The preparation of a credible appraisal requires that an appraiser first create a solid foundation for the assignment before starting work on the analytical components that will eventually result in the finished report that is delivered to the client. This foundation is called “Scope of Work”
Essentially, the Scope of Work consists of developing an appraisal plan that relies significantly on effective communication with the client. This may sound simplistic, but this crucial step is often given too little attention, or overlooked together. Many faulty or problem appraisals arise when an appraiser fails at the beginning to fully understand the circumstances surrounding the assignment and also the perspective of the client.
The appraisers at New West Consulting know the “secret” that spending additional time and effort on the scope of work phase of the assignment can greatly reduce its complexity; thus shortening the time required to complete the report. The seven basic steps of scope of work are as follows.
- Define the assignment; this includes (a) identification of the client and all intended users; (b) ascertain the intended use of the appraisal and also the “purpose” of the assignment, including the definition(s) of market value to be used; (c) identify the valuation premises required by the client and/or USPAP; (d) determine the effective date(s) of value for the value opinion(s); (e) identification of relevant property characteristics (including location and property rights to be valued); and (f) identify and clearly disclose any hypothetical conditions and/or extraordinary assumptions.
- Identify and confirm with the client the following items: (a) required level or degree of reliability (level must be appropriate for the intended use); and (b) the desired reporting format “appraisal report or restricted appraisal report” (the reporting format must also be appropriate for both the intended use “not be misleading” and also for the intended user(s).
- Ensure the intended scope of work is sufficient to meet the client’s requirements (and NOT result in a misleading appraisal).
- Verify the Scope of Work meets all requirements of USPAP, other controlling regulatory entities, and (for our firm, the Appraisal Institute).
- Identify and disclose any unusual circumstances that could adversely impact upon the appraisal process.
- Ensure that any extraordinary assumptions and/or hypothetical conditions are appropriate and market supported.
- Disclose the scope of work in the completed appraisal report.
Lender clients please assist your selected appraiser in completing these seven steps by providing detailed instructions within your letters of engagement. Other clients please discuss these seven steps with your appraiser prior to entering into any agreement for valuation services. |
