Leon Castner, ISA-CAPP, is a Certified Appraiser of Personal Property, a Certified AQB USPAP Instructor, and Senior Partner of National Appraisal Consultants. Mr. Castner is an NAJA guest journalist and the following article is reprinted with his permission.
Often clients request appraisers to update an appraisal that was done a while ago. Usually this is for insurance coverage when the carrier for the homeowner’s policy insists that the old values might be outdated or obsolete. Very often these even outdate the five-year record keeping rule under USPAP. Your files may have been discarded or shredded, although many of us keep computer files longer than that and are able to retrieve the older information.
Clients often label such requests as “updates,” “reappraisals,” or even “re-certifications,” not really understanding that it is simply not a matter of changing a few figures. Regardless of the label, when a client seeks a current or contemporary value or analysis of a property that was the subject of a prior assignment, this is not an extension of the original assignment or agreement. It is a new assignment. Therefore, the same USPAP requirements apply now as did in the past. (In some instances, they may have changed since the cycle of USPAP is two years.)
The appraiser must follow the current standards in both the development and the reporting of the appraisal, i.e. Standards 7 and 8. The scope of work may be different or the same as the prior one. However, some steps may not need duplicating. The appraiser can choose to incorporate some of the analysis from the previous assignment, cutting time and cost from the new invoice. (This might include the use of an extraordinary assumption that the item has not changed substance, condition, or location and all the salient physical and relevant characteristics are still present.)
The good news is that the new report need not have the same level of detail as the original report. It still must contain sufficient information to be meaningful and not misleading to intended users, but it could reference the original, which is still in possession of the client and intended user(s).
Advisory Opinion #3 offers guidance in these instances and suggests that the new report be done one of three ways.
1. Provide a new report that contains all the requirements of Standard 8 without
referencing the original report. This is the “long” suggestion and may save confusion, still allowing the appraiser to cut out some inspection/development time.
2. Provide a new report that incorporates the older one by attachment. The old report would simply be an addendum or placed in the appendix and
referenced as the original. The combination of the old and new should satisfy
all the reporting requirements.
3. Provide a new report that incorporates by reference specific information in the original report. This should include subject property, client and intended
users, intended use, effective date, report date, appraiser(s), and interest appraised.
There is another possibility that can be utilized, both as an answer to this dilemma, and as a potential marketing tool. The solution could be in providing a restricted appraisal, even though the original might have been an “appraisal.” Under the current version of USPAP (2020-2021), a restricted appraisal can be done for a client and for an intended user. (Under previous versions the restricted could only be done for a client.) The intended user must be identified by name, which is probably not a problem. Since this is an update where both client and intended users have the previous appraisal, they are both knowledgeable about the process. The restriction that limits the use of the report to the client and named user is perfect, since both have been party to the original.
The restricted report can both reference the original and condense the level of detail required. (Use the chart provided in Advisory Opinion #38 to assist in the process.) This can be done for your client on a regular basis when used for the same intended use. That leads to a suggestion that when offering insurance coverage appraisals to your clients, you can build “updates” into your contract on a regular and frequent basis, providing them with adequate coverage for each renewal, and costing them less in the long run then starting over from scratch when the files have been discarded or thrown away.
You still may have to examine the items, but only to verify their existence, not to describe them, since you did that in your original report. The scope of work will probably involve a re-examination of the marketplace and the current replacement costs, but most of the research and analysis should still be in your workfiles. This should be an easy assignment.
A word to the wise: try to update your client data files on a regular basis, even though you have stated in your reports that the record keeping rule states a five-year limit. I once had a huge job of appraising thousands of items for a small museum. Fortunately, we had just purchased a Commodore computer. (This tells you the age of this story.) We maintained a hard copy of the inventory (12 3-ring binders) and the old floppy disks (the big ones). When the client suddenly called after fifteen years, this time for a different intended use, but same inventory, we were thrilled to have a couple of banker boxes filled with written and typed information. We also had the floppy disks-which at that point were unable to be converted since no one had the older machines. What a fiasco!
You have great flexibility under USPAP. You can provide updates for your clients without going to the expense of starting from scratch. Use it to your advantage and create some annual revenue you had not counted on.
(This is one of the items covered in both the 15 HR and the mandatory 7HR USPAP 2020-2021 update class that is now being held. Go to www.USPAP7.com or www.USPAP15.com and register for an upcoming class. Leon is a certified instructor for USPAP.)
Leon Castner is a Certified Appraiser of Personal Property, a Certified AQB USPAP Instructor, and Senior Partner of National Appraisal Consultants.