Assignment Conditions, Competency, and Pressure on a 24-Unit Refinance

Impermissible outright

• Skip the income approach. The scope of work must be sufficient to produce credible results; for a 24-unit apartment building the income approach is the primary approach. Omitting it is not a scope decision, it is a predetermined conclusion. Scope is the appraiser's judgment, not the client's instruction.
• Get to $2.4 million. An assignment conditioned on a predetermined value or direction in value is unacceptable. The bonus for speed compounds it into a contingent-fee arrangement that compromises independence.
• Ignore the floodplain. This is a hypothetical condition (value based on a state of affairs known to be false) used to conceal a fact rather than for a purpose such as proposed construction. Its use would be misleading and is prohibited.
• Omit the roof leak. A known material physical deficiency must be analyzed and reported. Failure to do so is a misleading report and an ethics violation even if the client prefers otherwise.

Acceptable, with conditions

• Reporting form. A generic or narrative form may be used if it contains all required elements; the choice of form does not excuse development requirements.
• Speed. A shorter turnaround is fine if the scope needed for credible results can still be completed.

Impermissible as stated

• Backdating. The effective date must reflect when the value opinion applies; a report date may not be used to make stale data look current. If a retrospective opinion is genuinely needed, it must be an explicitly developed retrospective assignment, not a relabeled current one. Note that a retrospective effective date would not help here anyway - the current flood status affects current value.

Two separate issues arise.

Competency. Competency is not a matter of feeling confident; it is defined as the ability to identify the problem and complete the assignment in conformity with the standards. An appraiser who has never appraised more than four units lacks the knowledge and experience to develop the income approach at this scale. Before accepting, the appraiser must disclose the lack of competency to the client, then either take all steps necessary to become competent - study, consult with or associate a qualified appraiser, review market data and methodology - or decline the assignment. Disclosure alone does not satisfy the requirement; disclosure plus the necessary steps does. Any significant professional assistance must be disclosed in the report.

Credential. For a federally related transaction, a 24-unit apartment complex exceeds the scope of a residential certification, which generally covers one-to-four unit residential properties. Taking the assignment on a residential credential is a regulatory problem independent of USPAP, and the appraisal would not be acceptable to the regulated institution. The appraiser must confirm the credential requirement for the transaction type and the state's rules before accepting; if a general certification is required, the appraiser cannot cure that with study or disclosure.

Consequence of proceeding as proposed. A report produced outside the appraiser's credential and competency, on a form the client selected, omitting the primary approach, and reaching a number the client named, would be unsupported, misleading, and likely unusable to the lender - exposing the appraiser to board discipline, loss of the engagement, and civil liability to parties who relied on it.

Value indication: $148,000 / 0.064 = $2,312,500, before any adjustment for the roof. The client's $2.4 million is about 3.8% higher and would require an overall rate of $148,000 / $2,400,000 = 6.17%, which is not supported by the comparable sales. There is no analytical path from the given NOI and rate to the requested number.

In the report

1. State the intended use and intended user, the definition of value, the property rights appraised, the effective date, and the scope of work, including which approaches were developed and why.
2. Develop and reconcile all applicable approaches, with the income approach as primary; treat the sales comparison and cost approaches as support and explain their limits for a multi-family asset.
3. Describe the roof condition, its effect on occupancy, rent, or reserve, and whether it is reflected in the NOI or in a deduction; a leaking roof is a physical deterioration item, not a footnote.
4. Analyze the flood zone as it currently exists, with the specific consequences for insurance cost and marketability, and state that the affected units are in the mapped floodplain.
5. State the exposure time and any market conditions conclusion supported by the data.
6. Certify truthfully, with no limiting condition that contradicts the findings.

With the client

The appraiser should put the refusal in writing: the assignment cannot be accepted under the stated conditions, no value was discussed or agreed in advance, and no bonus is accepted. If the client withdraws the order, that is documented in the workfile, along with the request and the response. Any later complaint or removal from the panel should be answered with those records.