Chapter 3 Ethics

The Uniform Standards of Professional Appraisal Practice (USPAP) states, in the ETHICS RULE:

"An appraiser must promote and preserve the public trust inherent in appraisal practice by observing the highest standards of professional ethics."

Aldo Leopold, an American author, philosopher, educator, and scientist, is quoted as saying,

"Ethical behavior is doing the right thing when no one else is watching- even when doing the wrong thing is legal."

Bias is defined in the 2018-2019 USPAP as

"a preference or inclination that precludes an appraiser's impartiality, independence, or objectivity in an assignment."1 Bias is not allowed when an individual is performing as an appraiser.

Here is another definition of ethics, ascribed to Dr. Albert Schweitzer:

In a general sense, ethics is the name we give to our concern for good behavior. We feel an obligation to consider not only our own personal well-being, but also that of others and of human society as a whole. Ethics is a way of being human.

Question: The principals of a local mortgage company propose to acquire an appraisal firm and have the appraisal firm complete assignments for the mortgage company. Is this a conflict of interest for the appraisers completing assignments for the mortgage company?

Response: An appraiser should review the ETHICS RULE and Standards Rule 2-3 when completing appraisal assignments in situations where the appraisal company that engages (by employment or contract) the appraiser is owned by the client. It is important to note that USPAP does not prohibit the acceptance of an assignment in this specific situation. In an appraisal assignment developed under STANDARD 1 and reported under STANDARD 2, an appraiser must specify the particulars in a situation where he or she has any present or prospective interest with respect to the parties involved in the property that is the subject of the report. The engagement of an appraiser by an appraisal company that is owned by the client or by owners of the client does not, in and of itself, mean that the appraiser has an interest or bias with respect to the property or properties involved. If the appraiser has an interest but could provide the service in an ethical, unbiased manner then the appraiser could accept the assignment as long as the appraiser was competent and properly disclosed the interest in accordance with Standards Rule 2-3. If the appraiser's interest in the property or the parties involved in the assignment prevented the appraiser from providing an unbiased service, then the appraiser should not accept the assignment for it would be in violation of the ETHICS RULE and parts of the appraiser's certification in Standards Rule 2-3.

Question: I know appraisers who consistently conclude that the market value of any property they appraise is equal to the contract sales price. In doing so, they facilitate sales and financing of sales, which is apparently what keeps their clients happy. Is this a violation of USPAP?

Response: A contract sale price can be a good indicator of a property's market value, and it may be logical and reasonable for the appraiser to conclude that they are the same. However, this is not always the case. In some situations, a contract price will exceed what is typical in a market. In other situations, a contract price will be less than what is typical. A contract sale price, while a significant piece of market data, must not become a target in an appraisal assignment. Rather, competent analysis of relevant and credible market data must be the appraiser's basis for a market value conclusion. If an appraiser consistently concludes that the contract sale price of any property they appraise equals market value, particularly when a competent analysis of credible market data indicates otherwise, the appraiser's impartiality, objectivity and independence appear to have been compromised. The ETHICS RULE clearly prohibits such a practice. The Conduct section of the ETHICS RULE states, in part: An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests. An appraiser must not perform an assignment with bias. An appraiser must not advocate the cause or interest of any party or issue. An appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions. An appraiser must not use or communicate a report that is known by the appraiser to be misleading or fraudulent. An appraiser must not knowingly permit an employee or other person to communicate a misleading or fraudulent report. The ASB's answer goes on to state that the Management section of the ETHICS RULE also prohibits the reporting of a predetermined result or a direction in assignment results that favors the cause of the client.

Question: The Management section of the ETHICS RULE requires an appraiser to disclose...fees, commission, or things of value... paid in connection with the procurement of an assignment. If a referral fee was paid in conjunction with an assignment, must the amount of the fee be disclosed, or is it sufficient to simply disclose that a fee was paid?

Response: Disclosing the fact that a payment was made in the appraisal certification and any transmittal letter where the conclusions are stated is sufficient to meet the requirement. However, this is a minimum requirement and does not prohibit full disclosure of the amount of the fee. So an appraiser can disclose the amount of the fee if he/she wishes, but USPAP does not require this.

Question: I occasionally receive requests to appraise a property that I have appraised in the past. Since the ETHICS RULE requires me to disclose any assignments that I performed within the three years prior to the date of acceptance of the assignment, isn't such a disclosure a violation of the appraiser's responsibility under the Confidentiality section of the ETHICS RULE?

Response: Generally, no. The Confidentiality section of the ETHICS RULE prohibits, with some exceptions, the disclosure of "confidential information or assignment results prepared for a client." The mere fact that an appraiser appraised a property is not confidential information as defined in USPAP. However, the appraiser must be careful not to disclose confidential information from a previous assignment in the new assignment. An appraiser is required to disclose any prior services he or she provided regarding the subject property within the prior three years. This includes all services, not just appraisal services. Examples of other services that may be provided include brokerage, property management, general contracting, and others.

Question: Is it ethical for an appraiser to offer a client a reduced fee on an appraisal if the client's loan does not close? Would the result be different if the client agreed to pay extra for other assignments?

Response: Neither practice would be ethical. Offering a client a reduced fee on an appraisal if the client's loan does not close is a violation of the ETHICS RULE. The Management section of the ETHICS RULE states: It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: the reporting of a predetermined result (e.g., opinion of value); a direction in assignment results that favors the cause of the client; the amount of a value opinion; the attainment of a stipulated result (e.g., that the loan closes or taxes are reduced); or the occurrence of a subsequent event directly related to the appraiser's opinions and specific to the assignment's purpose. (Bold added for emphasis) Standards Rule 2-3, 4-3, 6-3, 8-3, or 10-3, as applicable, also requires an appraiser to state that their compensation for completing the assignment is not contingent upon a subsequent event. Being paid an extra amount for other assignments does not change this result.

Question: Does USPAP require an appraiser to certify in the appraisal report that he or she has not been coerced to provide predetermined results?

Response: No. However, such a statement would be consistent with the requirements of USPAP. Standards Rule 2-3 essentially requires the appraiser to certify that he or she has not been coerced, without specifically using that term. SR 2-3 requires the appraiser to certify, among other things, that: my engagement in this assignment was not contingent upon developing or reporting predetermined results. An appraiser would be unethical to affirm this statement in the certification if the appraiser had been coerced into providing predetermined assignment results.

Question: The Conduct section of the ETHICS RULE states, in part: An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value. Does this imply that relying on supported conclusions relating to characteristics such as race, color, religion...is acceptable?

Response: No. One cannot infer by logical extension that using supported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, age...is appropriate or acceptable. Additionally, USPAP recognizes that there may be laws and/or regulations that apply to this issue. In such cases, Advisory Opinion 16 (AO-16), Fair Housing Laws and Appraisal Report Content, makes it clear that an appraiser must be aware of, and must abide by, applicable laws. Specifically, AO-16 states, in part: In some cases, even supported conclusions in assignments relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or group homogeneity cannot be used because they are precluded by applicable law... An appraiser must ensure that his or her appraisal, appraisal review, or appraisal consulting opinions and conclusions are impartial and objective and do not illegally discriminate or contribute to illegal discrimination through subjective or stereotypical assumptions.

Question: I have an assignment that involves a tract of land that is improved with two structures. However, the client has requested that I appraise the underlying land and only one of the two structures, without mentioning the other structure. Is it ethical to not disclose the presence of the second structure?

Response: No. The Conduct section of the ETHICS RULE states: An appraiser must not communicate assignment results in a misleading or fraudulent manner. An appraiser must not use or communicate a misleading or fraudulent report or knowingly permit an employee or other person to communicate a misleading or fraudulent report. In the situation described, performing an appraisal without disclosing the existence of both structures in the report would be misleading. It is important to note that just because a client asks for something does not mean the appraiser can just do it

Question: I'm aware that an appraiser's fee cannot be based on the amount of the appraiser's value conclusion. However, does USPAP allow an appraiser's fee to be based on the amount of the owner's estimate or a pending sale price of the subject property?

Response: USPAP does not prohibit an appraiser's fee from being based on an owner's estimate, a pending sale price of the subject property, loan amount, or any factor outside the appraiser's control. This is in contrast to a fee based on the amount of the appraiser's opinion of value, which is within the appraiser's control. A fee arrangement based on the appraiser's opinion of value violates the ETHICS RULE. In today's residential mortgage lending environment, it is difficult to base a fee on an owner's estimate of value or pending loan amount because lenders are typically not permitted to provide this information to the appraiser due to federal appraiser independence requirements.

Question: Is it ethical for an appraiser to pay a fee to be included on a lender's "approved appraiser" list?

Response: Yes. It is ethical for appraisers to pay a fee to be included on a lender's approved appraiser list provided the appraiser discloses payment of a fee in his or her appraisal reports. The Management section of the ETHICS RULE states that: An appraiser must disclose that he or she paid a fee or commission, or gave a thing of value in connection with the procurement of an assignment. Comment: The disclosure must appear in the certification and in any transmittal letter in which conclusions are stated; however, disclosure of the amount paid is not required. In groups or organizations engaged in appraisal practice, intra-company payments to employees for business development do not require disclosure. (Bold added for emphasis) So an appraiser can pay a fee to be on a lender's approved appraiser list, as long as payment of this fee is appropriately disclosed in the certification section of every appraisal report prepared for that client.

Question: It has come to my attention that a local appraiser is paying a home inspection firm a $25.00 referral fee for each appraisal assignment the home inspector refers to the appraiser. Are appraisers required by USPAP to disclose the payment of cash or other things of value to clients in order to obtain assignments?

Response: Yes. The Management section of the ETHICS RULE states that: An appraiser must disclose that he or she paid a fee or commission, or gave a thing of value in connection with the procurement of an assignment. Comment: The disclosure must appear in the certification and in any transmittal letter in which conclusions are stated; however, disclosure of the amount paid is not required. In groups or organizations engaged in appraisal practice, intra-company payments to employees for business development do not require disclosure. Therefore, payment of the referral fee to the home inspection company is acceptable as long as this relationship is disclosed in the appraisal certification and any transmittal letter where conclusions are stated.

Question: I have been asked to complete an appraisal assignment for a client who has no policy regarding compliance with USPAP. As an appraiser, may I still comply with USPAP on this particular assignment?

Response: Yes. The PREAMBLE states: USPAP does not establish who or which assignments must comply...Compliance with USPAP is required when either the service or the appraiser is obligated to comply by law or regulation, or by agreement with the client or intended users. When not obligated, individuals may still choose to comply. (Bold added for emphasis) In addition, the ETHICS RULE states: An appraiser must comply with USPAP when obligated by law or regulation, or by agreement with the client or intended users. In addition to these requirements, an individual should comply any time that individual represents that he or she is performing as an appraiser. So, it is clear that even in an assignment where compliance is not required of an individual who is acting as an appraiser, not only may the appraiser comply, the appraiser should comply. Refer to Advisory Opinion 21, USPAP Compliance for further guidance.

Question: I am an appraiser performing an appraisal or appraisal review assignment. I am required by law, regulation, agreement, or choice to follow USPAP. Is this still true if I do not charge a fee for my service?

Response: Yes. The applicability of USPAP is not affected by the amount of the fee, or lack of a fee. Good question! An appraiser cannot use the lack of a fee as a way of circumventing his or her USPAP obligations.

Question: A potential client has asked me to complete a form indicating what my appraisal fees would be for different assignments. The form asks me to indicate my appraisal fees according to appraised value, e.g., to list the fee for assignments with appraised values between $100,000 and $299,000, $300,000 to $499,000, etc. Is it a violation of USPAP to quote fees in this manner?

Response: Yes. This is in violation of USPAP. Completing and submitting such a form to a potential client establishes a compensation arrangement for assignments that is contingent on the amount of the value opinion. This is prohibited by the Management section of the ETHICS RULE, which states, in part: It is unethical for an appraiser to accept an assignment, or to have a compensation arrangement for an assignment, that is contingent on any of the following: the reporting of a predetermined result (e.g., opinion of value); a direction in assignment results that favors the cause of the client; the amount of a value opinion; the attainment of a stipulated result; or the occurrence of a subsequent event directly related to the appraiser's opinions and specific to the assignment's purpose. (Bold added for emphasis) It is, however, permissible to base appraisal fees on a factor that is outside the appraiser's control,

Moral is further defined in Webster's as

relating to the principle of right and wrong.

Webster's Dictionary defines ethics as

relating to what is good or bad; having to do with moral duty and obligation.