Guest Columnist:
Joe Palumbo, SRA

Palumbo On USPAP is a column written by a long time appraisal colleague and friend who is also an Appraisal Qualifications Board (AQB) certified instructor and a user of appraisal services. Joe is well-versed on the ever changing landscape of the Uniform Standards of Professional Appraisal Practice [USPAP] and I am fortunate to have his contributions. View his earlier handiwork on Soapbox and his recent interview on The Housing Helix.
…Jonathan Miller

2010-2011 USPAP changes: the need for transparency: it’s for your protection.

Over the past  2 years the “new world” has warranted many changes in the development and reporting of a value opinion:  clarity, specificity, accuracy….among other things.

In 2010-2011 add  “enhanced transparency “.  Like everything else in life that might seem painful at first, but is good in the end, this is the same premise here:  “it’s for your own good”.

Before we get to the “why” of this Ethics Rule change let’s take a summarize look at the other changes from the 2010-2011  issue of USPAP: 

  • Definition of “Signature
  • Definition of “Jurisdictional Exception
  • Definition of “Assignment
  • STANDARD 3, Appraisal Review, Development and Reporting

Definitions changes are usually the result of the need for additional clarity as a result of words being misused or misunderstood.  In the real estate community, the use of words with presumed meaning, improper or not, is pervasive. Remember the Board only defines words that have different meaning than they do in the standard English dictionary.   The changes to the definitions in the 2010-2011 USPAP are straight forward:  the comment under the definition of “signature” was deleted and new language was relocated to the Ethics Rule, whereby the responsibility of managing one’s signature is discussed (even allowing someone else to sign for you).  The definition of “assignment” was enhanced to specify that it means both the agreement to provide…… and the service itself.  “Jurisdictional Exception” was redefined to reflect that parts of USPAP may be voided when the law or regulation  precludes compliance rather than the law being seen as “contrary” to USPAP.   As such, the JER was re-written in a clear concise way including 4 specific exhortations required by the appraiser when invoking the JER.  This “four-point requirement”  forces one to not only know the law or regulation but cite then and then examine and report the specifics of what  part of USPAP that needs to be voided.  The change to the JER is well done and makes what was a complicated issue, very clear and straight-forward.   The Competency  Rule was rewritten and divided into three sections: being competent, acquiring competency, and lacking competency.   Basically, Competency can be can still be obtained during and assignment, providing the PRIOR disclosure was made to the client as well as the written steps taken to become competent are contained  in the report.   Standard 3,  one of two standards that contain development AND reporting wrapped in one, was expanded and rewritten to meet the practical needs of current practices. Specifically Standard 3 was  expanded to discuss the development and reporting where the reviewer is providing alternate value conclusions including the reporting requirements, including discussion of competence, diligence and scope of work.    

Last but not least, there is a change to the Ethics Rule (as written in the 2010-2011 USPAP)  

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 the subsequent report certification:

any current or prospective interest in the subject property or parties involved; and

any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.

Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted  except in the case when an appraiser has agreed with the client to keep the mere occurrence of a  prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she  has appraised a property, the appraiser must decline all subsequent assignments that fall within the  three year period.

At first glance, this would seem overly intrusive and overkill.  There are certainly arguments for and against it, like any changes. A change like this  is best viewed in the context of today’s real estate world.  A world in which fraud, bias and conflict of interest have become the “flavor of the day”.  And like any change there are always several questions.  This time there were so many questions that the Board created and devoted an entire  Q & A to respond.  This Q and A (April 2009) is also included in the 2010-2011 USPAP Student Manual…a first for the Foundation to include a Q & A in student material.   Rather than address those here, one would greatly benefit from the download of the Q &  A.   I feel it is best to dig a little deeper here.  Note the careful wording by the board… “or in any capacity”…which could mean…that you cleaned the windows…or cut the lawn or even painted the improvements.  While none of these things constitutes “valuation”, they do imply a relationship, or knowledge of the property….and indication that you knew “something”.   Question is how much and will there be another service down the road?  Sometimes the mere perception of a conflict or bias is enough to give one reason to doubt that the appraiser can be objective, independent and impartial.  Until 2010 year it was not a requirement to notify a potential client that the appraiser had a current or prospective interest in the property or parties involved, but it  was a requirement  to indicate that in the certification AFTER the assignment was delivered.  It seems that where there was no mechanism to ensure transparency and objectivity, there is no a sure definitive way to say to a potential client:  “I have been involved with the property…in the following manner_______ and I feel I can be objective in solving the appraisal problem you seek a solution for”.  “I just need you to know up front” .  Of course this could lead those paranoid clients to engage another appraiser, but if not the appraiser will be on record should something strange arise in the future.  Either way, this is the new world and disclosure like this is in-line with all the written disclaimers I see flying around in the appraisal world.     

So as you digest these changes and there are more ( we have just reviewed the major ones here)  think about all those things in life that you felt where, unfair, wrong or just plain nonsense. Think about how many of them later in life turned out to be for your own good.   

Happy New (transparency) Year

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One Response to “[Vortex] Palumbo on USPAP: Transparency, It’s For Your Protection”

  1. Joe,

    Thanks,– again for sharing your insight. I chanpion the efforts the Foundation is putting into insisting on appraiser transparency. In hope we, as an industry, see those efforts carry over into enforcement and review. This are the two most effective sources of instruction and change in our industry and are, unfortunately, still much overlooked and neglected.

    Here in Colorado, an effort is being made by the regulators to require submission of all reviews of conservation easement appraisals for State scrutiny and is being fought by those who review.

    And then there is that pesky confidentiality provision. For the most part a hiding place and much abused. Anethema to transparency. I hoped that transparency would triumph over confidentiality in the appraisal industry, but apparently not just yet.