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ASB Q&As Clarify ETHICS RULE Changes that Begain with 2010-2011 USPAP

Posted on by Dave Maloney

ASB Q&As Clarify ETHICS RULE Changes that Begain with 2010-2011 USPAP

(by David Maloney) In late 2009 The Appraisal Standards Board (ASB) approved modifications to the Uniform Standards of Professional Appraisal Practice (USPAP). Those changes were incorporated into the 2010-2011 edition of USPAP and associated guidance material.

One of the several changes of interest to the personal property was made to the ETHICS RULE which, by the way, was largely rewritten. The change of interest occurs in the Conduct section of the ETHICS RULE and regards two new disclosure requirements.

  1. The appraiser must now disclose (prior to accepting the assignment or whenever discovered) any current or prospective interest in the subject property or parties.
  2. The appraiser must also now disclose any services performed (in the capacity of an appraiser or otherwise) regarding the subject property over the preceding three years.

The rationale behind this particular change is to allow the client to determine potential conflicts, if any, with past services undertaken by the personal property appraiser regarding the subject property such as having owned, sold, auctioned, appraised, authenticated, restored, brokered, etc. the subject property. For the real property appraiser, such services might include having provided management, leasing, brokerage, auction or investment advisory services.

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What Makes an Appraisal Worthy of Belief? USPAP!

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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.

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Bankruptcy Appraisals: FMV? OLV? FLV?

Posted on by Dave Maloney

Bankruptcy Appraisals: FMV? OLV? FLV?

(by David Maloney) The topic of bankruptcy and bankruptcy appraisals is a complicated one. Be that as it may, a rudimentary understanding of the bankruptcy processes, the type of debtor (individual or business), and the options available to the debtor depending on the type of bankruptcy filing sought (Chapter 7? 11? 13?) is helpful to the appraiser intent on completely identifying the “appraisal problem” including the type and definition of value to be developed when undertaking a bankruptcy appraisal.

Bankruptcy is a legal procedure designed to protect both an individual or business that can’t meet its financial obligations and to protect the creditors involved. The process of bankruptcy requires the debtor to create a report illustrating the “value” of their assets. In order to get a true reading of the value of the individual or business personal property involved, an appraisal is at times, but not always, necessary.

All bankruptcies are governed by Title 11 of the U.S. Code (Bankruptcy Code) and are processed through Bankruptcy Courts — part of the system of Federal courts. The Bankruptcy Courts of the 94 Federal judicial districts were created by Congress just to hear bankruptcy cases and make decisions about disputes between debtors and creditors.

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Bankruptcy Appraisals

Posted on by Dave Maloney

Bankruptcy Appraisals

(by David Maloney) Bankruptcy is a legal procedure designed both to protect an individual or business that can’t meet its financial obligations and to protect the creditors involved. The process of bankruptcy requires the debtor to create an expense report illustrating the “value” of their assets. In order to get a true reading of the value of the individual or business personal property involved, an appraisal is at times, but not always, necessary.

All bankruptcies are governed by Title 11 of the U.S. Code (Bankruptcy Code) and are processed through Bankruptcy Courts — part of the system of Federal courts. The Bankruptcy Courts of the 94 Federal judicial districts were created by Congress just to hear bankruptcy cases and make decisions about disputes between debtors and creditors.

The debtor begins the process by filing a bankruptcy petition with the Clerk of the Bankruptcy Court in the Federal District where the debtor has lived or has had a principal place of business. The various types of bankruptcy are referred to by their respective Bankruptcy Code chapter numbers.

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Appraisal Report Structure: Not Dictated by USPAP

Posted on by Dave Maloney

Appraisal Report Structure: Not Dictated by USPAP

(by David Maloney) There is no single approved format for all personal property appraisal reports, nor is there a required method of presenting information within the appraisal document. USPAP’s STANDARD 8 states that USPAP does not:

 “dictate the form, format or style of personal property appraisal reports, which are functions of the needs of the intended users and appraisers. The substantive content of a report determines its compliance [with USPAP].”

Appraisal reports typically contain a logical presentation of the required elements of information. Appraisers usually choose to prepare either a narrative letter-style appraisal report or a form-style appraisal report.

In a narrative letter-style report the appraisal has the look and feel of a formal letter on company letterhead complete with salutation, content, the USPAP certification statement, signature and enclosures.

In a form-style report the report is prepared in sections according to a pre-designed format, with each section appropriately titled and addressing the relevant elements of information it is designed to contain.

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Cover Letter vs. Transmittal Letter vs. Cover Document: What’s the Difference?

Posted on by Dave Maloney

Cover Letter vs. Transmittal Letter vs. Cover Document: What’s the Difference? 

(by David Maloney) There has long been a misunderstanding related to definitions associated with and use of the terms cover letter, transmittal letter and cover document. Do they differ? Are they one-in-the-same? Must one or the other be used? 

The term “cover document” was first used in association with appraisals in 1994 when a standardized core course in personal property appraisal theory and principles was written by this author for a major appraisal society. Suffice it to say that the term “cover document” is synonymous with the term “transmittal letter” which has been and currently is in even wider use within other appraisal disciplines. Indeed, even USPAP makes mention of the term “transmittal letter” in its Ethics Rule and in the below quoted Q&A. USPAP does not make any mention of the term “cover document.” For the purposes of this discussion, we will equate “cover document” with “transmittal letter” and will henceforth make use of the latter term while discontinuing use of the former. 

Of the two remaining letters, there is no consensus on the use or nomenclature of the cover letter and transmittal letter among the various appraisal disciplines, but the following discussion will assist you to properly make use of them regardless of what they are called. Note, too, that there is no USPAP requirement for either a cover letter or a transmittal letter, USPAP’s Q&A and Ethics Rule mentions of the transmittal letter notwithstanding. Though not required, both often have their place in the preparation of a professionally designed and coherent report. 

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IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market

Posted on by Dave Maloney

IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market 

(by William Novotny Sept. 2008) The Los Angeles Chapter of the ASA recently sponsored an IRS symposium entitled Practicing Before the IRS – A Guide for Personal Property Appraisers at the Atrium Hotel in Irvine, CA. 

The symposium was well-attended and featured four key IRS speakers and Joy Berus, an attorney specializing in art law. From the IRS were Brenda Woolbert, CPA, CVA (Team Manager for the IRS Engineers and Appraisers office in Laguna Niguel, CA); Michael Zarefsky, Esq., CPA, IRS Attorney – Advisor; Susan Kassell, Esq. (Senior Counsel in the IRS Office of the Associate Chief Counsel, Income Tax & Accounting, Washington, DC) and Karen Carolan (Chief, Art Appraisal Services, Chair, Commissioner’s Art Advisory Panel Department of the Treasury, IRS, Washington, DC). Topics included the appraiser’s responsibilities, the requirements for estate and charitable contribution appraisals, IRS proposed changes and appraiser qualifications. 

Though familiar with the complexity of IRS regulations, participants were surprised to learn that there are 243 sections of the IRS Code regarding the use of fair market value. There are over 15 million tax returns filed annually in which taxpayers have valuation issues. As might be expected, abuses and disputes regarding valuations occur. 

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Appraisal Report Templates: Help Ensure Completeness, Professionalism

Posted on by Dave Maloney

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.

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Reason for the Signed USPAP Certification Statement

Posted on by Dave Maloney

Reason for a Signed Certification Statement

The USPAP Certification Statement is required to be included in all USPAP-compliant appraisals. Appraisals that do not include the Statement are not USPAP-compliant and should be avoided. USPAP’s FAQ #231 (2012-2013 version of USPAP) breaks down the mandated USPAP Certification Statement.

Question: Why does USPAP require an appraiser to include a signed Certification Statement in all written reports, and in the workfile for all reports, whether oral or written.

Response: A signed Certification Statement evidences an appraiser’s recognition of his or her ethical obligations. Except for the discipline-specific terms for professional assistance and the fact that STANDARD 10 [Business Appraisal, Reporting] does not require comment on a personal inspection, the appraiser’s USPAP Certification Statement is the same for all written reports covered by the USPAP Standards 1 through 10.

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The Appraiser as an Expert Witness: Conference with Counsel

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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: 

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