Appraisal Report Structure: Not Dictated by USPAP

(by David Maloney) There is no single approved format for all personal property appraisal reports, nor is there a required method of presenting information within the appraisal document. USPAP’s STANDARD 8 states that USPAP does not:

“dictate the form, format or style of personal property appraisal reports, which are functions of the needs of the intended users and appraisers. The substantive content of a report determines its compliance [with USPAP].”

Appraisal reports typically contain a logical presentation of the required elements of information. Appraisers usually choose to prepare either a narrative letter-style appraisal report or a form-style appraisal report.

In a narrative letter-style report the appraisal has the look and feel of a formal letter on company letterhead complete with salutation, content, the USPAP certification statement, signature and enclosures.

In a form-style report the report is prepared in sections according to a pre-designed format, with each section appropriately titled and addressing the relevant elements of information it is designed to contain.

Regardless of which appraisal report form is used, in general terms, the appraisal report must contain three categories of information:

Appraisal-specific information
Item-specific information
Supporting documentation

Appraisal-specific information is that information that applies to the entire assignment (as opposed to the information that applies only to individual items being appraised) and which includes such information as that delineated in USPAP Standards Rule 8-2. In a letter-style report, appraisal-specific information is typically contained in what is referred to as a transmittal letter. In a form-style report, some information might be included within a transmittal letter while the balance of required information might be spread among various sections of the form report. Its location and how it is presented is up to the appraiser and makes little difference — just make sure it is there somewhere. Appraisal-specific information includes:

USPAP report format option employed (Summary, Self-contained, or Restricted Use)
Identity of the client and other intended users
Intended use of the appraisal
Ownership interest
Definition of value and its citation (include disclosure and discussion of exposure time if necessary for intended users to understand the report)
Effective date of the appraisal
Date of the report
Scope of work actually performed
Professional assistance provided by others
Valuation approaches used and those excluded
Markets researched
Limiting conditions
Hypothetical conditions
Extraordinary assumptions
Disclaimers and terms of use
Statement of confidentiality
Location of the property
Responsible parties present at inspection
Applicable reference case numbers or file numbers
Appraiser-signed USPAP Certification Statement
For donation appraisals, a declaration of the appraiser’s qualifications
For donation appraisals, a statement acknowledging potential liability in cases of gross misstatement of value

Item-specific information is that information which pertains specifically and solely to the individual items being appraised (as opposed to the overall appraisal assignment.) For letter-style reports, item-specific information might be contained within the transmittal letter (e.g., in an assignment which has only a single item of property being appraised.) More often, though, are assignments containing numerous items being appraised in which case item-specific information is most commonly contained within a separate valuations section of the report which would immediately follow the transmittal letter. This valuations section is often referred to as the body of the report. In a form-style report, on the other hand, item-specific information, like appraisal-specific information, is contained within identified sections of the report. Included in item-specific information are:

Item description
Quantity
Quality characteristics
Physical attributes with a material effect on value
Economic attributes with a material effect on value
Condition
Date or age
Maker’s marks of signatures, if applicable
Provenance (if applicable)
A description of authentications, grading or tests performed
Description of any significant personal property appraisal assistance provided by other appraisers
Significant client-provided information regarding the item
Comparable market data, if required to be included within the report
Commentary on market and value issues (if item-specific in nature)
Photographs (if not included in below-mentioned addenda)

Supporting documentation can be attached to the report as addenda and is that information which is either required to be included in an appraisal or that information which otherwise facilitates the understanding of the report including:

The appraiser’s professional profile
Professional profiles of those providing significant personal property appraisal assistance
Copies of authentications, grading or tests performed
Glossary of unusual terms or abbreviations used
Bibliography of reference resources
List of exhibition history or citations in literature
Artist chronology
Copies of grading scales or condition codes used
Diagrams or sketches
Photographs (if not included in the above-mentioned body (valuations section) of the report)

The letter-style report

As mentioned above, the letter-style report contains the appraisal-specific information within a cover document known as the transmittal letter and includes enclosures. Attached to the transmittal letter is the body of the report. The body of the report includes the item-specific information such as item descriptions and values. Often the body of the report contains a table with the item number in the first column, the item description (including comparable sales on which value is based (if necessary)) in the second column, and the appraiser’s opinion of value in the third column. Also attached to the transmittal letter would be addenda to the report which would include the appraiser’s professional profile and any supporting documentation necessary to make the report complete and understandable.

The form-style report

Form-style reports allow the appraisal to be communicated in a standardized format. They help ensure that all necessary information is included in the report, and they allow the client to easily and quickly review the important information – thus their popularity within the discipline of real property appraising where form-style reports are standardized throughout much of the industry. Unfortunately, for the personal property appraiser, form-style appraisals are not standardized and often restrict the appraiser’s ability to tailor the report to the specific assignment conditions, intended use of the report, or to the necessary scope of work. Accordingly, though used and customized differently by each appraiser, form-style appraisals are not as popular among personal property appraisers as is the more flexible narrative letter-style report format. When used, however, personal property form reports might be designed to include the following sections:

1. Transmittal letter – An executive summary to include:

Applicable reference case numbers
Client and other intended users
Intended use
USPAP report format option employed (Summary, Self-contained, or Restricted Use)
Location of property when appraised
Responsible parties present during inspection
Date of inspection
Ownership interest
Effective date of the report
Date of report
Whether report is a hypothetical appraisal
Statement of confidentiality

2. Sections:

Table of contents (if used)
Value and value definition with citation
Scope of work
Inspection
Research
Report development process
Reporting
Professional assistance provided by others (including professional appraisal assistance provided by other appraisers)
Valuation approaches used and those excluded
Markets researched and market analysis
Limiting conditions
Extraordinary assumptions. Be sure to disclose that extra ordinary assumption could have affected assignment results
Hypothetical conditions
Disclaimers and terms of use
Item description, value, comparable sales used (if required)
Appraiser-signed USPAP certification

3. Addenda:

Qualifications of appraiser
Qualifications of participating appraisers or experts
Photographs
Reports of graders, experts, authenticators, consultants
Glossary of terms used (if necessary)
Diagrams, sketches
Condition scales used
Reference resources

Your choice of report style (whether letter-style of form-style) is not as critical as your thoroughness in including all the required elements of information into your report in a logical, understandable and USPAP-compliant manner. Like a Dagwood sandwich, it matters not if the slice of tomato goes above or below the lettuce. But it does matter that the slice of tomato is there!