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.

Continue reading “Competency (part 1 of 2)”