In this blog series we’ve explored several scenarios involving requests to change the content of a report by deletion or addition, clarification or correction. Some of these requests are fairly innocuous, but some are potentially lethal, if not properly handled. Often, these requests can result in the appraiser unknowingly violating USPAP.
As we discussed in the previous blogs on this topic, assignment elements determine if the below illustrations represent new assignments or only new reports. If any of the assignment elements change, then it’s a new assignment. If none of the assignment elements change, it’s simply a new report with revisions and/or corrections. For reference, here’s the list of assignment elements.
Illustration A) During a recent assignment, Appraiser Diane noticed some minor discoloration of the ceiling in a first-floor room that was directly under a second-story bath. The owner said it was the result of a minor leak that had been repaired in the past. Diane didn’t think there was a significant problem, but to be on the safe side, in addition to reporting what she saw and what the owner stated, she checked the box on the form that says the report is “subject to the following required inspection based on the extraordinary assumption that the condition or deficiency does not require alteration or repair.” By doing so, she was leaving it up to the client to decide the level of additional verification they were comfortable with in clearing the extraordinary assumption. The client decision was to order an inspection, which revealed a slow leak in the plumbing that had, over time, resulted in rotting of floor joists and structural damage. The owner was accurate in that the leak was fixed but the damage caused by the leak did require repair. The lender informed Diane that the seller had agreed to have the problems repaired prior to closing and asked Diane to change the report (but keep the same effective date) and check the box “subject to the following repairs or alterations based on the hypothetical condition that the repairs or alterations have been completed.”
Answer: Extraordinary Assumptions and Hypothetical Conditions fall under the heading of assignment conditions, which is Item #6 on our list of assignment elements. The client is asking Diane to change her extraordinary assumption to a hypothetical condition; therefore, this is a new assignment. Diane needs to review her comments in the original appraisal report concerning the condition of the subject, as well as her rating to ensure it is consistent with the hypothetical condition. Diane also needs to decide if all or only some of the original comparables may still be acceptable and evaluate the adjustments applied, if any, for condition and other factors to those comparables to ensure the final opinion of value reflects the hypothetical condition. She also needs to change the checkbox to the hypothetical condition as directed by the client and revise the date of the report. To ensure her client is not mislead Diane should provide an explanation as to what was revised and why. She also needs to maintain a workfile for this new assignment.
Illustration B: Diane has been contacted by the listing agent with a request for a Reconsideration of Value (ROV) regarding a recent appraisal, because the sale price exceeded Diane’s opinion of value. The agent says that he received a copy of the report, from the loan applicant and informs Diane that the loan officer at the bank said it was OK for him to contact Diane.
Answer: An ROV does not automatically lead to a new report or new assignment. USPAP obligations require Diane to be mindful of confidentiality issues and must avoid disclosure of assignment results, and must follow the requirements stated in the ETHICS RULE. The fact that the agent has a copy of the report does not free Diane from her USPAP obligations and she needs to exercise caution because she does not know what the agent actually has in terms of a “report.” Diane should not discuss any aspect of the assignment with the agent without personal verification it’s acceptable with the person(s) who engaged Diane, as the client. The agent’s word that the loan officer said Diane could discuss the report is hearsay and does not constitute authorization from the client for Diane to discuss assignment results.
Most often, when a third-party wants to discuss the appraisal report with an appraiser, it is because the value is not adequate in meeting the client’s needs. Diane should advise the agent of her (Diane’s) obligations under USPAP. She can do so by informing the agent that the client, specifically the person(s) or entity that hired her, must formally authorize that she can discuss assignment results with the agent. Diane should explain to the agent that authorization cannot be issued by anyone on the “production side” of the lender’s staff per banking regulations. Appraisers should be on the lookout for this method of circumvention by a loan officer; a loan officer may engage in “surrogate pressure” through the use of third-parties, such as a listing agent or even the borrower. Generally speaking, Diane should be guarded in her conversations with any entity that has a financial interest in the transaction and/or is not the specific client who engaged her.
This concludes our new assignment vs. new report series. To review the previous articles on this topic, visit our blog. Are you looking for information on another compliance-related topic? Send us an email and we’ll ask our experts.