The Credibility of an Entire Profession
Appraisers of all disciplines perform a critical role in the financing, insuring and transacting of all sorts of assets. While appraiser’s do not create value in the assets they appraise, they do form the bedrock of how entire industries understand (and perceive) their monetary worth. As such, the responsibility of an appraiser to perform their job diligently is critical; errors can be catastrophic. So who really gets to decide whether an appraisal is valid? After all, everyone has an opinion about what something should be worth. Luckily, in the United States we have the Uniform Standards of Professional Appraisal Practice (USPAP as we call it in the biz). There is a long history to the creation of USPAP that revolves around a need to standardize the methods that appraisers use in reaching value conclusions to enhance the overall credibility of valuations that the public relies upon. This standard provides a minimum construct that accredited appraisers MUST adhere to when doing effectively anything that relates to valuation services. USPAP does a great job in providing appraisers broad flexibility in how they approach individual appraisal assignments while issuing a framework for ethical and professional standards that one should uphold. Ultimately, it is the adherence and certification to the adherence of these standards that allows the public to trust the valuations they use daily. Now that there is an understanding of why all appraisals should be credible and valid, let me explain what happens when they simply, aren’t.
Appraisal Review: Structured Oversight
Just as USPAP provides structure to those writing appraisals, it also provides the standards for reviewing someone else’s appraisal assignment. This is know as Appraisal Review. Let’s say a particular asset finds itself in the middle of a legal dispute (no fault of its own), and the prosecution hires an appraiser to determine the value of said asset, in this case, let’s call it a Gulfstream G650. Maybe this appraisal is 2 pages long with little explanation of how this appraiser reached their value conclusions and it also comes out $9 million higher than an appraisal that was ordered by the bank one year prior. Reasonably, this appraisal might be called into question and a designated Appraisal Reviewer would be engaged to review the assignment. This review might be purely for verifying compliance with USPAP or it may include an opinion of value, if the reviewer is qualified to provide an aircraft appraisal. The reviewer would review the work and produce a report that explains (in heavy detail) any issues that were identified. Not only does this aid the jury in understanding how much weight to apply to that appraisal but it could result in having a misleading report removed from the case entirely.
More Training and a Higher Standard
The American Society of Appraisers (and most appraisal organizations) has a path for senior appraisers to become appraisal reviewers. In the ASA it requires completion of two 30 hour appraisal review and management courses with comprehensive exams as well as approval from a board of examiners. This allows those appraisers to review the work of other appraisers within their discipline (in my case that is “Machinery & Equipment”) for USPAP compliance or to issue an opinion about the actual value conclusions if they are equipped to do so (longer story for another day). These reviewers are called upon to continue to assure the public that the appraisal profession as a whole is not only credible but that there is oversight for instances where there may have been a shortfall. After all, entire industries depend on us.
Cameron Tipton, ASA, ARM-MTS
accredited senior appraiser
appraisal review & management - MTS