Category: Appraisal Practice/USPAP

Bankruptcy Appraisals

Posted on by Dave Maloney

Bankruptcy Appraisals

(by David Maloney) Bankruptcy is a legal procedure designed both to protect an individual or business that can’t meet its financial obligations and to protect the creditors involved. The process of bankruptcy requires the debtor to create an expense report illustrating the “value” of their assets. In order to get a true reading of the value of the individual or business personal property involved, an appraisal is at times, but not always, necessary.

All bankruptcies are governed by Title 11 of the U.S. Code (Bankruptcy Code) and are processed through Bankruptcy Courts — part of the system of Federal courts. The Bankruptcy Courts of the 94 Federal judicial districts were created by Congress just to hear bankruptcy cases and make decisions about disputes between debtors and creditors.

The debtor begins the process by filing a bankruptcy petition with the Clerk of the Bankruptcy Court in the Federal District where the debtor has lived or has had a principal place of business. The various types of bankruptcy are referred to by their respective Bankruptcy Code chapter numbers.

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Appraisal Report Structure: Not Dictated by USPAP

Posted on by Dave Maloney

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.

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Cover Letter vs. Transmittal Letter vs. Cover Document: What’s the Difference?

Posted on by Dave Maloney

Cover Letter vs. Transmittal Letter vs. Cover Document: What’s the Difference? 

(by David Maloney) There has long been a misunderstanding related to definitions associated with and use of the terms cover letter, transmittal letter and cover document. Do they differ? Are they one-in-the-same? Must one or the other be used? 

The term “cover document” was first used in association with appraisals in 1994 when a standardized core course in personal property appraisal theory and principles was written by this author for a major appraisal society. Suffice it to say that the term “cover document” is synonymous with the term “transmittal letter” which has been and currently is in even wider use within other appraisal disciplines. Indeed, even USPAP makes mention of the term “transmittal letter” in its Ethics Rule and in the below quoted Q&A. USPAP does not make any mention of the term “cover document.” For the purposes of this discussion, we will equate “cover document” with “transmittal letter” and will henceforth make use of the latter term while discontinuing use of the former. 

Of the two remaining letters, there is no consensus on the use or nomenclature of the cover letter and transmittal letter among the various appraisal disciplines, but the following discussion will assist you to properly make use of them regardless of what they are called. Note, too, that there is no USPAP requirement for either a cover letter or a transmittal letter, USPAP’s Q&A and Ethics Rule mentions of the transmittal letter notwithstanding. Though not required, both often have their place in the preparation of a professionally designed and coherent report. 

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IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market

Posted on by Dave Maloney

IRS Appraisal Symposium: FMV Requires Use of “Most Common” Market 

(by William Novotny Sept. 2008) The Los Angeles Chapter of the ASA recently sponsored an IRS symposium entitled Practicing Before the IRS – A Guide for Personal Property Appraisers at the Atrium Hotel in Irvine, CA. 

The symposium was well-attended and featured four key IRS speakers and Joy Berus, an attorney specializing in art law. From the IRS were Brenda Woolbert, CPA, CVA (Team Manager for the IRS Engineers and Appraisers office in Laguna Niguel, CA); Michael Zarefsky, Esq., CPA, IRS Attorney – Advisor; Susan Kassell, Esq. (Senior Counsel in the IRS Office of the Associate Chief Counsel, Income Tax & Accounting, Washington, DC) and Karen Carolan (Chief, Art Appraisal Services, Chair, Commissioner’s Art Advisory Panel Department of the Treasury, IRS, Washington, DC). Topics included the appraiser’s responsibilities, the requirements for estate and charitable contribution appraisals, IRS proposed changes and appraiser qualifications. 

Though familiar with the complexity of IRS regulations, participants were surprised to learn that there are 243 sections of the IRS Code regarding the use of fair market value. There are over 15 million tax returns filed annually in which taxpayers have valuation issues. As might be expected, abuses and disputes regarding valuations occur. 

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Appraisal Report Templates: Help Ensure Completeness, Professionalism

Posted on by Dave Maloney

Appraisal Report Templates: Help Ensure Completeness, Professionalism

(by William M. Novotny, ISA AM, GCA and David J. Maloney, Jr., AOA CM) The appraisal report is the appraiser’s final work product. Documenting the appraisal investigation to various degrees of detail depending on the report type (self-contained vs. summary vs. restricted use), the appraisal report provides structure and a foundation for the appraiser’s opinion so that it can be properly understood when read by the client and other intended users. Many appraiser opt to make use of appraisal templates to help ensure complete and professional appraisal reports while at the same time minimizing time spent wasted on repetitive report writing tasks.

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Reason for the Signed USPAP Certification Statement

Posted on by Dave Maloney

Reason for a Signed Certification Statement

The USPAP Certification Statement is required to be included in all USPAP-compliant appraisals. Appraisals that do not include the Statement are not USPAP-compliant and should be avoided. USPAP’s FAQ #231 (2012-2013 version of USPAP) breaks down the mandated USPAP Certification Statement.

Question: Why does USPAP require an appraiser to include a signed Certification Statement in all written reports, and in the workfile for all reports, whether oral or written.

Response: A signed Certification Statement evidences an appraiser’s recognition of his or her ethical obligations. Except for the discipline-specific terms for professional assistance and the fact that STANDARD 10 [Business Appraisal, Reporting] does not require comment on a personal inspection, the appraiser’s USPAP Certification Statement is the same for all written reports covered by the USPAP Standards 1 through 10.

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The Appraiser as an Expert Witness: Conference with Counsel

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The Appraiser as an Expert Witness: Conference with Counsel 

(by Steven Babitsky, Esq. and James J. Mangraviti, Jr., Esq.) Prior to being deposed, the expert should insist on a conference with counsel. Counsel may, in an attempt to save time and money, advise the expert that no such conference is necessary and that he will come a “few minutes early” to the deposition to talk things over. While this may be expedient for counsel, it will almost always result in inadequate preparation for the expert. This type of last-minute review is a recipe for disaster and experts should refuse to participate in it. Experts need time to organize their files and their thoughts. Wise experts insist on a separate appointment with counsel, days – not hours or minutes – prior to the date of deposition. 

To ensure proper preparation by retaining counsel, the expert should do the following: 

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Inspecting the Subject Property: At Times Inspections are Unnecessary or Impossible to Perform

Posted on by Dave Maloney

Inspecting the Subject Property: At Times Inspections are Unnecessary or Impossible to Perform

(by Dave J. Maloney, Jr., AOA CM) The primary reason for an appraiser to personally inspect a property is to gather information about the characteristics of the property that are relevant to its value. (In general, these are referred to as relevant property characteristics and consist of quality characteristics as well as value-relevant attributes of the property.)

But is a personal inspection by the appraiser required to gather the necessary information? The answer is “No” (though it is advised whenever possible.)

Though appraisers almost always conduct a hands-on inspection of the property which is the subject of the appraisal assignment, on some occasions such as in the case of a theft or loss, the property is no longer available for inspection. In such cases, a personal inspection simply is not possible. On other occasions, the high cost or risk of loss of shipping a valuable property to the specialist appraiser for examination might necessitate an appraisal being conducted without the benefit of a personal inspection. For items that remain available for inspection and which require special testing procedures or equipment to prove genuineness or quality, or which require authentication, or which are potentially so valuable as to warrant the expense of a hands-on inspection, the specialist appraiser should insist that arrangements be made for a personal inspection either by him/herself or by some other qualified appraiser. Otherwise, the appraiser should abandon the assignment.

The following discussion addresses USPAP’s requirements regarding the appraiser’s responsibility regarding “identification.”

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