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Appraisers, Not Advocates

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When appraising property (real estate, personal property) or the equity value of a business, there will likely be discussions, and possibly disagreements, on the concluded opinion of value. The client may hope for a low value if they are using the appraisal for a tax appeal or estate planning/administration, or they may want a high value if they are trying to borrow money or sell a property or business. Many clients believe when they have hired an appraiser, they have hired an advocate. This is incorrect. While attorneys and property tax consultants advocate for their clients, appraisers advocate for their appraisals. The Uniform Standards of Professional Appraisal Practice (“USPAP”), the generally recognized ethical and performance standards for the appraisal profession in the United States, defines an Appraiser as “one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.”[1]

In fact, USPAP was developed in response to the crisis in the savings and loan industry in the 1980’s in recognition of the critical role of appraisals based upon established, recognized standards to our national economic well-being.

Independent, impartial, and objective are key attributes of an appraiser and the resulting appraisal opinion. If an appraiser approaches the valuation engagement utilizing those attributes it means that the concluded value of a business or property is based on fairly applying valuation principals, market research and the appraiser’s experience. The appraiser must be able to clearly explain and defend the work when challenged by any of the users of the report.

I have been involved in several discussions where the statement has been made: “This value is too high/low for the purpose of this appraisal (estate/corporate planning, lending, gifting, tax appeal, etc.).” This statement NEVER applies to a properly developed appraisal. The value of a property or business, when appraised independently, impartially, and objectively by two or more appraisers, should conclude similar values, regardless of the stated purpose.

While an appraiser is required by USPAP to include the intended use of the appraisal within the report, it is not used to determine the value of the subject of the appraisal. According to Advisory Opinion 36 in USPAP, the purpose of stating the intended use is to “identify the problem to be solved and to understand the appraiser’s development and reporting responsibilities in an appraisal or appraisal review assignment.”[2] In other words, it assists the appraiser in developing the scope of work and determining the correct definition of value to be used. In addition, stating the intended use dissuades unauthorized users from relying on the report for unintended purposes. It is not intended to affect the value of the subject property or business.

Not only is a lack of appraisal independence a violation of USPAP, it is a violation of State and Federal law. The Internal Revenue Service issued IRC 6695A as part of the Pension Protection Act of 2006 providing for significant financial, personal, and professional penalties to an appraiser who issues a report that results in an underpayment of federal taxes.  Also, 15 U.S. Code §1639e and 12 CFR Part 1026.42 both require appraisal independence with respect to the extension of credit or provision of services for a consumer credit transaction secured by the principal dwelling of the consumer, or funded by an FDIC insured lender. Most states have similar laws.

If you or your company need an independent, impartial, objective, and defensible appraisal of your property or business, please contact Sobel EAC Valuations.  

Allyson O'Malley, Sobel EAC Valuations
Allyson.OMalley@sobelcollc.com

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[1] Uniform Standards of Professional Appraisal Practice (Appraisal Foundation, 2020-21 Edition), p. 3.
[2] Uniform Standards of Professional Appraisal Practice (Appraisal Foundation, 2020-21 Edition), p. 161.