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Is an Appraiser a Fiduciary?

Is an Appraiser a Fiduciary? 

(by David Maloney) If deemed to be a fiduciary, appraisers could be held liable for breaching their fiduciary duties. But do appraisers normally perform in the role of a fiduciary? The answer is “No.” 

 Though professionals, appraisers typically act in an arm’s-length manner in the capacity of independent contractors but not as fiduciaries. 

A fiduciary is one who has a special relation of trust, confidence, or responsibility in his or her obligations to others, as does a bank trust officer, a guardian and his minor ward, the Executor of an estate, a company director, a lawyer and his client, or an agent of a principal (e.g., an estate liquidator or an auctioneer.) A fiduciary is expected to act as an advocate for his or her client who is normally in no position to supervise or control the actions taken by the fiduciary on his behalf. The client must take those actions on trust, and the fiduciary principle is designed to prevent that trust from being misplaced. Fiduciaries who violate that trust can be held liable for doing so. 

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Definitions of “Qualified Appraiser” and “Qualified Appraisal” Continue to Evolve

Definitions of “Qualified Appraiser” and “Qualified Appraisal” Continue to Evolve

(by David Maloney Sept. 30, 2011) A taxpayer is generally permitted a deduction for noncash charitable contributions subject to certain limitations depending on the type of taxpayer, the nature of the property contributed, and the type of donee organization. When the deduction is permitted, taxpayers are required to obtain a qualified appraisal from a qualified appraiser for donated property for which a deduction of more than $5,000 is claimed.

Since tax deductions reduce the amount of tax collected by the federal government, Congress has tightened the rules governing appraisals in recent years in quest of discouraging valuation abuse, i.e., overstating the value of the contributed property. To accomplish this, relevant statutes were introduced embedded within the American Jobs Creation Act of 2004 (Jobs Act) and the Pension Protection Act of 2006 (PPA).

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Competency (part 2 of 2)

COMPETENCY RULE or SCOPE OF WORK RULE: Which Rule Rules? (part 2 of 2)

(by William M. Novotny, AQB Certified USPAP Instructor. This is the second part of a two-part article focusing on the generalist appraiser and the issue of competency. For Part One, go here.)

This article builds upon the competency issues developed and discussed in Part One, and it explores those issues further by means of two hypothetical appraisal assignments performed by John Morgan, a hypothetical, experienced generalist personal property appraiser. In these two mini-case studies John must deal with critical competency issues for an insurance total loss appraisal assignment and for a separate equitable distribution appraisal assignment.

Hypothetical Insurance Assignment: A Competency Disclosure or a Scope of Work Disclosure?

In this hypothetical insurance assignment fictional appraiser John Morgan was contacted by Rachel Barnes, a senior insurance adjuster, to appraise some items of personal property involved in a fire loss claim.

The insured in this case owns specialized items of personal property including some antique furniture, decorative art, a Japanese folding screen (Byobu) and a very large HO brass scale model train collection with an extensive tabletop model train layout. John Morgan is asked to appraise the property that suffered damage as a result of exposure to fire, smoke and water, and by subsequent asbestos contamination caused by a remediation crew removing drywall and accidentally distributing asbestos-laden insulation.

The claimed items were a total loss and are covered under a standard homeowner’s replacement value insurance policy. According to the policy, in case of total loss appreciating items of property are covered up front at their replacement value, but for depreciating property the insured is only entitled to the item’s actual cash value up front until such time as the property is actually replaced and a purchase receipt is submitted. At that time the insured is paid the difference between actual cash value and the actual replacement cost.

John has handled similar assignments for this client, adjuster Rachel Barnes, in the past. The client again came to John because of his demonstrated knowledge and experience with many different property types. But upon examining the damage claim, John recognizes two properties which may present competency issues: the model train and the Byobu.

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Competency (part 1 of 2)

COMPETENCY RULE or SCOPE OF WORK RULE: Which Rule Rules? (part 1 of 2)

(by William M. Novotny, AQB Certified USPAP Instructor. This is the first part of a two-part article focusing on the generalist appraiser and the issue of competency. For Part 2 of this article, go here.)

Both the SCOPE OF WORK RULE as well as the COMPETENCY RULE of USPAP contain disclosure requirements that are particularly relevant to the generalist appraiser.

  • The SCOPE OF WORK RULE disclosure requirement mandates that sufficient information be disclosed to allow users to understand the scope of work actually performed in the assignment. A scope of work disclosure typically addresses such issues as the type and extent of research performed, or the assistance that was provided by an expert.
  • The COMPETENCY RULE disclosure requirement calls for the appraiser to disclose a lack of knowledge and/or experience to the client before accepting the assignment, at whatever point in the appraisal process that it becomes apparent to the appraiser that his or her lack of knowledge and experience will prevent the development of credible assignment results. This is referred to as a “competency disclosure.”

The SCOPE OF WORK RULE applies at all times, and requires the appraiser to do whatever is necessary to develop credible assignment results and to disclose the scope of work performed in the appraisal report. The COMPETENCY RULE requires the appraiser to have the knowledge and experience to complete the assignment credibly and to make a disclosure to the client and in the report when unable to do so.

This paper explores critical considerations that go into making a COMPETENCY RULE disclosure. It also examines related USPAP requirements that have particular relevance to generalist personal property appraisers who often encounter objects about which they have limited experience. It is when such properties are encountered that an appraiser must choose whether or not to expand the scope of work or make a competency disclosure to the client.

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Use Tables and Headers/Footers

Tables & Headers/Footers: Making Your Appraisal Report Look Professional

(by David Maloney) As a personal property appraisal course writer and instructor since 1994, I’ve reviewed many appraisals submitted by my students. Non-students also often ask me to review their appraisals for completeness or for USPAP compliance. Other than a couple appraisers who prepare their reports in MS-Excel, most all appraisals I have reviewed are prepared in MS-Word. (This article focuses on the Windows user. Similar features, of course, are available to the MAC user.)

Over the years I’ve often noticed a couple report shortcomings that occur on a consistent basis – specifically, these shortcomings include the failure of the appraiser to make use of MS-Word’s “Table” feature and MS-Word’s “Header/Footer” feature.

It is for good reason that appraisers using Windows most often use MS-Word to prepare their reports. MS-Word contains numerous features which, if used, will result in a report that is not only well-designed but also professional in appearance. But, as noted, two of the most important but most frequently under-utilized features of MS-Word are the Table feature and the Header/Footer feature.

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Courtesy Discounts

Courtesy Discounts

(by David Maloney) A courtesy discount is a reduction in one’s fee for services provided. I suppose those who offer courtesy discounts feel that by discounting their fees, their chances of obtaining future business from the client are enhanced. I’ve often wondered if the client, like Pavlov’s dog, will come to expect additional courtesy discounts in the future, and what his or her reaction would be if not offered a courtesy discount for future assignments. But I digress.

I, personally, do not recall ever having received a courtesy discount from any type of service provider, be it my attorney, accountant, financial advisor, appliance repairman, plumber, electrician, etc. Never.

And as a professional appraiser, I have never offered courtesy discounts nor will I ever offer them. While others might willingly give away their appraisal services, I choose not to do so.

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IRS Guidance for Art Exceeding $20K or $50K FMV

IRS Guidance: Donation Appraisals for Artwork Exceeding $20K or $50K FMV

(by David Maloney, updated March 2011) Taxpayers and appraisers often refer to IRS Pub 561 Determining the Value of Donated Property in order to ascertain what constitutes a qualified appraisal, i.e., what IRS-required elements of information must be contained in appraisals of property being donated for which a deduction in excess of $5,000 is being claimed by the taxpayer.

But in addition to Pub 561, the IRS Office of Art Appraisal Services (AAS) has issued additional amplifying guidance regarding the appraisal of donated works of art which are valued at over $20,000 or $50K.

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Can Museum Appraiser/Volunteers do Appraisals for their Museum?

Can Museum Appraiser/Volunteers do Appraisals for their Museum?

(by David Maloney) Donees, staff and their relations are prohibited by the IRS from doing appraisals of items being donated to their respective institutions. But what about volunteers such as committee members or members of the BOD? Are they, too, prohibited?

For the most part, IRS Pub 561 is clear as to who may and may not do appraisals for Federal income tax purposes, including non-cash charitable contributions. Those who may are termed “qualified appraisers.” Those who are not are termed “excluded individuals.” 

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When Assistance is Provided by Others

When Assistance is Provided by Others

(by David Maloney) Recently, The Appraisal Foundation’s Appraisal Standards Board (ASB) responded to a query submitted by my Appraisal Course Associates partner, AQB-certified USPAP instructor, Bill Novotny. The original issue in question focused on USPAP record keeping requirements pertaining to appraisers who provide assistance with an assignment. There clearly are such requirements for the primary appraiser who signs the report’s USPAP certification, but what obligations apply to the assisting appraiser?

The initial query led to even more questions regarding USPAP obligations pertaining to the primary appraiser as well as to the individual providing the assistance. What if the individual providing assistance is not an “appraiser?” If an appraiser, what if the assistance provided was not “appraisal” assistance? What if the assistance provided was not deemed “significant”? This paper addresses these several questions and clarifies USPAP obligations pertaining to personal property assignments in which assistance is provided by others.

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Jurisdictional Exception Rule – Only One Known Example

The Jurisdictional Exception Rule Frequently Misunderstood — Only One Known Example

(by William Novotny) USPAP’s JURISDICTIONAL EXCEPTION RULE is intended to address assignment conditions in which there is a conflict between USPAP requirements and the requirements of federal, state or local jurisdictions. Such conflicts would preclude appraisers from complying with those conflicted parts of USPAP. In this article I will briefly review the RULE, provide a typical example of how it is misapplied, and review the only known example of a jurisdictional exception.

I came across this sole example of a jurisdictional exception during a recent recertification process I underwent in order to renew my qualification as an AQB Certified USPAP Instructor for 2010-2011. That there is only one known example of a jurisdictional exception surprised me—as it did some of my colleagues as well.

USPAP defines a jurisdictional exception as:

JURISDICTIONAL EXCEPTION: an assignment condition established by applicable law or regulation, which precludes an appraiser from complying with a part of USPAP

And regarding the RULE, USPAP states:

“The JURISDICTIONAL EXCEPTION RULE provides a saving or severability clause intended to preserve the balance of USPAP if compliance with one or more of its parts is precluded by the law or regulation of a jurisdiction. When an appraiser properly follows this Rule in disregarding a part of USPAP, there is no violation of USPAP.”

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