Barry Shea, ASA
Abstract: This article discusses what “clearly, accurately, and conspicuously” mean in the context of USPAP reporting standards: Standards 2, 4, 6, 8, and 10.
USPAP has several requirements regarding disclosures that must be made clearly, accurately, and/or conspicuously. These requirements appear in the Jurisdictional Exception Rule and in the reporting standards (Standards 2, 4, 6, 8, and 10).
The Jurisdictional Exception Rule requires that any part of USPAP that is voided by law or regulation be “clearly and conspicuously” disclosed. Each reporting standard uses some combination of these terms several times. This article will use Standard 4 as an example; the requirements in parallel Standards Rules in Standards 2, 6, 8, and 10 are nearly identical.
Standards Rule 4-1(a) requires that each report “clearly and accurately set forth the appraisal review in a manner that will not be misleading.” Standards Rule 4-1(c) requires that the report “clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.”
Standards Rule 4-2(f) requires that all extraordinary assumptions and hypothetical conditions be stated “clearly and conspicuously.” When looked at together, Standards Rules 4-1(c) and 4-2(f) mandate that all extraordinary assumptions and hypothetical conditions are disclosed clearly, accurately, and conspicuously. Standards 2, 8, and 10 for Appraisal Reports and Restricted Appraisal Reports include similar requirements.
Standards Rules under 2-2(b), 8-2(b), and 10-2(b) require specific clear and conspicuous statements for use in Restricted Appraisal Reports.
Clearly requires that the disclosure be made in a manner that is easily understood. Example: A driver pulls up to a T intersection and sees a “One Way” road sign with an arrow pointing to the left; there is another sign that warns “No Right Turn.” The signs make it clear that it is okay to turn left and not okay to turn right. On the other hand, a road sign that states “Road Closed to Through Traffic During Inclement Weather” (yes, that was seen on a road sign) is much less clear. At what point is the weather “inclement”? When a report makes a disclosure, it must be clear; the report cannot leave it open to the intended users’ interpretations.
Accurately requires a disclosure without misstatements, errors, or omissions. Consider, for example, a highway sign indicating a low-clearance overpass. Such a sign might say “Low Clearance” and show a height such as 12’6”. As long as that 12’6” clearance is accurate, the driver knows that a 12’5” tall vehicle can safely go there, but a 12’9” vehicle better not try it. On the other hand, if the actual clearance is only 12’4” when the sign says 12’6” the inaccuracy can lead to an unfortunate outcome for the driver of that 12’5” truck.
When disclosures in an appraisal or appraisal review report are clear and accurate, any intended user who reads them should be able to understand them and read the report in its proper context.
USPAP also requires that certain conditions be disclosed conspicuously: the disclosure must be obvious and unavoidably noticeable. Going back to the road sign examples, those bright yellow signs along the side of the road are intended to be conspicuous. But what if untrimmed trees and brush along the side of the road obscure a sign from view? Unless a driver was looking for such signs, there is a pretty good chance that they would go unnoticed; these inconspicuous signs would not provide warnings or instructions. Similarly, if required disclosures are buried in the boilerplate of a report, the intended user is likely to miss them and not be aware of information needed to understand the appraisal or appraisal review report.
How Should These Disclosures Be Made in an Appraisal Review Report?
Those items that must be disclosed “clearly and accurately” must be clear (presented in a manner that will not be misunderstood) and accurate (presented with sufficient detail). An example might a statement in the appraisal review report such as: it is assumed that the work under review provided to the reviewer was the entire report as prepared by the original appraiser. Any intended user reading this statement should understand the assumption that the reviewer has made.
The requirement for conspicuous disclosures means that the report must include that disclosure in such a manner that intended users will notice it if[BS1] they read the report. One way to achieve this is to highlight the disclosure in a separate paragraph by using a bold, and perhaps slightly larger font. This could be placed in an Extraordinary Assumptions section of the report. For example:
Extraordinary Assumption: The appraisal report provided to the reviewer had no Page 32; the Table of Contents indicates that the certification was on Page 32. It is assumed that an acceptable certification had been included in the work under review but omitted from the document provided for review. This use of this assumption might have affected the assignment results.
The key is to be sure that all disclosures are clear and accurate. In those cases where USPAP calls for disclosures that are also conspicuous, make sure these disclosures are presented prominently enough that the intended user will see them without having to specifically look for them.
Disclosures that do not meet the USPAP requirements in the specific reporting standard contribute to a misleading report. When reviewing an appraisal report, the appraisal review should be alert for vague, inaccurate, or easily overlooked disclosures that may distract from the credibility of the work under review. The appraisal reviewer should also be sure that the appraisal review report complies with any applicable disclosure requirements of Standard 4.
Barry Shea holds ASA designations in Real Property (RP) and Appraisal Review and Management (ARM), the IFA designation from the former NAIFA (now part of ASA), and the RA designation from the Mid-West Appraisers Association (MWAA). From 2001 through 2004 he was the NAIFA member representative to the Educational Council of Appraisal Foundation Sponsors (ECAFS) and 2001 through 2008 served as the NAIFA representative to The Appraisal Foundation Advisory Council (TAFAC), including a year as the Chair. From 2009 through 2016 he was on the Appraisal Standards Board of the Appraisal Foundation and served three years as the Chair. Barry is The Appraisal Foundation’s trustee for the International Ethics Standards Coalition (IESC), currently serving as IESC vice-chair.