USPAP – WALITT SOLUTIONS

A student in my USPAP Update class recently asked me,

“I know I can discuss the report with the client, but I’ve talked about the report with other intended users, too. Isn’t that why they are an ‘intended user’?”

Let’s take a look at this issue in a bit more depth, starting with the definitions of “client” and “intended user” from the 2020-2021 edition of the Uniform Standards of Professional Appraisal Practice (USPAP):

CLIENT: the party or parties (i.e., individual, group, or entity) who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent.

INTENDED USER: the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.

The client is always an intended user for an appraisal or appraisal review assignment. But all intended users are not necessarily clients. For example:

Client: Bank XYZ.
Intended users: Client (Bank XYZ) and Agency-A.

In this example, Bank XYZ is the client (and consequently an intended user); Agency-A is merely an intended user, but is not the client. The above example could be written differently (since the client is always an intended user), with the same meaning, obligations, and limitations:

Client: Bank XYZ.
Additional intended users: Agency-A.

So, should the student be talking to other intended users (who are not the client) about his appraisal report(s)? No.

It is important for the appraiser to identify the client and additional intended users at the time of the assignment, to clearly disclose those parties in the report, and – equally important – to understand the obligations those labels carry.

What difference does it make?

USPAP makes it clear there is a big difference between what “client” and “intended user” imply in the appraisal process. The appraiser can disclose assignment results (opinions and conclusions, including but not limited to value) to a client, and has client obligations related to confidentiality. By comparison, the intended user is the audience (so to speak) for the appraiser’s report; the appraiser must ensure the report is understandable to that type of (or specifically named) intended user. A key difference is that the appraiser has no direct “relationship” with the intended user, at least not in the sense that the appraiser has a relationship directly with the client related to disclosures and confidentiality.

Is the “agent” (from the definition of “client”) a client?

From its context in the definition of “client”, we know an agent is the party through which a client may choose to engage an appraiser for a specific assignment. However, USPAP has no definition of “agent”, since it can be found in a common English dictionary. From the Merriam-Webster dictionary, we know an agent is “one who is authorized to act for or in the place of another” (2020, May 24. http://merriam-webster.com/dictionary/agent).

For example, agents such as attorneys and appraisal management companies regularly act on behalf of the client to order appraisals, communicate about the appraisal, receive and process appraisal reports, and even ensure payment is made to the appraiser. The agent is not the client*, but the agent may be authorized to interact with the appraiser in the same or similar ways that a client normally would. The degree to which an appraiser may communicate and interact with the agent should be determined at the time of the assignment, such as through an engagement letter.

Who can the appraiser disclose certain information to?

The Confidentiality section of the Ethics Rule reads, in part:

An appraiser must not disclose: (1) confidential information; or (2) assignment results to anyone other than:
• the client;
• parties specifically authorized by the client;
• state appraiser regulatory agencies;
• third parties as may be authorized by due process of law; or
• a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.

This list notably does not include intended users who are not the client. However, this list includes an agent specifically authorized by the client, such as an attorney or appraisal management company acting on behalf of the client, depending on the assignment.

*Note that in some limited states, the agent for a lender (e.g., an appraisal management company) is considered the client pursuant to state regulation. This article does not address these state-specific regulations, but rather addresses USPAP.

For additional information

Review the Definitions, Ethics Rule, Standards 1 and 2, and FAQs 128 and 129 in the 2020-2021 edition of the USPAP Publication.

Go to Events and Classes or Services.

I was recently part of a discussion where an appraiser asked the group:

I am an appraiser as well as a real estate sales agent. After I complete inspecting a property for an appraisal assignment and before leaving the property, can I then solicit the owner about the prospect of being his listing agent or buying agent if he needs one in the future? I have no current interest in the house being appraised. Would this action violate USPAP?
-Appraiser

Remember that determining compliance or non-compliance with USPAP would ultimately be determined by your state regulator. Certain states may have position statements, guidelines, or specific instructions on how to handle yourself in these types of dual-license situations. That being said, let me discuss with you several important passages from USPAP which relate to an appraiser soliciting his or her sales services to a homeowner during the appraisal visit.

To start, the Conduct section of the Ethics Rule states that an appraiser “must not misrepresent his or her role when providing valuation services that are outside of appraisal practice”. Part of understanding whether we are “misrepresenting” our role is to consider our interactions from the point of view of the parties involved, in this case the homeowner. In your case, you are clearly performing services as an appraiser, since the homeowner was told an appraiser would visit the property, an appraiser’s office called to set the appointment for the appraisal visit, an appraiser arrived to measure and photograph the house as an appraiser, and so on. If, while you are perceived to be an appraiser, you solicit business related to sales services and later list the house for sale, might the homeowner think you are listing her house as an appraiser? After all, you solicited the homeowner when acting as an appraiser and the homeowner knows you by your appraisal work.

Soliciting for a listing while performing the appraisal as an appraiser can mislead a homeowner in terms of his or her understanding of what service you are providing now and what service you might provide in the future. The Management section of the Ethics Rule states “An appraiser must not advertise for or solicit assignments in a manner that is false, misleading, or exaggerated.”

Keep in mind, too, that the Conduct section of the Ethics Rule states “an appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.” Offering sales services as you described may cast doubt on whether you are truly acting impartially and without accommodating your personal interests.

Further, and perhaps most to the point, your act of soliciting or promoting your services as a listing or sales agent creates a prospective interest in the property or parties. To illustrate, ask yourself: Why are you advertising your sales services to her? Invariably, your intent is to obtain the listing and/or sell a house to her in the future – a prospective interest.

If you have an interest, USPAP then requires two disclosures for appraisal and appraisal review assignments. The Conduct section of the Ethics Rule requires: “If known prior to accepting an assignment, and/or if discovered at any time during the assignment, an appraiser must disclose to the client, and in each subsequent report certification: any current or prospective interest in the subject property or parties involved”. The initial disclosure to your client might take the form of a phone call or email, and the disclosure in the report certification should follow the example of Standards Rule 2-3. (Note that if you are performing appraisal practice that does not result in an appraisal report or appraisal review report, the initial disclosure to your client is still required.)

But disclosure aside, while USPAP allows the appraiser to have an interest in the property and parties, many intended uses prohibit the appraiser from performing the assignment if he or she has any interest. For example, the I.R.S., the GSEs, and federal financial institution regulators have regulations speaking to the appraiser’s interest related to the property or parties. So, while USPAP allows it, you would likely need to decline or withdraw from the assignment if you have a current or prospective interest.

In the scenario in question: by soliciting sales services, you are creating a prospective interest which must be disclosed and likely precludes you from performing the assignment.

To restate the oft-cited “hat” metaphor: bring only and wear only your “appraiser hat” for your appraisal assignments.

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Client versus Intended User