Promoting Public Trust, Part 5: Confidentiality (Part 2)

Our last blog post served as an introduction to the topic of Confidentiality.  In case you missed it, click *here*.  In this post, we’re going to get very practical and answer some frequently asked questions about how USPAP and Confidentiality work together in the appraisal process.

Most of the FAQs in this post are taken directly from the pages of USPAP, as are the answers.  I’ve done my best to add my own commentary and personal experiences, as well.

FAQ #1:  (On Disclosing Results of Appraisal Assignments)

Q:  I have been asked by my client’s business associate for information relating to an appraisal report I prepared for my client. Can I disclose the results of an appraisal assignment to parties other than the client?

A:  USPAP says an appraiser can disclose these results, but “only if you receive authorization from the client before sharing assignment results with the client’s associate.”   As we mentioned in the last blog post, our Ethics Rule states that 

An appraiser must protect the confidential nature of the appraiser-client relationship.

An appraiser must not disclose: (1) confidential information or (2) assignment results to anyone other than:

the client; parties specifically authorized by the client; state appraiser regulatory agencies…

Now you may be asking yourself, what about social media?  Or even talking with friends over drinks?  It seems like everyone in the real estate industry likes to post a photo of a home they sold.  What about appraisers?  Can we do the same? Well, here’s what USPAP says – not directly about social media, but about telling someone you appraised a property…

“Acknowledging the fact that you performed an appraisal on a property is not prohibited by USPAP. However… acknowledging assignment results or confidential information without permission from the client is prohibited.

So in the case of social media or any other form of advertising – or just in talking with coworkers at lunch – the appraiser just has to be careful not to disclose any assignment results or confidential information.  Unless my client told me not to, I can tell my friends on Facebook that I appraised the home at 1234 Main Street.  I just can’t say that it appraised for $345,000.

FAQ #2:  (On An Appraisal Report Received By Others)

Q:  I was recently contacted by a lender regarding an appraisal I had performed for another client. The lender had somehow obtained a copy of my appraisal report and wanted me to answer some questions. However, this lender was not my original client and was not named as an intended user. Are there any USPAP prohibitions against discussing my appraisal with this lender?

A:  Oh yeah.  This is a biggie, and one that can get appraisers in hot water if they’re not careful.  It’s so tempting to answer the other person’s questions, especially when they seem innocent.  However, USPAP “prohibits the appraiser from communicating assignment results or confidential information (as defined in USPAP) to anyone other than the client and parties specifically authorized by the client (with the exception of those authorized by due process of law, state appraiser regulatory agencies, and a duly authorized professional peer review committee under certain conditions)”  I know that was a mouthful.  So here it is simplified:  Don’t talk to Lender B about an appraisal you completed for Lender A unless you get their written consent.

FAQ #3:  (On Disclosure of a Prior Assignment)

Q:  As a condition of engagement, a financial institution requires that I disclose any prior appraisals I have completed on the subject property. If I disclose that I have previously appraised the subject property, am I violating USPAP?

A:  So here’s the rule:  Appraisers must disclose the fact that they’ve previously appraised a property (or performed any other services) any time in the last three years unless the appraiser has been asked to keep the previous appraisal assignment confidential.  Every once in a while, the lender will ask the appraiser not to reveal that they appraised a particular property.  In this case, the appraiser cannot disclose the previous appraisal. 

Now here’s where it gets fun.  USPAP states that “If the occurrence of a prior appraisal is confidential, and disclosure of prior appraisals is a condition of a potential new assignment or a requirement of USPAP, the appraiser must decline the new assignment because the appraiser could not make the requested disclosure.”  Ha!  Don’t ya just love it?!  I must disclose a prior service.  But if I’ve been asked not to, then I can’t.  And if I can’t disclose, I can’t appraise.  Welcome to USPAP, friends.

FAQ #4:  (On Sample Appraisal Reports) 

Q:  I am a fee appraiser currently seeking to get on the approved list for a prospective client. In order to be considered for approval, this lender requires appraisers to provide sample appraisal reports performed within the past year. Is there a way that I can accomplish this without violating USPAP?

A:  Yes.  So if you’re a lender reading this, please know that we can provide this information, but we still have to comply with the Confidentiality section of the Ethics Rule.  USPAP states that “if all essential elements of confidential information are removed through redaction or the process of aggregation, client authorization is not required for the disclosure of the remaining information, as modified.”  This is our method, and it has worked very well for us and our clients.  We simply remove any information that is or might be confidential, just to be safe.

FAQ #5: (On Confidentiality and Intended Users)

Q:  I recently performed an appraisal. Yesterday, an intended user who is not the client contacted me to discuss the appraisal. Do I need the client’s authorization to discuss the appraisal with this intended user?

A:  Absolutely!  Just as in the example above with the other lender, the appraiser still must have the Client’s authorization to discuss the appraisal.  Even with an Intended User, who is listed on the appraisal.  An example of this would be if I was hired by an attorney to appraise a home as part of an estate.  The attorney is my Client, but he wanted the executor of the estate to be listed as an Intended User.  In this case, I couldn’t speak to the executor (Intended User) without the attorney’s (Client) authorization.

FAQ #6:  (On the Time Limit of Appraiser-Client Confidentiality)

Q:  I performed an appraisal assignment for a lender client who has subsequently gone out of business. Now the borrower is requesting a copy of the appraisal report from me since the company is defunct, and there is no way to contact them. Does my obligation for appraiser- client confidentiality end since the client no longer exists?

A:  This is an interesting one.  On the surface, one might think yes – I no longer have an obligation since the client is no longer around.  However, USPAP doesn’t have language dealing with the termination of appraiser-client confidentiality. USPAP states that “An appraiser is required to comply with the requirements of the Confidentiality section of the ETHICS RULE, regardless of the status of the client.”

A Few Words on Physical Characteristics and Confidentiality

So far, we’ve covered a lot of ground about what an appraiser can and cannot disclose.  Most of what we can’t disclose includes assignment results and anything else the client has asked us to keep confidential.  But what about a property’s physical characteristics?  Several USPAP FAQs deal with this, so we’ll end our discussion with this topic.

First of all, assignment results do not include physical characteristics.  Therefore, these characteristics are not confidential – unless the client has identified them as such, or if they are simply unavailable from any other source.

USPAP defines physical characteristics as:

“attributes of a property that are observable or measurable as a matter of fact, as distinguished from opinions and conclusions, which are the result of some level of analysis or judgment.”

Here’s an example straight from USPAP, for illustration.  This is typical of a language found in any appraisal report:

       “The subject property is located at 245 Broad Street. The improvements were constructed in 1985 and were renovated in 2010 with all new appliances, bathroom fixtures, and heat/AC. The house, however, has functional problems. There are two bedrooms on the second floor with no bathroom on that floor. The interior decor is dated, and some of the walls are pink, yellow, and purple.”

So what are the physical characteris and what are the assignment results?  

The physical characteristics in the illustration above include the address, age of the home, appliances, fixtures, and heat/AC.  It also includes the number of bedrooms and lack of baths on the second floor; as well as the color of the walls (although I’ve yet to read an actual appraisal that mentions wall color!)

Assignment results that must be kept confidential include (from the example above) the appraiser’s analyses, opinions, and conclusions, such as “functional problems”; and the “interior décor is dated.”  Of course, if there was a value listed, that would be a conclusion, and therefore confidential.

Just in case you need another example, here are several examples of physical characteristics and assignment results:

Physical Characteristics (unless the client says they’re confidential, the appraiser can disclose):

Square Feet

Age of home

Bedroom / Bathroom Count

Age of flooring, roof, appliances, or any other feature, etc.

Assignment Results (always confidential and the appraiser cannot therefore disclose):

Condition of home

Quality of construction

Functional issues

Items that need replacing, etc.

Conclusion

Confidentiality is serious business.  Knowing what is and what is not confidential, and how to deal with that information is incredibly important to the appraiser, and to all users of appraisal services.  If you have any questions about confidentiality and the appraisal process, feel free to contact us at info@riverfrontappraisals.com.

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Helping homeowners navigate the appraisal process,

Ryan Bays, SRA, AI-RRS