ADVISORY OPINIONS
This communication by the Appraisal Standards Board (ASB) does not establish new standards or interpret existing standards. Advisory Opinions are issued to illustrate the applicability of appraisal standards in specific situations and to offer advice from the ASB for the resolution of appraisal issues and problems.
SUBJECT: USPAP Compliance
APPLICATION: Real Property, Personal Property, Intangible Property
THE ISSUE:
Individuals perform numerous roles within the broad realm of valuation services. Examples include appraisal, brokerage, auctioning, property management, advocate consulting, appraisal consulting and collecting market data. Some valuation services are part of appraisal practice and require compliance with USPAP. What are the USPAP compliance requirements for these various services? More specifically:
When should an individual comply with USPAP?
What is the relationship between Valuation Services and Appraisal Practice?
What does acting “as an appraiser” or performing a service “as an appraiser” mean?
Why does an expectation for an individual to act as an appraiser indicate an obligation to comply with USPAP?
What are the responsibilities of an appraiser regarding intended user expectations?
What are the USPAP obligations for appraisal practice outside of appraisal, appraisal review, and appraisal consulting?
What are the USPAP obligations for valuation services outside of appraisal practice?
ADVICE FROM THE ASB ON THE ISSUE:
The PREAMBLE states that compliance with USPAP is required when either the service or the appraiser is obligated to comply by law or regulation, or by agreement with the client or intended users. An obligation to comply with USPAP is created by law, regulation, or agreement with intended users.(note1) In such cases an appraiser must follow USPAP. The PREAMBLE also states that when not obligated, individuals may still choose to comply with USPAP. The ETHICS RULE states that an individual should comply any time that individual represents that he or she is performing the service as an appraiser.(note2) An ethical obligation to comply with USPAP is created by choice, that is, by choosing to represent one’s self as an appraiser.
Therefore,
When required by law, regulation, or agreement, an individual must comply with USPAP.
When choosing to represent
one’s self as an appraiser, an individual should
comply with USPAP.
A key to distinguishing an appraiser’s obligations is understanding the relationship between “valuation services” and “appraisal practice” in USPAP. Appraisal practice is a subset of valuation services.
“Valuation services” are services pertaining to aspects of property value. Appraisers and others for whom value is an issue provide valuation services. Examples include appraisal, brokerage, auctioning, property management, advocate consulting, appraisal consulting and collecting market data.
“Appraisal practice” is defined as valuation services performed by an individual acting as an appraiser. Only appraisers may offer services that are considered appraisal practice. Examples include appraisal, appraisal consulting, and collecting market data (acting as an appraiser).
Since USPAP obligations apply to those who are acting as appraisers, USPAP applies to appraisal practice.
3. What does acting “as an appraiser” or performing a service “as an appraiser” mean?
An “appraiser” is defined as one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective (Bold added for emphasis). Therefore, an individual “acting as an appraiser” is expected, in part, to be competent in the service being provided. Also, an individual “acting as an appraiser” is expected to provide the service in a manner that is independent, impartial, and objective. Performing a service in a manner that is independent, impartial, and objective is an ethical requirement within USPAP.
“Acting as an appraiser” means representing oneself as an appraiser. Many individuals have other professional roles in addition their appraiser role. For example, some appraisers are also brokers, consultants, or leasing agents. Individuals who have appraiser roles as well as other professional roles must be careful to explain their role in performing a given valuation service (see question #7 below).
Law, regulation, agreement, or representation (choice) each prescribes when a valuation service is to be provided by an appraiser as part of appraisal practice. Emphasizing another portion of the definition of an “appraiser” is one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective (Bold added for emphasis). The Comment to the definition goes on to state that the expectation [for ethical and competent performance] occurs when individuals, either by choice or by requirement… represent that they comply. Expectation is the crucial element in determining when one is acting as an appraiser.
Why does an expectation for an individual to act as an appraiser indicate an obligation to comply with USPAP?
Public trust requires that when an individual is expected to perform with the ethics and competency of an appraiser, he or she will do so. An individual who agrees to perform a valuation service as an appraiser has a duty to comply with the ethics and competency that the public expects from an appraiser. This obligates the individual to comply with USPAP in performing the service.
The definition of an appraiser in conjunction with the need for public trust establishes the “expectation” as the basis for the obligation to comply with USPAP.
Intended user expectations for valuation services performed in compliance with USPAP are created when an individual represents that he or she is acting as an appraiser in a service. For example, these expectations can arise when an individual advertises or solicits as an appraiser (such as telephone listings, professional directories, business cards, stationery, or office signage), holds appraiser accreditation from a licensing agency, or maintains membership in a professional appraiser organization. An individual’s identification as an appraiser in a given valuation service establishes a justifiable expectation that the valuation service will be performed in compliance with USPAP.
In summary, expectation is the basis for determining when an individual providing a valuation service is acting as an appraiser. Because of the need to preserve public trust and confidence in appraisal practice, the expectations of the client and other intended users for ethical and competent performance create an obligation to comply with USPAP.
The appraiser has a professional responsibility to recognize the capacity in which he or she is performing. The responsibility includes inquiry about, and recognition of, the intended users’ expectations. When an individual’s appraisal expertise and reputation for providing services without bias induce the client or other intended users to select the individual to provide a valuation service, there is a justifiable expectation that the valuation service will be performed in compliance with USPAP.
When an individual who acts as an appraiser in some circumstances chooses to provide a valuation service in some other capacity (i.e., not as an appraiser and outside of appraisal practice), he or she must not represent himself or herself to be acting in the capacity of an appraiser. Since choice is an instrument to create USPAP obligations, it follows that when an individual has an opportunity to choose the capacity in which he or she will provide a valuation service, he or she is free to provide the valuation service as an appraiser or in some other capacity. However, an individual who is recognized as an appraiser must use great care not to violate the public trust.
What are the USPAP compliance obligations for appraisal practice outside of appraisal, appraisal review, and appraisal consulting?
Within appraisal practice, there are some assignments that are addressed by Standards (i.e. STANDARDS 1 through 10). The Standards describe the requirements for appraisal, appraisal review, or appraisal consulting assignments.
However, STANDARDS 1 through 10 do not apply in the performance of all appraisal practice services. Examples include assignments (performed as an appraiser) to teach appraisal courses, provide sales data, collect market data, analyze specific elements of value (e.g., reproduction cost or functional utility), and develop educational texts. (As defined in USPAP, assignments are performed by an individual acting as an appraiser. Therefore, all assignments fall within appraisal practice.)
Assignments to which STANDARDS 1 through 10 do not apply must still comply with the portions of USPAP that apply generally to appraisal practice. These include the DEFINITIONS, PREAMBLE, the Conduct, Management, and Confidentiality sections of the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE. As a result, such assignments must be provided without bias or accommodation of personal interest by competent appraisers.
The Record Keeping section of the ETHICS RULE applies to appraisal, appraisal review, or appraisal consulting assignments (i.e. STANDARDS 1 through 10). For other assignments, there are no workfile or record keeping requirements in USPAP. The SCOPE OF WORK RULE also applies only to appraisal, appraisal review, and appraisal consulting assignments.
As previously stated, many individuals have other professional roles in addition to their appraiser role. For example, some appraisers are also attorneys, accountants, brokers, or consultants. USPAP also places an obligation on an individual who sometimes acts as an appraiser even when he or she provides a valuation service in some other capacity – that obligation being not to mislead the users of the valuation service about the capacity in which he or she is acting. The ETHICS RULE states that an appraiser must not misrepresent his or her role when providing valuation services that are outside of appraisal practice. If a valuation service is premised on advocacy or compensation arrangements that are contrary to the ETHICS RULE, the valuation service is not consistent with the objectives of USPAP and cannot be performed by the individual acting as an appraiser.
An individual who sometimes provides services as an appraiser, but who is currently acting in another role, must ensure that intended users are not misled as to the individual’s role in providing that valuation service. This can be accomplished through such means as disclosure, notification, or careful distinction when providing the valuation service as to the individual’s role. Additionally, clear representation of the valuation services to be rendered in the engagement communication, scope of work description, or contract, as well as in written and oral correspondence with the client should assist in ensuring intended users are not misled.
USPAP 2008–2009 Edition
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