Appraisal Institute of Canada
By David Babineau, AACI, P. APP, FELLOW
Volunteer, appeal sub-committee
A search for the phrase ‘how to be a reasonable appraiser’ on Google will get over 3,000,000 results in about half a minute. However, the first result is a link to the 2012 version of the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). After reading this article, I believe you will agree that the CUSPAP provides Appraisal Institute of Canada (AIC) members with the first step on the path to becoming a reasonable appraiser. The concept of the reasonable appraiser was introduced to our membership in the first version of the CUSPAP, which came into effect on January 1, 2001. It contained a definition of reasonable appraiser as follows:
REASONABLE APPRAISER: one who maintains a level of performance that would be acceptable to the professional practice peer group.
In an attempt to provide clarity on this issue, the definition of ‘reasonable appraiser’ was amended and is included in the 2012 version of the CUSPAP as follows:
Definition 2.50 – REASONABLE APPRAISER: means an appraiser that provides appraisal, appraisal review and consulting services within an acceptable standard of skill and expertise, and based on rational assumptions.
The phrase reasonable appraiser is at the core of our Standards. It is the test of record in professional practice matters and has been referred to, either directly or indirectly, in a number of court decisions. ‘Reasonable appraiser’ (or ‘reasonable appraisers’) is cited numerous times in the current version of the CUSPAP as follows:
Definition 2.3 – ACCEPTED APPRAISAL STANDARDS: this is a level of professional practice qualifications that affect current appraisal teachings, experience and work performance that reasonable appraisers would consider to be justified.
Section 3.6.2 – Jurisdiction relates to the legal authority to legislate, apply or interpret law at either the federal, provincial or local levels of government. It is misleading not to identify the part or parts disregarded and the legal authority justifying this action. In every case, it is ultimately the responsibility of the appraiser and not the client or other intended users, to determine whether the use of jurisdictional exception is appropriate. It is unethical for a member to complete an assignment that a reasonable appraiser could not support.
Ethics Standard Rule 4.2.5 – to knowingly complete an assignment that a reasonable appraiser could not support;
Appraisal Standards – Comments – 7.16.2 – In the process of collecting and verifying relevant information, the appraiser must perform this function in a manner consistent with reasonable appraiser standards. All three approaches require the collection of comparable data. The decision to inspect comparables and the extent of verification of data will be determined by the scope of the assignment, but, in all cases, the appraiser must conform to reasonable appraiser standards.
Appraisal Standards – Comments – 7.18.1 – Excluding any of the three traditional approaches to value that would be considered pertinent under the reasonable appraiser standard, constitutes an Extraordinary Limiting Condition that requires disclosure with reasoning. The exclusion of a relevant approach must not result in a report that is misleading.
Appraisal Standards – Comments – 7.19.1 – Reasoning requires the logical review, analyses and interpretation of the data in a manner that would support the conclusion, not mislead the reader and be to a level consistent with the reasonable appraiser standard.
Review Standard – Comments – 9.1.2 – The function of reviewing an appraisal requires the preparation of a separate review report by an appraiser performing the review, setting forth the results of the review process. Appraisers must take steps meeting the reasonable appraiser test to protect the integrity of transmitted reports, including a digital signature security feature for reports transmitted electronically.
Consulting Standard – Comments – 11.2.2 – Appraisers must take steps meeting the reasonable appraiser test to protect the integrity of transmitted reports, including a digital signature security feature for reports transmitted electronically.
Practice Notes – 12.17.1 – Scope of Work – Refers to the due diligence undertaken by the appraiser including the terms of reference from the client…The Scope Section of the report should reflect the circumstances of each particular assignment. An appraiser must have sound reasons to support the scope of work decisions, and must be prepared to support the decision to exclude any information or procedure that would appear to be relevant to the client, an intended user or the reasonable appraiser.
Practice Notes – 12.40.1 – Responsibility – Significant participation and significant professional assistance are terms that are best delineated through the reasonable appraiser test.
Practice Notes – 12.39 – Agreement for Sale/Option/Listing/Prior Sales – In the analysis of the sales history of the subject property, a member must exercise due diligence, but, this need not necessarily include a search of the public record. The necessity for a search of the public record will depend on the nature and scope of the assignment, according to the reasonable appraiser standard.
As previously mentioned, the reasonable appraiser standard is the test of record in professional practice matters. Quoting from Section 5.22.1 of the Consolidated Regulations of the Appraisal Institute of Canada (July 2012):
The standard of review to be applied when considering alleged breaches of the CUSPAP Ethics, Appraisal, Review or Consulting Rules and Comments, to be applied is that of the reasonable appraiser. This means a reasonable appraiser is an appraiser that provides appraisal, appraisal review and consulting services within an acceptable standard of skill and expertise, and based on rational assumptions.
While Section 5.22.1 refers to the scope of a professional practice investigation, the same test will also apply in the adjudication of any alleged breaches of the CUSPAP Ethics, Appraisal, Review or Consulting Rules and Comments. In other words, the level of performance expected of a member of the Appraisal Institute of Canada is that of a ‘reasonable appraiser’ and for obvious reasons pleading ignorance of the CUSPAP is not a recommended defence.
Also as previously mentioned, the reasonable appraiser standard has been referred to, either directly or indirectly, in a number of court decisions. A quote from the decision in Kokanee Mortgage MIC Ltd. v. Concord Appraisals Ltd. 2000 BCSC [Kokanee] 1197 at para. 55, follows:
…real estate appraisal is a matter of judgement and not a precise science. However…a person relying on…an appraisal is…entitled to expect that judgement to be exercised within acceptable standards of skill and expertise, and to be based on rational assumptions.
The emphasized words from the Kokanee decision formed the foundation for the new wording in the AIC’s definition of a ‘reasonable appraiser’ set out earlier in this article.
Therefore, as both the AIC’s Professional Practice Committees and the courts expect our members to provide their appraisal services within an acceptable standard of skill and expertise, it would be logical to conclude that at a minimum a reasonable appraiser should take the time to become very familiar with the CUSPAP. Again, the CUSPAP can provide some of the best advice on how a reasonable appraiser should practice.
Some suggested best practices to ensure you act as a reasonable appraiser are as follows:
In summary, it is up to us as professionals to maintain a level of skill and expertise that would be acceptable to both our peers and the public at large. I hope this article has provided evidence that a better understanding of the CUSPAP should be the first step in the scheduled maintenance of your reputation as a reasonable appraiser.