closeup on hands, pointing at text in an appraisal engagement letter

Why the Appraisal Engagement Letter Isn’t Enough


Should you execute an appraisal engagement letter with your clients? Absolutely. Is the engagement letter enough to ensure you remain compliant with the Uniform Standards of Professional Appraisal Practice (USPAP)? Not necessarily.

What is an appraisal letter of engagement?

An appraisal engagement letter is a legally binding document that defines the terms and conditions of your arrangement with your client, addresses the scope of the assignment, and establishes your compensation. To protect yourself and reduce any confusion on the client’s side, you should execute one with each appraisal client.

However, your average, run-of-the-mill engagement letter doesn’t provide the level of “assignment-specific” information you will need if you must defend yourself against legal or administrative allegations. No matter how long and tedious, appraisal letters of engagement often can’t help you prove that you have been USPAP compliant because they miss critical information or need to provide context or justifications for your decisions. Even those multi-page form letters from lenders and AMCs need to be more thorough.

Think about it this way: If someone files a claim or lawsuit against you, you must be able to thoroughly reconstruct what you did, how you did it, and why. An engagement letter doesn’t provide you with the details to do that. You can rely on your memory, but most appraiser E&O claims are made 18 months to three years after an appraisal is completed. Instead, you can protect yourself by creating and maintaining a thorough appraisal workfile.

A meticulous appraisal workfile is your best defense

Instead of solely relying on your appraisal letter of engagement, your workfile provides proof that you developed and performed a proper and thorough scope of work and completed the job appropriately. A complete and well-organized workfile could mean the difference between you being held liable for wrongdoing and losses or not. It may even save your career (something that an appraisal engagement letter may not be able to do).

While it may take some time to investigate, dig up details, fill in any information gaps, and document that in your workfile, doing so is worth your time.

A checklist for your appraisal workfile

The goal of any workfile is to provide evidence that supports your work and your final conclusions. It should provide enough detail to jog your memory about the assignment and the surrounding situations.

No specific and detailed workfile contents checklist can be used for all appraisal assignments; such a document would be impossible to create. USPAP is a great place to start ensuring you comply with your record keeping requirements. Your appraisal workfiles should include the following:

  • A written, signed copy of the appraisal letter of engagement. It clarifies the terms of your assignment and provides proof that your client agreed to those terms.
  • Comprehensive photos of the property with detailed, neatly written notes. You want to be able to show the true condition of the property at the time you completed the initial appraisal.
  • The full history of your correspondence with the client, including copies of any written reports. This includes transcribing calls, saving emails, and even scanning and saving scribbled notes. Also, be sure to date everything.
  • A broad range of comparables for the area, including any that you rejected, along with your reasons for doing so.
  • Online research, including MLS pages, that you used in developing your value opinion. Your information must be retrievable, and websites you reference now may not exist in three years, so take a minute to PDF the pages and save them.
  • The data, analysis, records, and documents that you relied upon to come to your opinions and conclusions and why you relied on those resources instead of others.
  • Cost estimate data, the method you used to come up with the site value, and explanations for any adjustments, including market conditions.
  • Proof that you verified all information provided by others. It is critical that you double-check information from even the most reliable sources. If you are unable to verify it, make a note of that in your workfile.
  • A true copy of the final written appraisal report

Continuing education to support your knowledge

Make sure you know how to protect yourself and your business from liability! Consider these appraisal continuing education courses to fill in any knowledge gaps:

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