worthy of Belief? USPAP!”

The Appraiser as an Expert Witness: Conference with Counsel

The Appraiser as an Expert Witness: Conference with Counsel 

(by Steven Babitsky, Esq. and James J. Mangraviti, Jr., Esq.) Prior to being deposed, the expert should insist on a conference with counsel. Counsel may, in an attempt to save time and money, advise the expert that no such conference is necessary and that he will come a “few minutes early” to the deposition to talk things over. While this may be expedient for counsel, it will almost always result in inadequate preparation for the expert. This type of last-minute review is a recipe for disaster and experts should refuse to participate in it. Experts need time to organize their files and their thoughts. Wise experts insist on a separate appointment with counsel, days – not hours or minutes – prior to the date of deposition. 

To ensure proper preparation by retaining counsel, the expert should do the following: 

Continue reading “The Appraiser as an Expert Witness: Conference with Counsel”