Basic Appraisal Principles, Ethics with complete solutions.

The Uniform Standards of Professional Appraisal Practice (USPAP) states, in the ETHICS RULE: "An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics." Ethics is defined as (dictionary) relating to what is good or bad; having to do with moral duty and obligation. Moral is defined as (dictionary) relating to the principle of right and wrong. Appraisers need to be objective, impartial, and independent Our compensation as appraisers should never be dependent on the final opinion of value USPAP is all about ethics and performance Bias is defined as (USPAP) "a preference or inclination that precludes an appraiser's impartiality, independence, or objectivity in an assignment."1 Frequently asked questions are not part of USPAP and are not intended to be legally enforced An appraiser is required to disclose any prior services he/she provided regarding the subject property within (includes all services, not just appraisal services) 3 years The ASB states in the Management section of the ETHICS RULE that it prohibits the reporting of a predetermined result or a direction in assignment results that favors the cause of the client Is it ethical for an appraiser to pay a fee to be included on a lender's "approved appraiser" list? Yes. It is ethical for appraisers to pay a fee to be included on a lender's approved appraiser list provided the appraiser discloses payment of a fee in his or her appraisal osure must appear in the certification and in any transmittal letter in which conclusions are stated; however, disclosure of the amount paid is not required. Is it ethical for an appraiser to offer a client a reduced fee on an appraisal if the client's loan does not close? Would the result be different if the client agreed to pay extra for other assignments? : Neither practice would be ethical. Offering a client a reduced fee on an appraisal if the client's loan does not close is a violation of the ETHICS RULE. The Management section of the ETHICS RULE states: It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: the reporting of a predetermined result (e.g., opinion of value); a direction in assignment results that favors the cause of the client; the amount of a value opinion; the attainment of a stipulated result (e.g., that the loan closes or taxes are reduced); or the occurrence of a subsequent event directly related to the appraiser's opinions and specific to the assignment's purpose. (Bold added for emphasis) It has come to my attention that a local appraiser is paying a home inspection firm a $25.00 referral fee for each appraisal assignment the home inspector refers to the appraiser. Are appraisers required by USPAP to disclose the payment of cash or other things of value to clients in order to obtain assignments? Yes. The Management section of the ETHICS RULE states that: An appraiser must disclose that he or she paid a fee or commission, or gave a thing of value in connection with the procurement of an assignment. Comment: The disclosure must appear in the certification and in any transmittal letter in which conclusions are stated; however, disclosure of the amount paid is not required. In groups or organizations engaged in appraisal practice, intra-company payments to employees for business development do not require disclosure. If a referral fee was paid in conjunction with an assignment, must the amount of the fee be disclosed, or is it sufficient to simply disclose that a fee was paid? Disclosing the fact that a payment was made in the appraisal certification and any transmittal letter where the conclusions are stated is sufficient to meet the requirement. However, this is a minimum requirement and does not prohibit full disclosure of the amount of the fee. So an appraiser can disclose the amount of the fee if he/she wishes, but USPAP does not require this. I am an appraiser performing an appraisal or appraisal review assignment. I am required by law, regulation, agreement, or choice to follow USPAP. Is this still true if I do not charge a fee for my service? Yes. The applicability of USPAP is not affected by the amount of the fee, or lack of a fee. Good question! An appraiser cannot use the lack of a fee as a way of circumventing his or her USPAP obligations. End of Page A potential client has asked me to complete a form indicating what my appraisal fees would be for different assignments. The form asks me to indicate my appraisal fees according to appraised value, e.g., to list the fee for assignments with appraised values between $100,000 and $299,000, $300,000 to $499,000, etc. Is it a violation of USPAP to quote fees in this manner? Yes. This is in violation of USPAP. Completing and submitting such a form to a potential client establishes a compensation arrangement for assignments that is contingent on the amount of the value opinion. This is prohibited by the Management section of the ETHICS RULE, which states, in part: It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: the reporting of a predetermined result (e.g., opinion of value); a direction in assignment results that favors the cause of the client; the amount of a value opinion; the attainment of a stipulated result; or the occurrence of a subsequent event directly related to the appraiser's opinions and specific to the assignment's purpose. (Bold added for emphasis) I'm aware that an appraiser's fee cannot be based on the amount of the appraiser's value conclusion. However, does USPAP allow an appraiser's fee to be based on the amount of the owner's estimate or a pending sale price of the subject property? USPAP does not prohibit an appraiser's fee from being based on an owner's estimate, a pending sale price of the subject property, loan amount, or any factor outside the appraiser's control. This is in contrast to a fee based on the amount of the appraiser's opinion of value, which is within the appraiser's control. A fee arrangement based on the appraiser's opinion of value violates the ETHICS RULE. In today's residential mortgage lending environment, it is difficult to base a fee on an owner's estimate of value or pending loan amount because lenders are typically not permitted to provide this information to the appraiser due to federal appraiser independence requirements. An appraiser accepts an appraisal on a property that is under contract for purchase. Based on a request from the client, the appraiser agrees to select and use only the data that supports the pending contract sale price of the subject property. Which statement is TRUE regarding this situation? The appraiser has violated the ETHICS RULE by doing this.