USPAP RECORD KEEPING RULE
Almost every profession requires its practitioners to create and retain records of the services they provide, and the appraisal profession is no exception. Learn about the USPAP RECORD KEEPING RULE, including compliance tips, legal implications, and best practices to ensure credible, ethical appraisals.
The Uniform Standards of Professional Appraisal Practice (USPAP), which sets forth the ethical and performance standards for appraisers, includes a rule entitled the RECORD KEEPING RULE. This rule requires:
- An appraiser must prepare a workfile for every appraisal or appraisal review assignment; and
- An appraiser must retain the workfile for a specified minimum time period.
An appraiser’s workfile
A workfile contains the supporting documentation for the appraiser’s opinions and conclusions and preserves evidence that the appraiser developed those opinions and conclusions in accordance with applicable USPAP standards. A workfile must be in existence before the appraiser may issue a report or any communication of assignment results.
In other words, an appraiser may not provide an opinion of value (i.e., an appraisal) or an opinion of the quality of another appraiser’s work (i.e., an appraisal review) and then go back and retroactively create a workfile.
The workfile is critical in helping an appraiser support his or her opinions and conclusions, particularly in situations in which a client or a state appraisal enforcement agency is questioning those opinions and conclusions. A well-documented and organized workfile can be the appraiser’s best defense when faced with a disciplinary complaint or a lawsuit.
The RECORD KEEPING RULE and the appraiser’s workfile
What does USPAP require to be in an appraiser’s workfile? According to the RECORD KEEPING RULE:
- The name of the client and identity of other intended users
- True copies of all written reports, documented on any type of media
- Summaries of oral reports, summaries or transcripts of testimony, and a signed and dated certification
- All data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP (or references to such data, information, and documentation)
A true copy is an exact replica of the report that was sent to the client. It may be retained as a photocopy or an electronic copy. The workfile must include true copies of all written reports; for example, if the appraiser transmitted four reports to the client as part of an assignment, the workfile must contain true copies of all four reports.
For many decades, workfiles were paper files retained in manila folders or brown legal envelopes. Some appraisers still maintain paper workfiles, but today it is more common for appraisers to retain their workfiles as electronic files.
In lieu of placing pages and pages of data, information, and documentation that was used to develop the appraiser’s opinions and conclusions in the workfile, an appraiser may simply reference the data and its source in the workfile.
For example, if the appraiser used a multiple listing service (MLS) as a source for comparable sales, the workfile does not need to contain printouts of all the sales; the appraiser may simply include the MLS numbers in the workfile as a reference. A word of caution – an appraiser needs to make sure that the referenced information will be available throughout the required workfile retention period.
Furthermore, if an appraiser is using electronic workfiles stored on a computer or in the cloud, the appraiser needs to be sure that the file is stored in a format that is easily retrievable.
How long do you need to retain the workfile?
Speaking of the workfile retention period, the RECORD KEEPING RULE states that the appraiser must retain the workfile for the longer of the following two periods:
- Five years after preparation; or
- Two years after final disposition of any judicial proceeding in which the appraiser provided testimony related to the assignment.
Most appraisal and appraisal review assignments do not involve testimony by the appraiser, and for those assignments, the appraiser is required to retain the workfile for a minimum period of five (5) years. An appraiser who provided no testimony related to the assignment is permitted to discard the workfile five years after preparation.
However, an appraiser should be aware that there is nothing to prohibit a state enforcement agency from taking action against an appraiser after the minimum workfile retention period has expired. Also, the statute of limitations for civil liability varies from state to state, and as such, it is advisable for an appraiser to retain the workfile longer than the minimum period specified in USPAP.
The RECORD KEEPING RULE & Appraisal Reports
The RECORD KEEPING RULE states that a workfile in support of a Restricted Appraisal Report or an oral appraisal report must be sufficient to produce an Appraisal Report. In other words, an appraiser who utilizes an abbreviated reporting option may not take shortcuts in documenting the workfile.
If more than one appraiser works on an appraisal or appraisal review assignment, all of the involved appraisers have workfile obligations. It is possible that all appraisers involved could retain their own individual copies of the workfile, although it is more common for one appraiser to retain custody of the workfile. This is permissible as long as the other appraiser(s) make appropriate arrangements for retention, access, and retrieval of the workfile.
Penalties for not Adhering to the RECORD KEEPING RULE
An appraiser must make the workfile available when required by a state appraisal regulatory agency or by due process of law. If an appraiser refuses to provide a workfile to a state appraisal regulatory agency, that appraiser has violated the RECORD KEEPING RULE.
Furthermore, if an appraiser willfully or knowingly fails to comply with the RECORD KEEPING RULE, that appraiser has also violated the ETHICS RULE. As an example, let’s say Appraiser A performs an appraisal in a sloppy or careless manner and a complaint is filed. The state enforcement agency requests a copy of Appraiser A’s workfile for the assignment. Appraiser A realizes that the work is deficient, and, fearful of what the state regulatory agency might find in the workfile, destroys the workfile and tells the state enforcement agency that the workfile cannot be located.
In this situation, Appraiser A is not only in violation of the RECORD KEEPING RULE for failing to retain the workfile, but the appraiser’s willful act of destroying the workfile places the appraiser in violation of the ETHICS RULE. This is meaningful because violations of the ETHICS RULE typically result in the most significant disciplinary sanctions.
Summary
In summary, the RECORD KEEPING RULE requires an appraiser to create and maintain a workfile for every appraisal or appraisal review assignment. However, the workfile is more than just an obligation under USPAP; it is critical to the appraiser’s ability to defend his or her opinions and conclusions against challenges.
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