The buyer of a commercial condo wants me to perform a Restricted Appraisal for acquisition purposes. However, the buyer has stated that private funding will be based on the appraisal. I've made it clear there can only be one intended user in this report format but he wants to proceed anyway. Would it violate USPAP if I accepted the assignment knowing that the appraisal is potentially being used by others than the stated intended user?
Although one of the things that defines a Restricted Appraisal Report is that the client is the only intended user, in this case I'd say the client's intended use of the report has to be considered and addressed.
If the appraisal is for acquisition purposes, a restricted report is fine if the client agrees.
If the client is telling me it wants to offer the appraisal for lending purposes, that creates a potential conflict because, by definition, there is only one intended user; and it isn't a lender (private or not).
From the USPAP:
The Restricted Appraisal Report is for client use only. Before entering into an agreement, the appraiser should establish with the client the situations where this type of report is to be used and should ensure that the client understands the restricted utility of the Restricted Appraisal Report.
From AO-12:
Deciding Which Written Report Option to Use
When the intended users include parties other than the client, an Appraisal Report must be provided. When the client is the only intended user, a Restricted Appraisal Report may be provided. A Restricted Appraisal Report must state a prominent use restriction that limits use of the report to the client and warns that the rationale for how the appraiser arrived at the opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile.
From the FAQs (#264):
264. RESTRICTED APPRAISAL REPORT AND THIRD PARTIES
Question: I have been asked by a client to prepare a Restricted Appraisal Report that he plans to provide to another intended user. Does USPAP allow me to use this report option in such a circumstance?
Response: No. The Comment to Standards Rule 2-2 states:
When the intended users do not include parties other than the client, a Restricted Appraisal Report may be provided. In other words, this particular report option may only be used when the client is the only intended user. The reason underlying this use restriction is that the client is assumed to have a sufficient level of knowledge to enable him or her to understand a report of this type. If other intended users were to be given such an abbreviated report, they could easily misunderstand it and potentially be misled.
So, while I agree with Ken's post (we have no control over where the report goes after we deliver it to the client) I don't think your situation is as simple as that. Your prospective client is telling you what s/he wants to do with the report; use it to evaluate the purchase of a property and use it for private financing. This cannot be done with the restricted appraisal report (two intended users that are explicit because the client is going to use the report for different intended uses). So knowing what your client wants to do with the results of the appraisal is the significant driver in determining if a Restricted Appraisal Report is the appropriate format to use. In this case, it isn't (as I see it). The appraiser would be giving the client a document which the appraiser knows cannot be relied upon for one of the client's stated intended uses.
Is there a work-around on this? I think so.
In the engagement agreement, the appraiser could discuss that the original request was for a restricted appraisal report but that the client identified the possibility that there would be another intended user. The engagement agreement could then state that the appraiser and the client had a discussion regarding the limitations of the restricted report with the appraiser stating clearly that if the client intended on using the restricted appraisal for lending purposes, the restricted appraisal format was not an appropriate reporting option; that if the client had another intended user, then that intended user would need to be identified and an Appraisal Report option would be appropriate. That, after this discussion, the client acknowledged the limitations of the restricted report, accepted those limitations, and confirmed that the intended use would be limited to the client's use in evaluating and pricing a purchase of the subject property and the client would be the only intended user.
I'd create an additional "initial space" in this clause and have the client sign it.
IMO, this would demonstrate beyond any doubt that the appraiser took the appropriate steps to ensure that the client understood the limitations of a Restricted Appraisal Report, provide an option that the client could consider if the client wanted to use the appraisal for other purposes, that the client acknowledged the distinctions and limitations of a Restricted Appraisal Report, and agreed to be the only intended user and agreed to the defined intended use.
In other words, the appraiser ensured that the appraisal will be meaningful and useful for the client's intended use.
That's my advice.
Good luck!
