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