Keeping It Confidential With Clients

In the first blog in our series on intended users of commercial appraisal reports, we clarified the difference between a client and an intended user. To summarize, a client is the person who initiates the appraisal, but the intended user is the person(s) who will be relying on an appraisal to make a decision. Often the client and intended user are indeed the same individual, but certainly not always. To complicate things even more, what happens when other interested parties ask for details about an appraisal? Or when another person or group wants an opinion of value for the exact same property in the same month or years down the line? As appraisal professionals bound by the guidelines of The Confidentiality Section of the Ethics Rule of USPAP and the Appraisal Institute Code of Professional Ethics, there are strict protocols we follow to ensure our clients’ best interests are maintained.

for your eyes only

USPAP and the Appraisal Institute dictate that an appraiser must not disclose confidential information or valuation results to anyone other than the client and persons specifically authorized by the client, also known as the intended users. That’s why it’s important for an appraiser to clearly identify the client, the intended user(s), and the intended use of the appraisal report before any work is initiated. Furthermore, the Safeguards Rule of the Gramm-Leach-Bliley Act prohibit the transmittal of any appraisal specific information whether verbal or written to any party other than the intended user.

Our confidentiality usually rests with the client and the intended user(s).  Although it’s not uncommon for a property owner/borrower to receive a copy of our appraisal report, it’s the client’s decision as to who they choose to share our report with. Although others that are neither our clients or intended users sometimes obtain copies of our reports, their unauthorized reliance on our work product is at their own risk.

Confidentiality covers the analysis and reporting of our work product as presented in our reports including our final value conclusions. And although confidentiality does not apply to public-domain data  (i.e., sale comparables, details derived from government public records, published news and developments concerning the neighborhood or location of the property, etc.), the analysis/work product we synthesize is confidential.

“I found your old appraisal, can you just put my name on it?”

Although confidentiality and intended use are important concepts, one might think that once we complete an assignment and provide a value to a property, we are unable to appraise that property again. While we archive our work notes “Indiana Jones style” in our warehouse, any future appraisal of the same subject is effectively a new assignment per USPAP rules. We can value the same property for another client as long as our process does not require that we divulge confidential information gathered from our first client, and even then, it’s frequently a good idea to make sure we have no conflicts or confidentiality risks from our first client on the file.

Conflicts occur at times as appraisers are required to remain independent, impartial, objective, and unbiased. Since our findings must be independent, we are able to proceed with another assignment of the same property without asking for permission from our first client although we inform a new prospect client that we have appraised the property previously per USPAP standards and best practices.  But in the end, it is the confidentiality and integrity appraisers bring to the process that serves to maintain the public’s trust (and safeguards the economy from faulty decision making).

all things being equal

One other misconception regarding the confidentiality surrounding appraisals is the appraisal value itself. The sharing of value conclusions from other assignments is forbidden for those other than our original client even if we are appraising the same property.

back of the napkin things to remember

We get that there are a lot of nuances and far be it from us to teach you the history that got us there, but we do want to leave you with the following:

• Uniform Standards and Procedures of Appraisal Practice (USPAP): The guidelines for how appraisal should be completed. Standards Rule 1-2 dictates identification of the client and other intended users. Language pertaining to intended user requirements was adopted into USPAP by the Appraisal Standards Board in 1997 and has remained since.
• Financial Institutions Reform, Recovery, and Enforcement Act of 1989: This Act (FIRREA); codified a set of standards for federally regulated transactions that both banks and appraisers must adhere to. In Soderberg v. McKinney (1996), the court ruled as to guidance over the legal duty an appraiser owes to a party other than his/her client (this case often creates confusion as the 1997 Edition of USPAP resulted in adoption of new language for Intended User).
• Gramm-Leach-Bliley Act of 1999: This Act provided guidance on both how banks and affiliates/agents /representatives must treat confidential information.
• Kelly v. Carbone (2005) (Appellate Court of Illinois, Second District): This case established that for professional negligence, the plaintiff must allege: (1) The existence of a professional relationship between the plaintiff and defendant that gives rise to a duty of care, (2) A breach of the duty arising from that relationship, (3) Causation, and (4) Damages.
• Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010: This Act established the legally acceptable behavior for appraisers and lenders.
• Heyde v. Glassey (2014, Appellate Court of Illinois 3d): The court ruled that a client relying/suing for negligence was not legally able to due to the appraiser not originally hired by plaintiff, not identified as the intended user, and lack of appraiser to owe him a duty.

The matter of clients, intended users and confidentiality can become very complex, especially when dealing with lenders, FIRREA regulations, and USPAP. The Argianas team is always available to answer questions and give guidance to help you understand the role of confidentiality before you begin an appraisal. Do not hesitate to give us a call at 630.390.0113 or get in touch via our website. To receive more real estate appraisal resources or receive our original thought pieces, be sure to sign-up to receive our e-newsletter.