Answer to Question #1, Illustration for (AO-21)

Brokerage and Appraisal
 

Answer: Many states’ brokerage and appraiser licensing laws have specific provisions for appraisers who are also brokers. In the absence of such laws, USPAP provides flexibility for brokers/appraisers and others who have multiple professional roles.
 

The critical element in determining whether Liz should comply with USPAP is the expectation of her brokerage client. If Liz includes her appraiser status in her brokerage marketing materials, such as advertisements, business cards, or letterhead, it is likely that her client expects her to bring to her brokerage practice the ethics and competence associated with an individual acting as an appraiser. By allowing her client to believe that her appraisal expertise adds credibility to her price estimate, Liz has created an obligation to comply with USPAP in the preparation of a price estimate for the client.
 

The extent of Liz’s USPAP obligation depends on the intended use of the price estimate. The distinction between “price” and “value” is crucial here: within USPAP, “price” is a fact(note3)  while “value” is an opinion(note4). If Liz recommends an asking price for a specific property owner, under specific circumstances, she is analyzing price as defined by USPAP. STANDARDS 1, 7 and 9 apply to the development of an appraisal, which is defined as an opinion of value. Therefore, the obligations of STANDARDS 1, 7 and 9 do not apply to estimates of price. However, as an individual acting as an appraiser, Liz is obligated to comply with the remainder of USPAP (i.e., DEFINITIONS, PREAMBLE, the Conduct, Management, and Confidentiality sections of the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE). For example, her estimate of price must be ethically and competently prepared, as part of appraisal practice.

If Liz’s recommendation represents the relationship between typical buyers and sellers, she is analyzing value. Her recommendation is an opinion of value and is by definition an appraisal. It must be ethically and competently prepared in accordance with STANDARDS 1, 7, or 9 and reported in compliance with STANDARDS 2, 8, or 10.

Alternatively, if Liz has been careful to separate her roles as broker and appraiser, she would be able to prepare price estimates as a valuation service, outside of appraisal practice. Liz should have sound reasons to believe that her brokerage client does not expect her to act as an appraiser. Further, she should not characterize her conclusions in any manner as representing a “value” or, an “opinion of value” of any kind.

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