Commercial Grade

In this post I will begin discussing the changes implemented in the new edition of USPAP. We will start with the DEFINITIONS section of USPAP. First, the definition of “Client” has been revised. In the words of the Appraisal Standards Board, the reason for this change was “to further clarify the proper application of the term ‘client’ and to facilitate in the proper identification of the Client in assignments”.

Well, that certainly sounds like a reasonable goal. Let’s see to what degree this is indeed accomplished.

Old definition & comment:

CLIENT: the party or parties who engage an appraiser (by employment or contract) in a specific assignment.
Comment: The client identified by the appraiser in an appraisal, appraisal review, or appraisal consulting assignment (or in the assignment workfile) is the party or parties with whom the appraiser has an appraiser-client relationship in the related assignment, and may be an individual, group, or entity.

New definition & comment:

CLIENT: the party or parties who engage, by employment or contract, an appraiser in a specific assignment.
Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent.

It is readily apparent that the actual definition itself has not changed much at all; the revision was essentially a matter of semantics. The parentheses enclosing “by employment or contract” were promoted to commas, and the object (”an appraiser”) was shifted towards the latter part of the definition. From a grammatical standpoint this is probably an improvement, but the substance of the definition is unchanged.

The real story here is the revision to the Comment. To be sure, there was ample room for improvement in this regard. At best, the old Comment was bloated and confusing , and at worst it comes across as self-referential and largely meaningless. A major revision was certainly in order.

The new Comment is greatly streamlined, and introduces the important concept of agency. It tersely makes the point that there can be a non-client intermediary between the client and the appraiser. That said, it stops short of providing any guidance whatsoever as to how one might distinguish between an actual client and a mere agent. In today’s appraisal environment, it is very common for there to be one or more intermediaries between the “end-user” and the appraiser, so this is a highly pertinent question.

Fortunately, this point is addressed by USPAP FAQs 116 and 117, where it is framed within the context of performing an assignment for an AMC (Appraisal Management Company). The basic gist of the answers provided to these two FAQs is that the AMC can be a client or an agent – depending, essentially, on what the AMC wants to be! As I understand it, the upshot of this is that in the end, as far as USPAP is concerned there is no intrinsic distinction between an agent and a client. Therefore, the client is whomever we identify as such. Looking back now, the old version of the Comment actually starts to make more sense . . .

Stay tuned for the next post, in which I will explore the revisions made to the definitions of Extraordinary Assumption and Hypothetical Condition.