Appraisers are often confronted with one of a variety of questions relating to the same general problem. The scenario is as follows: You completed an assignment for a client some time back – maybe a year ago, a month ago, a week ago – and now another party wants your opinion of the value of the same property. The request may be to simply “readdress” the report you prepared for the previous client. Or the request may be to “recertify” the report, or to “reassign” it. Other times, the request may be for you to provide an “update”, or a “letter update”. And other times the requesting party has no knowledge of, and therefore doesn’t mention, the previously prepared report.
How should you respond to such requests?
First, make sure you understand what is being requested. The requesting party might not know what he or she needs, or might use labels or terms such as “recertification” to mean something quite different from what appraisers would take them to mean.
Once you are clear on what the requesting party is asking you to do, the following Q&A’s might help you decide how to respond.
Q1. To whom can I give the assignment results?
Assignment results are your opinions and conclusions developed specific to an assignment. Examples include your final value opinion, your highest and best use conclusion and your indications of value from any of the approaches used.
The Confidentiality Section of the Ethics Rule of USPAP and the Appraisal Institute Code of Professional Ethics provide that an appraiser must not disclose confidential information or assignment results to anyone other than the client and persons specifically authorized by the client; state enforcement agencies and such third parties as may be authorized by due process of law; and duly authorized professional peer review committees.
Assignments results may be presented in a written report or in an oral report. Sometimes, if an appraiser is not careful, assignment results are revealed inadvertently. For example, an appraiser who in casual conversation tells another appraiser, another client or anyone else, “I appraised that property for $1,000,000,” is divulging assignment results.
Q2. To whom can I give a copy of the report prepared for a client?
First, keep in mind that not all portions of the report are confidential. For example, in an appraisal report factual data such as sales comparables are not confidential (unless they were made available by the client and are not available from another source). Descriptions of the location (neighborhood description, region description, etc.) are not confidential. However, since an appraisal report contains assignment results, which are included in the Confidentiality Section of the Ethics Rule of USPAP and the Appraisal Institute Code of Professional Ethics, the authorization process stated above in Q1 applies. This means that a copy of the report – showing confidential information and assignment results – can’t be given to, revealed to, or shared with anyone other than the client and persons specifically authorized by the client; state enforcement agencies; duly authorized professional peer review committees; and such third parties as may be authorized by due process of law.
Q3. Can I accept a new assignment involving the same property for another client?
Yes; however, you cannot disclose any confidential information contained in the report prepared in the previous assignment for a different client without that prior client's permission. So you must ask yourself: In completing a new assignment involving the same property for a second client, would I need to disclose information that was considered to be confidential by the first client? If so, you can’t take on the assignment without obtaining prior permission of the first client to release that confidential information. And if the first client will not give permission to usetheir confidential information, then you cannot accept the new assignment.
In many cases, performing a new assignment for a second client would not require the appraiser to divulge any confidential information. Re-visit USPAP’s definition of confidential information to be sure.
Confidential Information: 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;
Classified as confidential or private by applicable law or regulation. (Source: USPAP)
A common misconception is that you must be “released” by the first client to accept the assignment with a subsequent client. The only “release” required is with regard to confidential information. The first client does not need to give permission for you to proceed with another assignment for a second client unless confidential information is at stake.
Another common misconception in performing valuation assignments is that if the value opinion in the second assignment is exactly the same as the value opinion in the first assignment, then communicating the value opinion in the second assignment breaches confidentiality with the first client. This is not true. USPAP’s definition of assignment results is “an appraiser’s opinions and conclusions developed specific to an assignment.” By definition, the assignment results are different by virtue of the fact that there are two different assignments – even if the numbers are the same. Note the difference between saying to Client B, “I appraised this same property for Client A for $500,000” and “My value conclusion [in the context of this assignment for you, Client B] is $500,000.” The first statement breaches confidentiality by divulging assignment results, the second statement does not.
Still another common misconception is that taking a subsequent assignment with another client would be a “conflict of interest.” One cannot have a conflict of interest unless one first has an interest. Entering into an appraiser-client relationship to complete an assignment does not mean that the appraiser then has an interest with regard to that client or that property. It cannot. Such a notion would be inconsistent with the underlying principle in USPAP that the appraiser’s role is to be independent, impartial, objective, and unbiased.
Keep in mind that since 2010, USPAP has required disclosure of any prior service involving the same property within three years prior to the date of engagement. A few key points about this requirement:
First, the requirement is to disclose any service involving the property that is the subject of the appraisal (or subject of the appraisal under review, in the case of a review assignment), not just appraisals or appraisal reviews, and not just services provided as an appraiser.
Second, the relevant time period is three years prior to the date of engagement of the current assignment, not date of value or date of report.
Third, the disclosure must be made up front before accepting the assignment and again in the certification in the appraisal or review report.
And finally, there is no requirement to disclose for whom the prior service was performed; the appraised value, if any; or exactly when in during the three year period the service was performed.
The certification statement required by USPAP in Standards Rule 2-3 supplies the type and degree of disclosure: “I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three year period immediately preceding acceptance of this assignment.”
The requirement that was added to USPAP in 2010 goes on to state that in the event the client requested the very fact that the appraiser performed the appraisal be kept confidential, the appraiser cannot take another assignment involving that property for three years. That is because the appraiser would not be able to disclose prior services (as required) without violating confidentiality.
The appraiser must use his or her discretion in deciding whether or not to reveal information about a prior assignment to a subsequent client beyond what is required by the aforementioned disclosure. For example, while the identity of the client is not confidential unless the clinet so state, there are situations in which the very fact that the first client had the property appraised is in itself sensitive information. (Note that it is characteristic of professionals in many other fields to keep the identity of prior clients confidential.)
One caveat about taking on assignments with property owners: Appraisers who are contacted by property owners about providing valuation services for which the intended use is in conjunction with mortgage lending must advise those property owners that the assignment must be engaged directly by the lending institution. This is a requirement under federal law, and the regulatory agencies have been adamant about it. Further, an appraisal report prepared for a client who is the property owner should clearly state that it is not intended for use by a federally insured depository institution in a federally related transaction.
Q4. Can I readdress a report, or change the name of the client, but otherwise give the same report to another client?
It is improper to “readdress” a report to another client for three significant reasons. First, simply changing the name of the client and then forwarding the “readdressed” report to the second client does not change the first appraiser-client relationship. An appraiser-client relationship, once established, is cast in stone and cannot be changed. Typically, the reason the second party wants to be named as “client” is that they want the appraiser-client relationship, and all the rights and obligations thereof, to be between them and the appraiser. The only way to accomplish this is for a new appraiser-client relationship to be established. In short, the only way to be named as “client” in the report is to actually be a client. “Client” is defined in USPAP as the party (or parties) who engage an appraiser in a specific assignment. To be named as the client in a report, one must have been the party who engaged the appraiser.
(Tip: An excellent way to firmly establish an appraiser-client relationship is to have a written engagement letter with the client.)
Second, simply changing the name of the client and then forwarding the “readdressed” report to the second client could harm the confidential nature of the appraiser’s relationship with the first client. While this could be avoided by obtaining the first client’s permission to provide the report to the second client, it still does not resolve the third reason why it is improper to “readdress” the report – which is that to do so is misleading.
In an appraisal assignment, if the appraiser simply changes the name of the client, the appraiser is not following the requirements under Standard 1 of USPAP to identify the client, intended user(s) and intended use with regard to this second client in the proper sequence. According to the definitions of intended use and intended user, both must be identified by the appraiser “at the time of the assignment”, not after the appraisal process is completed and the report is finished. Even if the original appraiser/client relationship is disclosed, this problem cannot be overcome.
The key reason for identifying the client in an assignment is that the client is the party to whom the appraiser owes the duty of confidentiality. (Note that the appraiser does not owe a duty of confidentiality to other intended users.) And the key reason for identifying intended users has to do with Standards Rule 2-1(b), which says that the report must contain sufficient information to enable the intended users of the appraisal to understand the report properly. (In the case of a review report, a similar requirement is found in Standards Rule 3-4(b).) Once intended users and intended use are stated, the appraiser is now obligated to ensure the adequacy of the report for that use by those intended users. The identification of intended users (and intended use) must be completed up front before scope of work determination and before the report is issued. To add intended users after the fact, or to change the intended use, is putting the cart before the horse. It simply doesn’t work.
So what should you do if you’re asked to “readdress” a report?
A request to readdress a report should be treated as a request to accept a new assignment involving the same property, as in Q3 above. Again, the question as to whether or not you can do so depends on the issue of confidentiality. Once that issue is resolved, the next questions to be answered are:
Who are the intended users?
What is the intended use?
What date of value is needed, according to what value definition?
What assignment conditions (extraordinary assumptions, hypothetical conditions, supplemental standards) apply?
What is the appropriate scope of work for this new assignment?
What level of reporting is needed?
In many such cases there may be little additional work in performing a new assignment for another client. Perhaps when all is said and done you will be providing virtually the same data and analysis, and even the same value conclusion (though you won’t discover this until you have completed your analysis.) However, you must consider all the assignment parameters for this new assignment, which could well be different from those of the previous assignment.
Further, keep in mind that in providing a report to another client, you are extending your liability to that client. As appraisers, we are not in the business of “selling reports”; we are in the business of “selling” our expertise and our opinions. Every time an addition is made to the list of intended users, our liability grows. From a practical standpoint, both the appraiser and the client need to recognize that their business relationship involves this factor.
In sum, a new client means there is a new assignment which necessitates the preparation of a new report.
One additional point regarding assignments for lenders: Appraisers should be aware that the appraisal requirements of FIRREA allow a regulated lender to use a report that was prepared for another “financial services institution”. This means that Lender B can use a report that was prepared for Lender A, even though Lender A shows as client on the report. Lender B does not have to be named as client, according to the FIRREA requirements. However, usually Lender B will “want their name on the report”. Why? Because Lender B wants the appraiser-client relationship, and all the rights and obligations thereof, to be between them and the appraiser. What does this mean? It means that as far as the appraiser is concerned, there is to be a new appraiser-client relationship – i.e., a new assignment.
Q5. Can I reassign a report to another party?
“Reassigning” may mean different things to different parties, so again, be sure you know what the requesting party is asking. In the context of this discussion, “reassigning” means signing over one’s rights and obligations with regard to the report to another party.
For example, when a report is prepared for and given to Client A, that report is no longer yours to “give”, or assign, to anyone else. An analogy would be if you sold your car to Party A, you couldn’t then sell it to Party B, as it is no longer yours to sell.
Client A could assign their interests in their report to Client B, but the appraiser would not be part of this process (and should not be asked to be.)
Q6. Can I recertify a report to another client?
When the request is to “recertify”, clarification with the client is imperative. “Recertify” tends to be an abused term. Often it is erroneously used to mean “reassign”, or “readdress”, or “update”. Often it is not clear what clients mean when they use the term “recertify”, and appraisers need to help remedy the confusion. Appraisers certify their reports (i.e., they may include a certification per SR 2-3 in an appraisal report), but this certification has nothing to do with the ownership of, or rights to use, the report. A “re-certification of value” is an entirely different concept. As defined in Advisory Opinion 3 of USPAP, a “re-certification of value” is an assignment in which the appraiser determines whether or not the conditions of an appraisal have been met. This sort of assignment is not an appraisal at all, because in and of itself, it has nothing to do with developing an opinion of value.
Q7. Can I sign or issue a “reliance letter” that says another party (not the identified in the report as the client or an intended user) can rely on a report I previously prepared?
No. Such a letter would, in effect, add that party as an intended user after the completion of an assignment, and you cannot do that.
Requests for valuation services are presented to appraisers in an assortment of ways, and the appraiser’s first tasks are to ascertain (1) exactly what the party is requesting and (2) whether what the party is requesting is appropriate given their intended use.
The general rule is that when a new client enters the picture and a new appraiser-client relationship is formed, a new assignment is involved. This new assignment will require the appraiser to at least reconsider or reanalyze the process outlined in USPAP’s Standard 1, especially with regard to identification of intended use and scope of work. A new report will be provided, appropriately identifying the party who engaged the appraiser this second time around as the client; and if the client is a lender subject to the requirements of FIRREA, the report will disclose prior assignments involving the same property.
In a “reappraisal” situation such as this, the work involved in developing the value opinion and preparing the report will, in most cases, be far less than it was the first time around. The new report prepared for this subsequent client may, for all intents and purposes, look strikingly similar. The value conclusion might even be the same. But much has changed. The appraiser has considered all the parameters for a new assignment to meet the needs of the new client given their intended use: including scope of work, selection of report option, type and definition of value, date of value, etc. The appraiser has agreed to extend his or her liability to this new client in allowing that party to rely on his or her value opinion.
Once a report is provided to a client, it cannot be tampered with. Changing the name of the client (“readdressing”) is misleading because it falsifies the true relationship between the appraiser and the party who engaged the appraiser in that particular assignment. It is improper for clients to request that reports be tampered with in this manner. It is unethical for appraisers to comply with such requests.
Note: The Appraisal Standards Board of the Appraisal Foundation has provided additional guidance on these topics. See Advisory Opinion 25, Clarification of the Client in a Federally Related Transaction; Advisory Opinion 26, Readdressing (Transferring) a Report to Another Party; and Advisory Opinion 27, Appraising the Same Property for a New Client. Also see FAQ #120 which deals with “reliance letters.” These Advisory Opinions and FAQ are published with the Uniform Standards of Professional Appraisal Practice (USPAP).
— May 16, 2006; Updated February 2014