RAPAPORT... If you don’t have the expertise or the equipment, you better think long and hard before you take on the risks of doing appraisals,” declares Cecilia Gardner, president, chief executive officer (CEO) and general counsel of the Jewelers Vigilance Committee (JVC). Though there are no laws specific to the trade, there are legal standards based on court precedent — called case law — and generally accepted trade practices that appraisers must follow if they want to protect themselves. Since appraising is so closely involved with property ownership, appraisers have a critical role in the legal system. That’s why methodology has become so carefully defined and regulated. “If you perform an appraisal, you are considered to have special knowledge, and you will be liable if you make a mistake,” explains Gardner.
THE NUMBER ONE RULEJohn Brenan, director of research and technical issues for The Appraisal Foundation, singles out the competency rule of the Uniform Standards of Professional Appraisal Practice (USPAP) as the single most important standard for jewelry appraisers. USPAP is an imposing two-inch-thick book that details the standards for all U.S. appraisers. Depending on the state in which an appraiser practices his specialty and many other factors, an appraiser may be legally required to follow some or all of these standards. The book’s content is slanted toward the needs of real estate appraisers simply because they greatly outnumber jewelry appraisers. Luckily, the competency rule is just one page and it is abundantly clear in its wording. In short, it requires an appraiser to disclose any lack of knowledge on a subject before accepting an assignment. Then, if the appraiser accepts the work, he or she is responsible for taking the steps necessary to complete the job competently. This could include allowing time for consulting with an appraiser with expertise in the subject, if necessary, or for “personal study.” USPAP also notes that facts uncovered during the course of research could cause an appraiser to discover that he or she lacks the required experience after accepting an assignment. In the book’s “Frequently Asked Questions” section, the Appraisal Standards Board states that it is not sufficient for appraisers to maintain the skills and knowledge they possessed when they became appraisers. Under the Standards Rule 1-1(a), appraisers are expected to continuously increase their knowledge.
COMMUNICATION IS KEYUnderstanding the competency rule doesn’t mean you can skip over the rest of USPAP. Brenan notes that the most misunderstood aspect of the standards had to do with the departure rule, which was replaced in 2006 with the much simpler “scope of work” rule. The departure rule had both binding requirements, which always had to be followed, and specific requirements, which were meant to be followed only in certain situations. Understandably, this led to confusion. Now, “We don’t have a lot of complaints in terms of ‘I don’t understand this,’” Brenan contends. The scope of work rule can be reviewed in detail in the current USPAP edition. Here is a summary.
The scope of work rule recognizes that for each appraisal, an appraiser must:
• Identify the problem to be solved,
• Determine and perform the scope of work necessary to develop credible
assignment results,
• Disclose the scope of work in the report, which includes, but is not limited
to, the extent to which the property is identified and inspected, the extent
of data researched and the extent of analysis applied to arrive at
conclusions.
Problem identification under the rule refers to gathering and analyzing information about assignment elements that are necessary to identify the appraisal problem to be solved. The assignment elements are:
• Client and any other intended users,
• Intended use of the appraiser’s opinions and conclusions,
• Type and definition of value,
• Effective date of the appraiser’s opinion and conclusions,
• Subject of the assignment and its relevant characteristics,
• Assignment conditions.
USPAP notes that communication is key to determining many of these factors, so appraisers have an obligation to discuss these issues with their clients, preferably at the time they accept items to be appraised. However, the obligation of determining relevant characteristics falls on the appraiser.
The scope of work must include research and analysis. The scope of work is acceptable when it meets or exceeds:
• The expectations of parties who are regularly intended users for similar
assignments,
• What an appraiser’s peers’ actions would be in performing a similar
assignment.
Under the rule, an appraiser must not allow assignment conditions to limit the scope of work to such a degree that results are not credible. An appraiser must withdraw from the assignment if relevant information is not available because of limits on research opportunities, unless the appraiser can:
• Modify the assignment conditions,
• Use an extraordinary assumption about such information, if credible
results can still be developed.
The rule also specifies that an appraiser must not allow the intended use of an assignment or client’s objectives to cause the results to be biased. The rule has disclosure obligations that state the report must contain sufficient information to allow intended users to understand the scope of work performed.
AN OUNCE OF PREVENTION
USPAP exists to protect consumers, but JVC strives to head off problems before they become expensive court cases that could be covered in the press and hurt the industry as a whole. Gardner says JVC fields about 400 complaints every year from the trade and consumers. “A large number are based on incompetent or fraudulent appraisals. Many fail to understand the liabilities associated with appraising,” she observes. Complaints must be submitted in writing. Consumers must pay a processing fee of $100. For members of the trade, JVC members pay a $100 fee and nonmembers pay $200. All fees are used to offset administrative costs. JVC then determines if the complaint contains sufficient information and if it falls under the committee’s jurisdiction. The organization does not handle intellectual property or collections issues. They also won’t get involved in a case that has already been sent to the courts.
If the complaint passes those hurdles, the mediation process begins. Several people on JVC’s staff are trained in mediation, so the group contacts both parties and negotiates toward a middle ground. In rare cases, a dispute can move into arbitration before a board. “If there are damages, we work at a number both parties can agree to. But not every case involves financial harm. Some just involve issues that have concerned people along the way,” Gardner says. She stresses that even mediation is often an education process more than anything else, as JVC finds many appraisers learn about their legal obligations for the first time during this process. The group stresses knowledge as the best way to prevent legal trouble. “We are anxious to get people educated,” declares Gardner. Aware that retail jewelers often do not have the time or resources to take multiday classes at remote locations, JVC developed a home study course called J-BAR, designed to teach appraisers about their many legal responsibilities and how they can protect themselves. The basic course is available for purchase on JVC’s website for $99.95.
Ultimately, continuing education is a big part of being an appraiser and those who aren’t interested in a lifetime of learning won’t succeed or enjoy the work. “These issues have been predominant for a long time,” according to Gardner, and the profession’s intimate association with property law means appraisers will always need to be attentive to their changing world.
To Learn MoreJewelers Vigilance Committee (JVC)
25 West 45th Street, Suite 1406
New York, NY 10036
Phone:
US +1 2129972002 Call Fax: 212.997.9148
Email: clgjvc@aol.com
Web: jvclegal.org
The Appraisal Foundation
1155 15th Street NW, Suite 1111
Washington, D.C. 20005
Phone:
US +1 2023477722 Call Fax: 202.347.7727
Email: info@appraisalfoundation.org
Web: www.appraisalfoundation.org
Article from the Rapaport Magazine - June 2008. To subscribe click here.