Moving to Appraisal Consulting Part 2: Getting Started
Editor's Note:
In
part one, Bob Bell, MAI (retired) explains how appraisers can
convert residential form reporting assignments to higher-paying consulting
assignments with just a little know how. "Many of our appraisals should be
labeled appraisal consulting reports, since they give a market value and
solve problem questions in the Highest and Best Use section or in other parts of
the report," Bell says. "This applies to commercial and residential
appraisals."
Appraising to Consulting Part 2: Getting
Started
By Robert K. Bell, Jr., MAI (retired)
The primary mechanism for flexibility in USPAP is the Scope of Work (SOW) that
gives appraisers the ability to tailor each assignment appropriately for the
circumstances. Understanding the SOW may lead to new business opportunities
such as appraising / consulting and will lead to increasing the client's
satisfaction.
As an example, the appraisal work may lead to consulting regarding a problem
which, in the past, has not included any additional fee. Although this is true,
flexibility comes at a price- increased responsibility. The first item regarding
an appraisal assignment is problem solving for the client. Disclosure
obligations: the report must contain sufficient information to allow intended
users to understand the SOW performed. The list of important items involving
the SOW Rule is shown in 2008-2009 USPAP, pages U-12-13.
With
a pending appraisal assignment, the following questions should be explored by
the appraiser prior to entering into an engagement letter and estimating the
appraisal fee: a preliminary inspection of the subject property; a quick check
of zoning and future land uses, and the availability of supporting documents,
including financial information from the client. Some type of general
understanding about a potential change in the assignment if required should be
agreed upon. With the fast moving economic and governmental issues, unforeseen
problems regarding concurrency may be deadly. Such things as utility
moratoriums, lack of school capacity, road capacity limitations, and the
possibility of condemnation proceedings are a few potential unforeseen
problems.
Understanding the Problem
Knowing the client's real problems at the beginning is critical. Other issues like foreclosure and legal disputes should be uncovered prior to entering into an agreement and doing the assignment. Gathering all this information will help the appraiser tailor the amount of research and analyses to the assignment. As a warning, don't think that the SOW only applies to narrative reports commonly used for commercial/industrial property or residential appraisals.
The
Scope of Work Rule applies to summary and restricted use appraisal
reports. The Scope of Work will encompass an oral report too. Remember, the
report may be converted to a self-contained appraisal report or used in some
later legal dispute.
Furthermore, USPAP is very clear about the
burden of proof on the appraiser to make the decision to eliminate an
approach or approaches. Following a client's direction to eliminate an
approach without considering the appropriateness under a specified
circumstance, does not excuse the appraiser. In summary, the Scope of Work
Rule requires support by relevant evidence, and logic and the credibility of
assignment results are always measured in the context of the Intended Use.
The Scope of Work Rule contains three subsections described as follows: Problem Identification, Scope of Work Acceptability, and Disclosure Obligations. There are two important items that 2008-2009 USPAP does not require; there is no requirement to have an authorization letter or to furnish General Limiting Conditions for an appraisal consultation prior to entering into an assignment. However, it is suggested these are included with the authorization letter.
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