Reliance Letter Minefield an appraiser real-world problem… Solved

by Francis X Finigan

August 2019

Save this letter in your file; it will help protect you from liability and enhance your professional image.

While not typical, there are enough requests for “reliance letters” that they are not uncommon.

A mortgage broker may receive a copy of the appraisal report and want to submit it to a “second mortgage” lender, who is not the original client or an intended user.

The mortgage broker may ask the appraiser to complete a “reliance letter” and re-address the report to the new lender. At this juncture typically there is no discussion of compensation.

The audacity of this mortgage broker is probably your first thought! In their industry, it’s not uncommon for them to ask an environmental consultant for a reliance letter.

Let’s clarify what a reliance letter is. A reliance letter is a letter from one party to another party allowing them to rely on the contents of a report. Reliance letters can be offered by consultants (usually an environmental consultant) in place of a formal collateral warranty to the consultant’s appointment.

With that in mind, realizing the mortgage broker’s lack of USPAP knowledge, you can understand why they might consider asking the appraiser for a reliance letter.

So, what’s the answer? Can an appraiser just re-address the appraisal report? Can the appraiser re-address the appraisal report if they are offered remuneration?

Advisory Opinion 26 provides the following clear and unambiguous answer to these questions.

The answer to the question posed above is… No. Once a report has been prepared for a named client(s) and any other identified intended users and for an identified intended use, the appraiser cannot “readdress” (transfer) the report to another party.

USPAP defines Client as: the party or parties (i.e., individual, group, or entity) who engage an appraiser by employment or contract in a specific assignment, whether directly or through an agent. (USPSP Publication)

Avoid the reliance letter minefield. The next time you are requested to readdress an appraisal, just send them a copy of this Food for Thought. And just say, NO!!

Good luck and do good work,


For more information and on this topic read the following:


Relevant USPAP & Advisory References

• The Confidentiality and Conduct sections of the ETHICS RULE

• Standards Rules such as 1-2(a) and 1-2(b); 7-2(a) and 7-2(b); and 9-2(a) and 9-2(b), which require an appraiser to identify the client, intended users, and intended use

• Standards Rules such as 2-1(a), 8-1(a), 10-1(a), which require an appraiser to clearly and accurately set forth the appraisal in a manner that is not misleading

• SCOPE OF WORK RULE, which requires an appraiser to ascertain whether other laws or regulations apply to the assignment in addition to USPAP

• Advisory Opinion 25, which covers clarification of the client in a federally related transaction• Advisory Opinion 27, which addresses appraising the same property for a new client

• Advisory Opinion 36, Identification and Disclosure of Client, Intended Use, and Intended Users 

(USPAP Publication)

Appraisal Standards Board Considering Creating Standards for Evaluations and ASB to Issue Concept Paper and Hold Public Hearing

The ASB could consider moving forward with a discussion draft or an exposure draft by late 2019.

TAF once a draw a bright line between appraisals and evaluations.


“Federal Deposit Insurance Corporation, the Board of the Federal Reserve System, and the Office of the Comptroller of the Currency issued an advisory to clarify supervisory expectations for using an evaluation for certain real estate-related transactions in response to questions raised during outreach meetings held pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. Many of the questions pertained to when an evaluation is permitted for a real estate-related transaction and how an evaluation can support a market value conclusion when there are few or no recent comparable sales of similar properties.


Part 323 of the FDIC Rules and Regulations permits institutions to use an evaluation in lieu of an appraisal to value real property pledged as collateral for certain real estate-related transactions that are not subject to the appraisal requirements in Part 323. For example, institutions may use evaluations rather than appraisals to estimate the market value of residential or commercial properties securing real estate-related transactions of $250,000 or less except for certain higher-priced mortgage loans under Regulation Z.

The Interagency Appraisal and Evaluation Guidelines do not require evaluations to be based on comparable sales.

In areas with few, if any, recent comparable sales of similar properties in reasonable proximity to the subject property, persons who perform evaluations may consider alternative valuation methods and other supporting information when developing a market value conclusion.

Institutions that demonstrate that a valid correlation exists between tax assessment values and market values may use such information to develop the market value conclusion in an evaluation.”

FDIC FIL-16-2016   Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions –

According to the federal banking regulators’ Interagency Appraisal and Evaluation Guidelines (the “Guidelines”), evaluations are permitted for:

·        Transactions where the “transaction value”5 (generally the loan amount) is $250,000 or less;6

·        Certain renewals, refinances, or other transactions involving existing extensions of credit; and

·        Real estate-secured business loans with a transaction value of $1,000,000 or less and when the sale of, or rental income derived from, real estate is not the primary source of repayment for the loan. 

 Even though the regulations allow evaluations for these types of transactions, the Guidelines state that banks should establish policies and procedures for determining when to obtain appraisals for higher-risk transactions, such as those with combined loan-to-value ratios that exceed supervisory limits, atypical properties, properties outside the bank’s traditional lending market, or high-risk borrowers.

While an appraisal requires a state-certified or licensed appraiser, the Guidelines state that those who perform evaluations should have “the appropriate appraisal or collateral valuation education, expertise and experience relevant to the type of property being valued.” Examples include appraisers, real estate lending professionals, agricultural extension agents or foresters.

You can even use internal staff to perform evaluations, provided they possess the necessary training and qualifications and you take steps to maintain the independence of your real estate valuation program. Generally, that means a complete separation of the collateral valuation program from the loan production process. Maintaining such a separation may be difficult for smaller banks. According to the Guidelines, if the only person qualified to evaluate real estate collateral is another loan officer, director or bank official, the bank should ensure that person’s independence by requiring him or her to abstain from any vote or approval involving loans for which they ordered, performed, or reviewed an appraisal or evaluation.

For banks lacking the resources to hire and train their own personnel to perform evaluations, the most cost-effective way to address independence issues may be to use a third party for evaluations.

(Washington, DC) August 1, 2019 – The Appraisal Standards Board (ASB), an independent board of The Appraisal Foundation, announced today that it intends to examine the concept of creating standards for evaluations, which are alternatives to appraisals used by financial institutions.

Currently, there are no uniform standards for appraisers to follow when conducting an evaluation, which leads to greater risk to the safety and soundness of the real estate transaction and diminished protection for consumers. The ASB intends to issue a concept paper around Labor Day and will follow up with a public hearing with panels of constituents on October 18, 2019, in Washington, DC. As with all public meetings of the ASB, the public hearing will be broadcast via Livestream.

“This important development by the ASB shows how the Board has their ear to the ground, listening to the concerns of working appraisers in a rapidly evolving marketplace where there is an increasing demand for different valuation products,” said David Bunton, president of the Foundation. “They are balancing that with their responsibility to protect the public trust in valuation by creating uniform standards that are subject to oversight.”

Currently, the Interagency Appraisal and Evaluation Guidelines for federally regulated financial institutions provide guidance on evaluations, but that guidance is directed at lenders, not appraisers. Furthermore, the courts have found such guidance to be unenforceable. “This puts appraisers in a difficult, untenable position,” said John Brenan, vice president of appraisal issues at the Appraisal Foundation. “Appraisers often struggle when asked to perform evaluations, since most are mandated to comply with the Uniform Standards of Professional Appraisal Practice (USPAP). It’s almost a Catch-22 situation.”

Under federal regulations, evaluations may be performed by non-appraisers who have not demonstrated a level of expertise through education, training, and examination. If appraisers are not completing an evaluation, there is no recourse for a lender or consumer to appeal a bad evaluation. With the increased use of evaluations in the marketplace lenders and consumers are being exposed to an unnecessary level of risk not seen since the 1980s when national appraiser qualifications and appraisal standards had not yet been created.

“Appraisers are valuation experts. When hiring a licensed or certified real property appraiser to develop and report market value, the client should expect the work to be performed in accordance with USPAP,” said Wayne Miller, chair of the Appraisal Standards Board. “The Board is eager to receive stakeholder feedback from the planned concept paper and public hearing on the impediments, if any, to appraisers completing evaluations in accordance with USPAP. As always, the Board’s goal is to allow USPAP to evolve in an ever-changing real estate valuation environment while continuing to promote and maintain a high level of public trust in the valuation profession.”

For these reasons, the ASB is considering creating standards for developing and reporting evaluations, which would apply to those appraisers who want to perform evaluations while complying with state laws. The concept is to draw a bright line between evaluations and appraisals in USPAP.

Based on feedback from the concept paper and the public hearing, the ASB could consider moving forward with a discussion draft or an exposure draft by late 2019. The question of when evaluation standards would go into effect is likely to be part of the discussion in the concept paper and at the public meeting.