Mona L. Miller, FASA
Principle/Director, Pacific Gem Laboratory
Abstract: If you have ever taken the 15-hour USPAP class you can probably relate to what I am referring to as the three ovals of death. As an AQB Certified USPAP instructor with The Appraisal Foundation, I’ve noticed that the categories of Valuation Services in Advisory Opinion 21 (AO21) seem to be one of the most frustrating concepts for appraisers to grasp. This article concentrates on demystifying the concept of Valuation Services as presented in AO21.
To begin per the USPAP Preamble:
The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers. It is essential that appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.[i]
Advisory Opinion 21[ii] presents three categories of Valuation Services; each category involves different USPAP requirements. To be USPAP compliant in normal daily appraisal business, an appraiser must correctly apply the specified requirements within the Valuation Services umbrella. Some appraisers utilize all three ovals and some only work within the two center ovals. Whatever your business model includes, it is important to understand each of the ovals and their USPAP requirements. Fortunately, the breakdown to which rules or standards apply in each oval is simpler than it appears.
First, let us review a few important USPAP definitions, keeping in mind that appraisal practice is provided only by appraisers, while valuation services are provided by a variety of professionals and others. The terms appraisal and appraisal review are intentionally generic and are not mutually exclusive. For example, an opinion of value may be required as part of an appraisal review assignment.
Appraiser: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.
Valuation Service: a service pertaining to an aspect of property value, regardless of the type of service and whether it is performed by appraisers or by others.
Appraisal Practice: valuation services performed by an individual acting as an appraiser, including but not limited to appraisal or appraisal review.
USPAP has five rules. These rules of Ethics, Record Keeping, Competency, Scope of Work, and Jurisdictional Exception set forth the requirements that appraisers are required to follow when applicable. When acting as an appraiser you are always required to follow the first three rules. When writing reports or performing appraisal reviews all five rules apply. Understanding and knowing these rules are a major part of USPAP. These rules safeguard the trust and credibility your clients expect.
Valuation services encompass everything that an appraiser can do with in the appraisal business profession, including not acting as an appraiser. As an appraiser, you have the knowledge and experience in your specialized field to assist your client who is not expecting you to act as an appraiser. Within this oval, you must not misrepresent your role and must make it very clear at the beginning of the assignment when you will not be acting as an appraiser. Under this umbrella of Valuation ap you can act as an advocate.
Some examples of Valuation Services – Not Acting as an Appraiser are:
These examples listed are assignments or business practice that may be performed in your company. If you do perform these services, prior to accepting the assignment you must make it clear to your client that you are not acting as an appraiser. As general business practice, you should still be ethical, competent and know the laws and regulations regarding the assignment you are taking on for your client.
An appraiser who is hired by the client with for the purpose of Appraisal Practice is required to follow three of the five rules to be compliant with USPAP: Ethics, Competency, and Jurisdictional Exception rules, which protect the client and any intended users by ensuring that you are following ethical standards in your professional business practice. When acting in the middle oval, an appraiser cannot be an advocate or act with any bias, must be competent to perform the assignment and not be misleading, and must be aware of all the laws and regulations pertaining to the assignment within the jurisdiction that you are working. These rules will assure that you have done your due diligence and providing credible results to your client.
Some examples of Appraisal Practice – Acting as an Appraiser are:
The examples listed do not encompass the range of services available in this middle oval, which are regulated by the specified three rules. The two remaining rules – Scope of Work and Record Keeping – do not apply in this sector since you are not writing an appraisal or appraisal review and neither do the Standards Rules regarding development and reporting.
The center oval is where all rules – including Standards Rules – apply. Regardless of what the assignment is, in the center oval, all five rules and the Standards Rules apply to the assignment. The Standards Rules include the development and the reporting and will vary depending on the type of assignment requested. The appraiser is responsible for determining which Standards Rules are applicable for the type of assignment and providing the level of detail needed to make it the report meaningful and credible to the client and the intended user(s) for that assignment.
Some examples of Appraisal and Appraisal Review – Acting as an Appraiser are:
The inner oval is the most stringent of all. When performing an appraisal or appraisal review, you as the appraiser must comply with all five of the general USPAP rules as well as all applicable Standards Rules pertaining to appraisal development and reporting.
All appraisals must comply with the applicable Standards Rules for the appraiser’s discipline. Appraisal reviews must comply with all applicable rules of Standard 3 and Standard 4 and, in the case where an opinion of value is part of the review assignment, applicable Standards Rules for the appraiser’s discipline will apply.
Regardless of what type of assignment is performed in the Valuation Service world, an appraiser is expected to be competent and to act in a manner that is independent, impartial, and objective. Your reputation – your character, how you treat your clients, and credible assignment results – is your biggest asset and advertisement in the appraisal business. The majority of USPAP should be second nature to you in your daily practice; USPAP is a great guideline and reminder to stay on track.
A few additional take aways regarding USPAP:
Mona Miller, FGA/GG/FASA/ICGA, is Principle/Director of Pacific Gem Laboratory in Portland, OR., which provides gem & jewelry appraisals, forensic reports, and consultation services. She is a Fellow of the Gemmological Association of Great Britain (FGA), Graduate Gemologist (GG) from the Gemological Institute of America, Fellow of the American Society of Appraisers (FASA), and an Independent Certified Gemologist Appraiser (ICGA) with the American Gem Society. She currently chairs ASA’s Constitution & By-law Committee, was chair of ASA Educational Foundation for 12 years, served as Regional & Discipline Governor and as chair for the International Education Committee, Gems & Jewelry Education, and the Compeer Liaison Task Force.
Ms. Miller is an adjunct professor at multiple universities; she developed and teaches Gem & Jewelry valuation and specialty classes, along with Principle of Valuation classes PP/GJ201,202,203, GJ205 & GJ216 and international valuation classes. She is also a Certified USPAP Instructor for The Appraisal Foundation and Certified Instructor for Oregon and Washington Insurance Professionals. Email: mona@pacificgemlab.net
[1] USPAP: 2020-2021 Uniform Standards of Professional Appraisal Practice, The Appraisal Foundation, p. 1. The 2020-2021 edition of USPAP is effective through December 31, 2023.
[1] USPAP, p. 108-115.