Why the Appraisal Engagement Letter Isn’t Enough

why the appraisal engagement letter isn't enoughShould you execute an appraisal engagement letter with your clients? Absolutely. Is the engagement letter enough to ensure that you remain compliant with the Uniform Standards of Professional Appraisal Practice (USPAP)? Not necessarily.

An appraisal engagement letter is a legally binding document that defines the terms and conditions of your arrangement with your client, addresses the scope of the assignment, and establishes your compensation, so you should execute one with each appraisal client to protect yourself.

However, your average, run-of-the-mill engagement letter just doesn't provide the level of "assignment specific" information you will need if you must defend yourself against legal or administrative allegations.  Engagement letters—no matter how long and tedious—often can’t help you prove that you have been USPAP compliant because they miss critical information or don’t provide context or justifications for your decisions. Even those multi-page form letters from lenders and AMCs might not be enough.

Think about it this way: If someone files a claim or lawsuit against you, you must be able to thoroughly reconstruct what you did, how you did it, and why. An engagement letter doesn't provide you with the details to do that. You can either rely on your memory—keeping in mind that most appraiser E&O claims are made 18 months to three years after an appraisal is completed—or you can protect yourself by creating and maintaining a thorough appraisal workfile.

A meticulous appraisal workfile is your best defense  

Your workfile provides proof that you developed and performed a proper and thorough scope of work, that you did the job you were hired to do—and that you did it well. While a complete and well-organized workfile will certainly help you be more productive on a daily basis, should you wind up in court, it could mean the difference between you being held liable for wrongdoing and losses or not. It can save your career.

While it may take some time to investigate, dig up details, fill in the gaps in information, and document that in your workfile, doing so is worth your time.

A checklist for your appraisal workfile

The goal of any workfile is to provide evidence that supports the work you did and your final conclusions. It should provide enough detail to jog your memory about the assignment and the situations surrounding it. 

There is no specific and detailed workfile contents checklist that can be used for all appraisal assignments; such a document would be impossible to create.  USPAP is a great place to start to ensure you are compliant with your record keeping requirements. Your appraisal workfiles should include the following:

  • A written, signed copy of the engagement letter. It clarifies the terms of your assignment and provides proof that your client agreed to those terms
  • Inspection photos with detailed, neatly written notes. The more you provide, the better. You want to be able to show beyond a shadow of a doubt the condition of the property when you completed the initial appraisal—not after it has been lived in and potentially damaged.
  • The full history of your correspondence with the client, including copies of any written reports. Transcribe calls if possible, save emails, fand even scan and save notes you scribbled on scraps of paper. Date everything.
  • A broad range of comparables for the area, including any that you rejected, along with your reasons for doing so.
  • Online research, including MLS pages, that you used in developing your value opinion. Your information must be retrievable, and websites you reference now may not exist in three years, so take a minute to PDF the pages and save them.
  • The data, analysis, records, and documents that you relied upon to come to your opinions and conclusions and why you relied on those resources instead of others.
  • Cost estimate data, the method you used to come up with the site value, and explanations for any adjustments, including market conditions.
  • Proof that you verified all information provided by others. It is critical that you double-check information from even the most reliable sources. If you are unable to verify it, make a note of that in your workfile.
  • A true copy of the final written appraisal report.

Check out our course: Workfile Documentation for Appraisers

Our Workfile Documentation for Appraisers course gives you a more in-depth look on how to compile a court-ready workfile. The course focuses on the point of the workfile to preserve evidence that the appraiser complied with USPAP. It covers the RECORD KEEPING RULE and the SCOPE OF WORK RULE, a page-by-page overview of Fannie Mae’s 1004 report form and addresses the ways that the same information can be used to support several different analyses.

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Posted by: McKissock

Date: Nov 25, 2016 9:00:00 AM

Topics: appraisal engagement letter