The Importance of Due Diligence and Due Care in Appraising
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Wednesday, April 21, 2021 in Education
My favorite part of USPAP comes directly from the Competency Rule:
Perfection is impossible to attain, and competence does not require perfection. However, an appraiser must not render appraisal services in a careless or negligent manner. This Rule requires an appraiser to use due diligence and due care. (USPAP 2020-2021, lines 301-303)
Why is it my favorite? Because it reminds me that our appraisal reports are not expected to be perfect, but we are required to use due diligence and due care.
But what does exercising due diligence and due care in our appraisals really mean? According to Merriam-Webster, due diligence in the context of law is the care that a reasonable person exercises to avoid harm to other persons or their property. In the context of business, it is the research and analysis of a company or organization done in preparation for a business transaction. Unfortunately, neither Merriam-Webster nor USPAP defines the term in the context of appraising, but our ISA Core Course manual does.
Due diligence is a concept that applies to all phases of the appraisal process — both in the development of the appraisal as well as in the reporting of the results. It is particularly applicable when dealing with issues of authentication. Courts hold professionals to higher standards of duty than non-professionals. Exercising due diligence is one of those higher standards. It requires the appraiser to meet the standard of substantial evidence in all phases of the appraisal process. Substantial evidence is “such evidence as a reasonable person might accept as adequate to support a conclusion.” (Black’s Law Dictionary). (ISA Core Course in Appraisal Studies, revised January 2020, GL-4)
As stated in the definition above, we use the term due diligence most when discussing authenticity. Because of the existence of fakes and forgeries in the personal property field, the appraiser must go beyond simple description and must apply due diligence to determine if authentication is required. That’s why we have a note in our Checklist to include a statement regarding readily apparent identity and/or authentications performed. Since we seldom act as an authenticator, it is important that we seek qualified experts to assist us when authentications are required. Doing so demonstrates the application of due diligence.
There are times when our knowledge of the property as appraisers is sufficient to conclude an identification and authenticity, but it is incumbent upon the appraiser to know when readily apparent identity is enough and when it is not. A best practice that I encourage everyone to implement is to add another phrase or sentence on why you believe readily apparent identity is sufficient to produce credible assignment results in the context of the intended use of your appraisal. It will serve only to strengthen your credibility and demonstrate your competence in valuing the type of property being appraised.
Now, if you have an estate with 500 low-value objects, do you need to write another 500 sentences? No, certainly not. Perhaps you could write something similar to: “Unless otherwise stated herein, the appraisal is based only on the readily apparent identity of the items appraised. In my opinion, no further guarantee of authenticity, genuineness, attribution, or authorship is required, because xxxxxx”. Here is a place where you could say “because the client provided me with receipts from reputable sources” or “because the materials and signatures/labels/marks are consistent with known authentic examples” or “because the sportscards/comics have been certified by a recognized third-party grading company." It only takes a few more words to really make an impact.
Is due care the same as due diligence? Not exactly, though the two terms are related. Due care is using reasonable care to protect the interest of an organization. Due diligence is practicing the activities that maintain the due care effort.
So go forth and practice good due diligence and due care! And keep striving for excellence in your appraisals!