Workfiles, Retention, and Competency

Workfiles, Retention, and Competency

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The Record Keeping Rule

The Record Keeping Rule guarantees that an appraiser preserves the empirical evidence and analytical support underlying every professional valuation conclusion.

Workfile Existence and Contents

A workfile must be in existence prior to the issuance of any written or oral report. For oral reports, a written summary of the testimony or oral presentation, including a signed and dated certification, must be added to the workfile within a reasonable time.

A compliant workfile must contain:

• The name of the client and the identity, by name or type, of any other intended users.
• True copies of all written reports transmitted to the client, documenting all submitted pages, addenda, exhibits, and maps.
• Summaries of all oral reports, including the appraiser's signed certification.
• All other data, information, and documentation necessary to support the appraiser's opinions, analyses, and conclusions, and to demonstrate full compliance with USPAP Standards 1 through 10.
• Specific empirical support for adjustments, paired sales analyses, cost manual extracts, MLS statistical runs, and interviews with market participants.

Workfile Custody and Access

An appraiser must maintain custody of the workfile or make appropriate retention, access, and retrieval arrangements with the party having custody (e.g., an employer, appraisal firm partner, or corporate lending department). The appraiser must ensure the workfile can be retrieved throughout the mandatory retention window to respond to state licensing board investigations, civil litigation, or peer review inquiries.

Mandatory Retention Timelines

USPAP establishes a dual-track retention standard that frequently appears on licensing exams:

• Baseline General Period: The workfile must be retained for at least five (5) years after preparation of the report.
• Litigation Extension: If the appraiser provided testimony in a judicial proceeding related to the assignment (e.g., in a trial, court proceeding; assess whether another proceeding falls within the applicable judicial category), the workfile must be retained for at least two (2) years after final disposition of that judicial proceeding, whichever period expires later.

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The Competency Rule

Competency is an appraiser's legal and professional ability to identify and resolve a valuation problem properly.

Defining Competency

Under USPAP, competency requires:

1. The ability to properly identify the appraisal problem to be solved;
2. The knowledge and experience necessary to complete the assignment competently;
3. Recognition of, and compliance with, laws and regulations that apply to the appraiser or assignment.

Competency is multifaceted and encompasses:

• Geographic Competency: Understanding localized submarket drivers, neighborhood boundaries, municipal zoning ordinances, local building practices, and buyer preferences in a specific market area.
• Property-Type Competency: Knowledge of structural features, valuation methods, and marketability factors for specialized property categories (e.g., historic properties, green/energy-efficient buildings, manufactured housing, luxury equestrian estates).
• Analytical / Methodological Competency: Expertise in specific appraisal techniques (e.g., paired sales regressions, subdivision development cost modeling, discounted cash flow [DCF] analysis).

The Mandatory Three-Step Protocol When Lacking Competency

USPAP does not prohibit an appraiser from accepting an assignment in an unfamiliar geographic area or involving an unfamiliar property type. However, if an appraiser lacks the requisite knowledge and experience, the appraiser must follow a strict three-step protocol:

+-------------------------------------------------------------------------+
|               COMPETENCY RULE: MANDATORY THREE-STEP PROTOCOL             |
+-------------------------------------------------------------------------+
|  STEP 1: DISCLOSE                                                       |
|  • Disclose the lack of knowledge and/or experience to the client       |
|    BEFORE accepting the assignment (or immediately upon discovery).      |
+-------------------------------------------------------------------------+
|  STEP 2: REMEDIATE (ACQUIRE COMPETENCY)                                 |
|  • Take all steps necessary or appropriate to complete the assignment    |
|    competently:                                                         |
|    - Study localized market data, published literature, and manuals     |
|    - Associate with a competent local appraiser (co-appraisal)          |
|    - Retain qualified technical consultants (engineers, hydrologists)   |
+-------------------------------------------------------------------------+
|  STEP 3: DOCUMENT & REPORT                                              |
|  • Describe in the written report:                                      |
|    - The initial lack of knowledge and/or experience                    |
|    - The specific steps taken to acquire competency                     |
|    - The basis for the newly acquired competency                        |
+-------------------------------------------------------------------------+
|  CRITICAL THRESHOLD:                                                    |
|  If competency cannot be acquired (e.g., client refuses to permit       |
|  association, or time/resources are inadequate), the appraiser          |
|  MUST DECLINE OR WITHDRAW from the assignment!                          |
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