Perfection is Impossible: Understanding Competence Under USPAP
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Tuesday, February 18, 2020 in Education
When I teach ISA members on the Uniform Standards of Professional Appraisal Practice (USPAP) in the 15 Hour and 7 Hour courses, I like to stress a key point of the Competency Rule: Perfection is impossible to attain, and competence does not require perfection. This does not excuse sloppiness or performing in a careless and negligent manner; instead, it promotes due diligence and care in both the development (Standard 7 for Personal Property) and reporting (Standard 8 for Personal Property) in an appraisal assignment.
A comment to the Competency Rule helps further define the rule, stating, "Competency may apply to factors such as, but not limited to, an appraiser's familiarity with a specific type of property or asset, a market, an intended use, specific laws and regulations, or an analytical method." It adds that if a specific area of competency is needed for an appraiser to develop credible assignment results, an appraiser must have that competency when accepting an assignment, acquire competency in the course of the assignment, or withdraw.
Let's think about how the Competency Rule interacts with inspection of the subject property. Advisory Opinion 2 (AO-2) addresses the inspection of the subject property. Advisory Opinions don't establish new standards or interpret existing standards, instead, they are issued to illustrate the applicability of appraisal standards in specific situations and to offer advice from the Appraisal Standards Board (ASB) for the resolution of appraisal issues and problems.
An appraiser's competency with a property type may impact the minimum level of inspection required to prepare a credible value conclusion. USPAP does not require a physical inspection of a property, but an appraisal report must contain a signed certification that clearly states whether the appraiser has or has not personally inspected the subject property. As AO-2 explains, "The extent of the inspection process is an aspect of the scope of work, and may vary based on assignment conditions and the intended use of the assignment results." It adds, "It is the appraiser's responsibility to determine the appropriate scope of work, including the degree of inspection necessary to produce credible assignment results given the intended use."
AO-2 provides the following illustration: "A client has asked me to appraise a Rolex wristwatch. I will not be provided access to the watch. However, I have been given the serial number, a copy of a certificate of authenticity, and several recent photographs. Can I develop an appraisal based solely on this information?" How would you handle this assignment and what questions would you ask the client?
The answer lies in Standards Rule 7-2(e) which requires an appraiser to, "identify, from sources the appraiser reasonably thinks to be reliable, the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal," and could be affected by the intended use of the appraisal.
If the intended use is for an insurance claim where there was a total loss of the watch, then the watch is not available for inspection and this limited information may be all that's available. But AO-2 explains, "For other intended uses and under less dire assignment conditions, the appraiser will need more information to develop a credible appraisal when appraising a Rolex watch." At the core is an appraiser knowing that counterfeit Rolex watches, both good and bad, are frequently seen and that certificates of authenticity and serial numbers alone don't establish authenticity. A watch appraiser who is has experience and training in appraising Rolex watches may be able to deliver competent results for a given intended use where a generalist may lack that competency. USPAP requires an appraiser to state whether they personally inspected the subject property, but leaves it to the appraiser to determine if they are competent. This is where a discussion with the client on your role as an appraiser and your duty to comply with USPAP when acting as an appraiser may be helpful.
Appraisers frequently appraise from photographs and an appraiser may use a combination of inspection, photos, documents, or other information to identify the relevant characteristics of the subject property. Standards Rule 7-1(b) requires that an appraiser not commit a substantial error or omission or commission that significantly affects an appraisal. Thankfully, perfection is not required under USPAP and by following the principles of the 2020-2021 version of USPAP and ISA resources like the current ISA Report Checklist can make sure that our appraisal reports meet the needs of the client and the intended users, while maintaining the public's trust in the appraisal profession.
Steve Roach, JD, ISA CAPP is an ISA instructor and an appraiser based in Washington, DC, Baltimore, Maryland, and Cincinnati, Ohio. He is an expert in rare coins and medals with expertise in European and American paintings, sculpture, prints and drawings.