image of a carefully taking notes for 2022 Update: Intended Use & Intended User for real estate appraisers

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2022 Update: Intended Use & Intended User

Every appraiser knows that when developing a real property appraisal they must:

  • Identify the client and other Intended Users; and
  • Identify the Intended Use of the appraiser’s opinions and conclusions.

It is true that identifying the "Intended User" and the "Intended Use" of the appraisal assignment are USPAP requirements, but it really goes beyond that. The appraiser needs to identify and truly understand the intended users and the intended use in order to fully comprehend the problem to be solved and in order to fully grasp the development and reporting responsibilities in an appraisal assignment. Far too often appraisers treat these terms as if they are simply "throw aways" or mere blanks to be filled in on a form.

Especially when dealing with private clients, the appraiser might have to engage in some questioning to solicit how the client actually intends to use the appraisal they are being asked to prepare. Terms we repeatedly find noted as the "Intended Use" are:

"Market Value" and "Asset Valuation"

When we ask the appraiser, "What exactly was the client planning to do with the property?" or, "Why did the client need an appraisal?"

Too many times the appraiser responds that they "...don't know!"

If a property owner just wakes up one morning and wants to know what their property is worth, there are many more cost-effective ways of finding that information, other than paying an appraiser to prepare an appraisal report. Are they thinking about listing the property for sale? Are they in the process of, or contemplating divorce? Why do they want to know what the property is worth?

One appraiser told us that he was very uncomfortable asking the client too many "personal questions." Perhaps that appraiser should not take assignments from private clients.

Another appraiser was absolutely opposed to the prospect of testifying either at a deposition or in court. The idea of having to answer questions about her appraisal report, in front of other people, just made her "sick even thinking about it." Imagine how upset this appraiser was when she received a subpoena to testify in court.

It turned out that her "Market Value" appraisal was being used by the husband in a divorce proceeding and there was no way for her to avoid responding to the subpoena.

Many divorce proceedings wind up in court, even the ones that start out friendly. If an appraiser does not want to testify about their appraisal, they might want to avoid doing appraisals that will be used in connection with a divorce, which might mean asking questions to clarify what exactly the client means when they say they want the appraisal for "Market Value" reasons.

Another appraiser got more than enough feedback from a prospective client and turned down an assignment, which was probably a wise decision. The appraiser got the referral from a local real estate agent who said a client was thinking of listing their property for sale but wanted an appraisal first. The appraiser made an appointment to meet the owner at the property, but as they were walking through the home, the appraiser was getting a "bad feeling" about this guy. He kept pointing out problems with the house like things that were old and needed to be fixed, and deferred maintenance. This was not typical of someone listing a home for sale. They would usually try to "inflate" the value not "deflate" the value.

The appraiser asked the property owner why he wanted the appraisal, and why he didn’t just get a list price from the agent. The owner didn’t seem to want to answer the question and was changing the subject, but the appraiser kept pressing. He said he needed to know. Why did he want the appraisal? What was he going to do with it?

Finally the owner snapped back that it was "none of the appraiser’s {expletive} business" what he was going to do with the report. The appraiser tried to explain that it actually was his business. He had to know the purpose of the report because there are different kinds of appraisals that require different forms, etc.

As it turned out, the report was being requested so that it could be submitted with an estate tax return (hence the desire to come in with a low value, perhaps). The appraiser had prepared a few reports for that purpose but, over the course of the short time he had spent with the gentleman, he concluded that he really did not want to work with this client, so he said he did not have that expertise and that maybe the real estate agent had another referral for him. He should work with another appraiser who has more experience doing estate work.

The appraiser was very glad that he asked the right questions, and that he didn’t give up on his efforts to clarify the "Intended Use." This could have turned out to be a problematic client and a troublesome assignment.

It is important to identify the "Intended User" and to recognize whether the client and the intended user are the same or different persons or entities. It is not appropriate to simply assume the client and the intended user are the same or different. If questions need to be asked or explanations are warranted, they must be pursued.

An appraiser was retained to prepare an appraisal in connection with a divorce proceeding. The client was the person who retained the appraiser and who paid the fee for the report and was the husband’s mother. She wanted to help her son through a difficult time.

The report was being prepared for the use of the husband and his attorney in the divorce proceeding. The husband’s mother had nothing to do with the divorce proceeding.

The "Intended User" identified in the report was the husband's mother. When asked why she was named as the intended user, the appraiser said "…because she was the client...she paid me." Obviously, this appraiser didn’t seem to understand that there might be a distinction between the client and the "Intended User."

Every appraiser needs to have a clear understanding of these critical terms when they are accepting assignments and completing reports. If the appraiser does not question the client in a sufficient manner they may not comprehend the "problem" to be solved. Without this understanding, they may not be able to complete a USPAP-compliant appraisal assignment.

Without this understanding, they may wind up having to testify in court because their appraisal report says the "Intended Use" is "Market Value" and they only found out months later that "Market Value" really meant that report was being used by the client in litigation.

If an appraiser is questioned by an investigator with the state licensing board, or by a Judge in court, and they are asked "Who is the Intended User?", or "What is the Intended Use?", they need to be able to give clear and concise answers to both of those questions. The last answer the appraiser should ever give to one of these questions is that they "...don't know!"