More on Reducing Risk

In my July 22 post on Risk Management and Personal Property Appraising (if you missed it, check the archives on the side bar) I discussed several methods of dealing with risk, including avoiding it, transferring it, managing it, accepting it, and ignoring it. Of course care should be taken in all aspects of the appraisal assignment and the risk of each assignment should be individually evaluated. I believe the risk management items listed below apply to most personal property appraisals.

Most of the following items fall under managing risk and how to minimize your exposure.

A. Have a "Letter of Agreement" or initial contract with your clients.

B. Many professional appraisal associations have report writing standards and guidelines, and part of those guidelines typically includes having a Cover document to document the assignment. Make sure you have a good Cover document covering such topics as scope of work, limiting conditions, approach to value, valuation dates, and anything else that may effect the appraisal process.

C. Identify problems encountered in the appraisal process several times throughout each of the different report sections. Each problem area should be expressly stated within each section of the report.

D. Specifically identify intended user & intended use of the report. Be very careful when providing copies to anyone unless they are one of the intended users. Again, many appraisal groups require restricting use in their report writing standards, ensure your intended use and users are well defined.

E. Be Careful of Templates and altering and reusing previous reports, you may be leaving something from a previous report that is not applicable in the new report. Proof read several times for errors and omissions.

F. Take lots and lots of photos of everything. Photos are inexpensive to store and can prove conditions and location at the time you view or inspect the property. If I am appraising a large group of property, I take overall images of the room itself, then several images of the property to be appraised, and then detailed/close up images for condition documentation and quality elements of the property.

G. Disclose, disclose, AND DISCLOSE, throughout the appraisal document. Make sure the cover letter covers the necessary items within the assignment and the scope of work.

• What/when did you see?
• What/when did you not see?
• What you couldn't see?
• Who told you what?
• When? Why? Were? & How?
• Outside expert opinions
• Information provided to you by the client, both documented and anecdotal

As the above graphic displays, appraisers should start by assessing risk,then plan to control through policies and procedures, then implement and follow the risk management plan and procedures, then monitor, evaluate and reevaluate. This is a constant process, that is ongoing and fluid. Appraisers should reassess general appraisal risk on a regular basis (such as contracts, verbiage, documents and forms), and asses client and assignment risk with every potential job.

Some assignments have low risk exposure, while others could be very high, perhaps even too high, depending upon the returns. By following the guidelines above the personal property appraiser should reduce exposure to risk, legal issues and valuation challenges. Any readers who have additional ideas for reducing riks, please post in the comments section.