Tag: uspap

Walk-Throughs: Performing as an Appraiser vs. as an Estate Liquidator

Posted on by Dave Maloney

Walk-Throughs: Performing as an Appraiser vs. as an Estate Liquidator

(by Dave Maloney) Appraisers often conduct walk-throughs as a cost-effective way for the client to obtain the information he or she is seeking. These types of assignments often call upon the appraiser to develop opinions of value and report them orally, i.e., to perform an oral “appraisal.” At other times, these walk-throughs turn out to be not “appraisal” assignments being performed by an “appraiser”, but rather “pricing services” being provided by an “estate liquidator.”

Performing Walk-Throughs as an Estate Liquidator

Sometimes estate liquidators who are also appraisers are called upon to perform as appraisers. Sometimes they are not, such as when they are asked by the client to perform as estate liquidators instead. If they are appraisers belonging to certain appraisal societies, they must comply with USPAP if developing “opinions of value” for the estate sale client, but if, instead, they are performing a “pricing service” as an estate liquidator, then they are not so bound. Indeed, in the latter scenario USPAP does not even apply. USPAP applies only to appraisal practice services and not to offering “pricing services.”

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Fair Market Value

Posted on by Dave Maloney

Fair Market Value

(This is the 3rd of a 3-part article | Part 1 | Part 2)

(by David Maloney) Fair market value is often confused with market value. The stumbling block is normally in regards to the issue of title transfer. While a market value appraisal assumes the transfer of sold property to the new owner as of a specified date, fair market value assumes that the item is not sold, but rather that ownership is retained. Fair market value is used, as an example, by the IRS to substantiate tax deductions for noncash charitable contributions, or as a basis on which to levy estate taxes on property in the decedent’s estate that is bequeathed and not sold.

Fair market value is defined by a legal or regulatory jurisdiction and may vary with individual jurisdictions, i.e., from state to state. For the purposes of this book, we will make use of fair market value as defined by IRS Regulation §1.170A-1(c)(2) and as expanded on by the Treasury Regulation state §20.2031-1(b).

Definition of Fair Market Value

Treasury Regulation §1.170A-1(c)(2) defines FMV for noncash charitable contribution purposes as:

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Market Value

Posted on by Dave Maloney

Market Value

(This is the 2nd of a 3-part article | Part 1 | Part 3)

(by David Maloney) Market value is an all-encompassing general concept that is based on a market perspective (as opposed to a user’s perspective) and on what marketplace participants view as typical and normal market conditions.

The public’s expectation that a market value appraisal reflects only the perspective of the marketplace, and is not affected by such other criteria as an intended user’s objectives, is important. Meeting this expectation serves to foster and promote public trust in professional appraisal practice, a fundamental purpose of the Uniform Standards of Professional Appraisal Practice and one that applies to all work performed under USPAP. (USPAP AO-22)

Why is market value such an important type of value? Because it refers to a price that a seller can expect to receive from a buyer in an open and fair transaction. Knowing the market value of a property allows a would-be seller to determine an asking price. Without knowing the market value, the seller might price their property too high or too low, either of which could have negative financial results (possibly on the seller as well as on the buyer).

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Proposed Qualification Criteria for Appraisers

Posted on by Dave Maloney

Will TAF’s Proposed Criteria for Personal Property Appraisers Have Teeth?

(By Dave Maloney Sep 1, 2012) The Appraiser Qualifications Board (AQB) of The Appraisal Foundation (TAF) recently released a proposed new version (click here to view) of its Qualifications Criteria for Personal Property Appraisers. A colleague recently posited that: “Even though the proposed standards are voluntary, those of us belonging to an association will be impacted by the acceptance of the standards by the association.”

My reply was that I felt that the issue is more complicated than that.

I was a member of the TAFAC “criteria” committee back in 1998 when we first adopted the minimum qualification criteria for the personal property appraiser. As of this writing (September, 2012) those current criteria (click here to view) are in force and will remain so until the new criteria are adopted which might be in two or more years.

Those 1998 criteria are clearly voluntary for all appraisers, regardless of their societal affiliation. They criteria states so, to wit: “The AQB envisions that the [1998] Personal Property Appraiser Minimum Qualification Criteria will be used by major clients of personal property appraisers such as corporations and government agencies. It is important to note that this document sets out minimum criteria with which personal property appraisers may voluntarily wish to comply. The AQB does not foresee any governmental body utilizing these guidelines as part of a regulatory program.”

A few years ago I queried all societies and was surprised to learn that no society at all had or now has an established system for maintaining a registry of their members who meet the 1998 criteria. What is more, the 1998 criteria requires a comprehensive exam. Again, no society offers a comprehensive exam required for members wishing to voluntarily qualify. In short, to my knowledge, no society has systems in place to facilitate their members complying with the existing (1998) criteria. It would seem that the 1998 criteria has failed completely in its stated goal as noted above.

But the optional compliance requirement, for some, is now going to change. The criteria now being proposed are no longer voluntary for all appraisers.

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Misuse of Terms “USPAP Certified Appraiser” and “USPAP Certified Appraisals” Threatens Public Trust

Posted on by Dave Maloney

Misuse of Terms “USPAP Certified Appraiser” and “USPAP Certified Appraisals” Threatens Public Trust

(by David Maloney) There appears to be a growing use by appraisers of two USPAP-related terms which might be construed as being misleading, thus this caution.

In the first instance, an appraiser refers to him or herself as being a “USPAP Certified Appraiser.” In the second case, the appraiser states that he or she offers “USPAP Certified Appraisals.”

According to John Brenan, Director of Research and Technical Issues at The Appraisal Foundation, “The Appraisal Foundation does not certify appraisals or appraisers.” This alone should give one pause for using the two questionable terms, but there are additional reasons as well.

The Ethics Rule of USPAP prohibits advertising in a “false, misleading or exaggerated manner.” Doing so, of course, endangers public trust in the appraisal profession — and recall that maintaining the public’s trust is the primary reason for the development of USPAP in the first place. In addition, during deposition or testimony the opposing attorney might take an appraiser to task for promoting him or herself as being a “USPAP Certified appraiser” or offering “USPAP Certified appraisals” when The Appraisal Foundation itself has stated that no such type of appraisers or appraisals exist.

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Electronic Report and Workfile Storage

Posted on by Dave Maloney

USPAP’s FAQs Adress Electronic Report and Workfile Storage

In the 2012-2013 edition of USPAP, two Frequently Asked Questions (#92 and #93) address issues relating to electronic storage.
 
FAQ #92. Electronic workfile storage 
 
Question: Recently I have considered maintaining only electronic workfiles (i.e., saving only electronic versions of my reports and supporting data, and scanning any paper documents used so that copies may be stored on electronic media). Is this prohibited by USPAP?
 
Response: No. There is nothing in USPAP that would prohibit an appraiser from maintaining only electronic versions of workfiles.

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The Appraiser-Client Relationship and Confidentiality

Posted on by Dave Maloney

The Appraiser-Client Relationship and Confidentiality

(by David Maloney) There exists a special relationship  between the  appraiser and the client, and the appraiser is obligated to protect the confidential nature of that relationship. Specifically, the appraiser must  reveal neither the 1) results of an assignment nor 2) any confidential information other  than as permitted by the ETHICS RULE.

According to the  ETHICS RULE, confidential factual data obtained from the client and the results of an appraisal may be disclosed only to:

  • The client and anyone specifically authorized by the client, e.g., an insurance company, or, in the case of a divorce, to the client’s attorney,
  • Third parties authorized by due process of law, e.g., pretrial discovery, depositions, court testimony by the appraiser, or
  • A duly authorized appraisal society’s peer review committee

As noted, an appraiser must  respect the confidential nature of information obtained during the appraisal  process. USPAP defines confidential information as:

information that is either: identified by the client as confidential when  providing it to an appraiser and that is not available from any other source;  or classified as confidential or private by applicable law or regulation. (USPAP)

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Appraisal Procurement Fees vs. Finder’s Fees

Posted on by Dave Maloney

Appraisal Procurement Fees vs. Finder’s Fees

(by David Maloney) Appraisers often wonder if they are allowed to request a finder’s fee when referring an appraisal client to another appraiser, or a would-be consignor to an auction house. Or if appraisers can pay a fee to others in order to entice them to send appraisal business their way.

It is a confusing issue and the waters quickly become even more muddied when one takes into consideration that many appraisers perform in other roles, such as as dealers and auctioneers—roles which are not governed by USPAP and roles for which the awarding of finder’ fees is a common practice. USPAP sets forth requirements regarding fees or things of value being pro-actively paid by one performing as an appraiser in order to procure an appraisal assignment, but USPAP does not address accepting finder’s fees. (By the way, this is to be expected, since USPAP applies only to appraisers and not to individuals performing in non-appraiser roles such as dealers, estate liquidators, auctioneers, etc.)

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

Posted on by Dave Maloney

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)

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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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