Ethics: Confidentiality, Prior Services, and Nondiscrimination

Ethics: Confidentiality, Prior Services, and Nondiscrimination

3. Confidentiality: Protecting Sensitive Assignment Information

The Confidentiality section governs how an appraiser handles proprietary data, client confidences, and valuation results, balancing client protection with legal compliance.

Definition of Confidential Information

Under USPAP, Confidential Information is defined strictly and narrowly. It comprises information that is:

1. Identified by the client as confidential at the time of the assignment, and is not available from any other public source; OR
2. Classified as confidential by applicable law or regulation (such as the Gramm-Leach-Bliley Act or privacy statutes).

Assignment Results

Assignment Results are defined as an appraiser's opinions and conclusions developed in an appraisal or appraisal review assignment (e.g., final value conclusion, physical condition rating, highest and best use conclusion, functional obsolescence dollar estimates). Assignment results are always treated as confidential.

The Five Permitted Release Exceptions

An appraiser must protect the confidential nature of the appraiser-client relationship. An appraiser must never disclose confidential information or assignment results to anyone other than:

1. The Client;
2. Persons specifically authorized by the client (document the authorization and comply with applicable law);
3. State appraiser regulatory agencies (investigators and licensing boards reviewing complaints or compliance);
4. Third parties authorized by due process of law (e.g., official court orders, judicial subpoenas, or statutory discovery mandates);
5. A duly authorized professional peer review committee (such as ethics and admissions panels of professional appraisal organizations, except where disclosure would violate applicable law or regulation).

+-------------------------------------------------------------------------+
|                    WHO CAN RECEIVE ASSIGNMENT RESULTS?                   |
+-------------------------------------------------------------------------+
|  PERMITTED WITHOUT CLIENT CONSENT:                                      |
|  ✓ The Client (Lender or designated AMC agent)                          |
|  ✓ State Appraiser Regulatory Agencies (Licensing Boards)               |
|  ✓ Legal Due Process (Court Subpoenas & Judicial Orders)                |
|  ✓ Authorized Professional Peer Review Committees                       |
+-------------------------------------------------------------------------+
|  NOT AUTHORIZED MERELY BECAUSE THE PARTY RECEIVED OR PAID FOR A COPY:      |
|  ✗ The Borrower / Property Owner (Even if they paid the appraisal fee)  |
|  ✗ Real Estate Listing or Selling Brokers                               |
|  ✗ Competing Mortgage Lenders                                           |
|  ✗ Prospective Home Purchasers                                          |
|  ✗ Neighboring Property Owners or Public Inquirers                      |
+-------------------------------------------------------------------------+

The Classic Mortgage Borrower Dilemma

A frequent examination scenario involves a residential homeowner who pays a $650 appraisal fee directly to the appraiser at the property inspection. Two weeks later, the homeowner calls the appraiser demanding to know the appraised value. Because the mortgage lender is the client, the appraiser is legally and ethically forbidden from disclosing the value or discussing assignment results with the homeowner without specific authorization from the lender.

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Mandatory Prior Services Disclosure

To ensure complete transparency regarding potential bias or prior involvement, USPAP imposes a strict Prior Services Disclosure requirement.

The Three-Year Lookback Window

An appraiser must disclose to the client any services regarding the subject property performed by the appraiser within the three (3) years immediately preceding the agreement to perform the assignment.

• Capacities Covered: The disclosure applies to services performed in any capacity—whether acting as an appraiser, a real estate sales broker, a property manager, a building contractor, a home inspector, a mortgage loan officer, or a property tax consultant.
• Two-Step Disclosure Timing:
  1. Prior to Acceptance: The disclosure must be made to the client prior to agreeing to perform the assignment, or immediately upon discovery if the prior service is discovered during the assignment.
  2. In the Report Certification: The disclosure must be explicitly stated in the signed certification of the written appraisal report.
• Affirmative Disclosure Required: If the appraiser performed no services regarding the subject property within the preceding three years, the appraiser must make an affirmative statement in the certification (e.g., "I have performed no services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.").

The Prior Services vs. Confidentiality Conflict

What occurs when an appraiser appraised a luxury residential estate two years ago under a strict Non-Disclosure Agreement (NDA) with Client A, who explicitly classified the fact that an appraisal occurred as confidential? Client B now contacts the appraiser to appraise the same property.

1. Under the Ethics Rule, the appraiser must disclose the prior appraisal to Client B.
2. Under the Confidentiality section, the appraiser must not disclose the prior appraisal without Client A's consent.
3. If Client A refuses to waive confidentiality, the appraiser is caught in an irreconcilable conflict. The Resolution: The appraiser must decline the assignment from Client B!

Nondiscrimination as an Express USPAP Requirement

The 2024 Ethics Rule expressly includes Nondiscrimination. It addresses compliance with applicable federal, state, and local antidiscrimination law and includes independent USPAP prohibitions. Do not base value on protected characteristics or use another variable as a pretext to conceal such reliance. The rule expressly addresses characteristics including sexual orientation and gender identity; this ethical requirement should not be confused with claiming that every statute lists exactly the same categories.

For a residential assignment, evaluate condition through the observed physical property. An owner's identity, accent, family composition, decor associated with a culture, or perceived membership in a protected group is not a supported condition adjustment. Verify material evidence with the same standards across assignments. A model or database does not make a discriminatory variable permissible merely because it is processed mathematically.

The Confidentiality section also requires safeguards for both physical and electronic access. Specific client authorization is one permitted disclosure basis; USPAP does not universally prescribe a written authorization in every situation, although documentation and applicable law can require it. A borrower who paid the fee is not automatically the client or authorized recipient. Direct the request to the client or obtain appropriate authorization; the creditor's separate copy-delivery duty remains in place.