Do Assignment Conditions Constitute a Limiting Condition?

Thursday, August 20, 2020 in Education

The short answer is no. To better understand the question, let’s take a look at the 2020-2021 Uniform Standards of Professional Appraisal Practice (USPAP) definition of assignment conditions. USPAP defines Assignment Conditions as, "Assumptions, extraordinary assumptions, hypothetical conditions, laws and regulations, jurisdictional exceptions, and other conditions that affect the scope of work."

Some examples of the “other conditions that affect the scope of work” include but are not limited to: The items were not available for personal inspection, the appraiser was not able to take the artwork out of the frame, the lighting in the house was poor, the appraiser had limited time onsite, or the market was researched and there were very few comparable sales. These statements are all assignment conditions that would be listed in the scope of work section of your appraisal report. Thus, it appears that many of the statements that personal property appraisers have traditionally thought of as limiting conditions are, in fact, assignment conditions.

So, what are limiting conditions? Currently, USPAP does not have a formal definition for limiting conditions. The only place in USPAP that the limiting condition term appears is in the reporting Standards Rules 2, 4, 6, 8 and 10. Providing a better understanding into what limiting conditions are, we can look to other appraisal disciplines for their standard use of the term or even better, a recent court case for guidance on limiting conditions. The Connecticut Superior Court case, Renewal Capital, LLC v. Joshua Martin, et al., Superior Court, Judicial District of Hartford at Hartford, Docket No. HHD-CV18-6088271-S, addressed the use of limiting conditions. This court case involved a real property appraiser and the use of limiting conditions in the appraisal report. The court specifically ruled on what constitutes limiting conditions. In summary the court found, “Limiting Conditions utilize basic assumptions about things the appraiser is not qualified to determine and it limits the appraiser’s liability and limits the scope of the appraiser’s responsibilities in an appraisal assignment.” Even though this was a real property court case, it provided insight into how the use of limiting conditions in an appraisal report from a USPAP compliancy perspective limited the appraiser’s liability in court. Since USPAP applies to all appraisal disciplines, the concept of limiting conditions from a real property reporting perspective carries over to personal property reporting. It is also not unusual for a court case regarding concepts from one appraisal discipline to later transfer to the other appraisal disciplines. We see this often happening with court cases involving the IRS.

With all that in mind, here are some examples of limiting conditions that may be applicable for personal property. Remember that each appraisal assignment is unique and has its own challenges, so be sure to customize your limiting conditions for each appraisal assignment.

• The appraiser will not be responsible to give testimony or appear in court because he or she made an appraisal of the property in question and the appraisal report is not considered an expert witness report, unless specific arrangements to do so have been made beforehand.
• The appraiser obtained information, comparable sales data, estimates, and opinions from various sources considered to be reliable and believes them to be true and correct. The appraiser does not assume responsibility for the accuracy of such information, data or opinions furnished by other parties.
• The appraiser is not an authenticator and will not be responsible for assumptions made about the authenticity of the items. The appraisal report must not be considered an authenticity report.
• The appraiser has noted the condition of items in the appraisal report. Unless otherwise stated in the appraisal report, the appraiser has no knowledge of any hidden or unapparent conditions of the property or adverse conditions that would make the property more or less valuable. The appraiser assumes that there are no such conditions and makes no warranties, express or
  implied, regarding the condition of the property. Because the appraiser is not a restoration or conservation expert, the appraisal report must not be considered a formal condition or conservation report for the property listed in this appraisal report.

Some extraordinary assumptions made in the development process may also necessitate the use of limiting conditions to complete the appraisal assignment. For example, the extraordinary assumption that the artwork is authentic leads the appraiser to include a limiting condition that the report is not considered to be an authentication report.

WARNING! These statements do not exempt the appraiser from doing proper due diligence during the appraisal development process. Meaning, if the appraiser is not competent at appraising artwork and/or able to distinguish works that are fake or fraudulent, there is no hiding behind a limiting conditions statement that the report is not an authentication report. According to USPAP, if the appraiser accepts an assignment, the appraiser must have or obtain the competency to produce credible assignment results within the context of the intended use when the report is communicated to the client.

With the recent publication of a Q&A from The Appraisal Standards Board, guidance on limiting conditions was issued regarding virtual personal property inspections. You can view the official ASB Q&A document here.

In response to this new guidance, ISA will be reviewing and revising our education materials to reflect this change in how we distinguish assignment conditions from limiting conditions. Questions regarding the correct use of limiting conditions in appraisal reports may be directed to Tim Luke or any of your ISA instructors.

By Tim Luke, ISA AM