April 1997
By
The Statement on Appraisal
Standards No. 9 (SMT-9), which requires the appraiser to identify the client
and other intended users of the appraisal report, was adopted by the Appraisal
Standards Board of the Appraisal Foundation on
In conjunction with this
statement, the Appraisal Standards Board clarified the definition of
"client" in USPAP and provided definitions for the terms
"intended use" and "intended user." The following is a
discussion of this development and how it relates to the relocation appraisal.
As in the past, the
intended use of the appraiser's opinions and conclusions must be identified in
the appraisal report. Consequently, the definition of the term "intended
use" is being added to USPAP as "the use or uses of an appraiser's
reported appraisal, consulting, or review assignment opinions and conclusions,
as identified by the appraiser based on communication with the client at the time
of the assignment."
The intended use represents
the function for which the appraisal is intended. This function is identified
on page one of the ERC Residential Appraisal Report in the "Definitions
and Guidelines" section: "The purpose of the appraisal is to estimate
the anticipated sales price for a relocating employee's primary residence. The
intended use of the appraisal is to assist an employer in facilitating the
employee relocation process." The ERC Residential Appraisal Report thus
conforms with the USPAP requirement of identifying the
intended use of the appraisal.
The recently adopted
statement now requires the appraiser to identify the client and other intended
users. The "client" is defined in USPAP as "the party or parties
who engage an appraiser (by employment or contract) in a specific
assignment."
The ERC Residential
Appraisal Report already calls for the appraiser to identify the client in the
first line item on page one, which generally refers to the party ordering the
appraisal, i.e., the relocation management company or corporation in the case
of an in-house program (While it is rare in relocation appraisal assignments
for a client to request confidentiality, the statement does outline the steps
to be taken in such a situation.).
The next issue arises as to
who are intended users of the appraisal, and how they must be identified in the
appraisal report. To clarify this, the following definition of the term
"intended user" is being incorporated into USPAP: "The client
and any other party as identified, by name or type, as users of the appraisal,
consulting, or review report, by the appraiser based on communication with the
client at the time of the assignment."
The statement released by
the Appraisal Standards Board indicates that "neither the client nor the
appraiser is obligated to identify an intended user by name. If identification
by name is not appropriate or practical, an appraiser's client and the
appraiser may identify an intended user by type.
"A party receiving a
report copy from the client does not, as a consequence, become a party to the
appraiser-client relationship.
"Parties who receive a
copy of an appraisal, consulting, or review report as a consequence of
disclosure requirements applicable to an appraiser's client do not become
intended users of the report unless the client specifically identifies them at
the time of the assignment."
While specific
identification of the client is a part of completing a relocation appraisal (as
requested on the first line of page one of the ERC Residential Appraisal
Report), it may not be practical to identify by name other intended users who
may not be known to the appraiser. However, USPAP allows that such intended
users can be identified by type; this also is done in the current ERC
Residential Appraisal Report.
The ERC Residential
Appraisal Report indicates in its definition of intended use that, in addition
to the client, another intended user of the appraisal is the employer:
"The intended use of the appraisal is to assist an employer in facilitating
the employee relocation process."
It should be noted that,
while many corporate relocation policies call for the transferee to receive a
copy of the appraisal, this does not mean that the transferee is an intended
user. Receiving a copy of the report does not make a party an intended user.
It also should be noted
that even though intended users of an appraisal must be identified in the
report, obligations in the appraiser-client relationship regarding issues such
as confidentiality still exist and do not necessarily extend to other intended
users.
It appears that the ERC
Residential Appraisal Report used for typical relocation assignments already
identifies the client and other intended users as required by the new Statement
on Appraisal Standards No. 9.
The statement indicates
that the purpose of the new requirement is to ensure that the
client and other intended users recognize their role in the appraisal
assignment and that unintended users are not misled and are aware that
they are neither the client nor the intended user of the report. The appraiser,
therefore, should consider adding the following statement to the ERC
Residential Appraisal Report to clarify this: "This report is intended for
use only by (identify the client) and the homeowner's employer. Use of this
report by others is not intended by the appraiser. This report is not intended
for any other use than that identified in the 'Definitions and Guidelines.' The
appraiser assumes no responsibility of liability for unauthorized use of this report."
If the ERC Residential
Appraisal Report is to be used for any purposes other than employee relocation,
this specific intended use must be identified, along with the
"client" and other "intended users" for that particular
appraisal assignment.
Arnold M. Schwartz,
SCRP, is president,
Arnold M. Schwartz & Associates, Inc.,