What is an Appraisal Workfile and Why Do I Need One?

There’s nothing like a lawsuit or a complaint to the state licensing board to get your attention regarding how you’re doing business. Part of sound business practices for appraisers should include solid documentation of the details for creating a credible appraisal report. So, what’s all the buzz about the appraisal workfile? Why do we need one, and what should it contain?

First, let’s look at why a workfile is a good idea:

1) Creating a comprehensive and complete workfile is an obligation noted in USPAP

This document gives appraisers guidance on the workfile, stating that it must be created for every appraisal report. Referring to the Record-Keeping Rule:

“An appraiser must prepare a workfile for each appraisal or appraisal review assignment. “

It then states that “an appraiser who willfully or knowingly fails to comply with the obligations of this RECORD KEEPING RULE is in violation of the Ethics Rule.”

A Frequently Asked Question in USPAP states that “an appraiser’s assignment workfile preserves evidence of the appraiser’s compliance with USPAP and other information as may be required to support the appraiser’s opinions and conclusions.”

2)     It’s essential for dealing with irate clients, as a defense against lawsuits, and for dealing with complaints to the state boards of appraisal

Can you remember the details of a home you appraised two years ago? Can you recall who supplied the zoning information for that mixed-use property from three years ago? Or can you call to mind who you spoke to for income information for that duplex from four years ago?

An appraiser handles many facts and data sources in the preparation of a report. They use internet sources, interviews with experts and professionals, and their own observation notes in the completion of a report. There are too many details to recall in the future. It is essential to keep records on all that information.

Good defensive appraising includes full documentation of facts and analyses, which could include everything from the floor plan to zoning information procured by a phone call. Even minor pieces of information may well save you future headaches when you least expect it.

So, what does an appraiser need to include in the workfile? Here’s the list noted in USPAP:

• The name of the client and the identity, by name or type, of any other intended users
• True copies of all written reports, documented on any type of media
• Summaries of all oral reports or testimony, or a transcript of testimony, including the appraiser’s signed and dated certification
• All other data, information, and documentation necessary to support the appraiser’s opinions and conclusions and to show compliance with USPAP, or references to the location(s) of such other data, information, and documentation

In the day-to-day operation of an appraisal business, there is a large number of documents, data, statistics, photographs, maps, and other information that flows through an appraiser’s hands for each assignment. The burden is on the appraiser to retain the relevant information in a hard copy or electronic workfile. This way, they can meet the obligations of USPAP and defend their reports as necessary.

An important detail to note, and one that may easily be overlooked, is that the workfile must include what USPAP calls “a true copy of a written report”. This means that the workfile must include a signed certification. USPAP states that “a true copy is a replica of the report sent to the client. Any signatures that were affixed to the original report must also exist on the copy for the workfile.”

When should the appraiser create the workfile? Can’t it be completed later?  The answer is no. The record-keeping rule states that,

“a workfile must be in existence prior to the issuance of any report or other communication of assignment results.”

It’s just a good habit and business practice to keep up with the workfile requirement as you go. Running an appraisal practice is a tough job, and it may seem like workfiles are an unnecessary burden on an appraiser. However, it’s actually a sound business practice that provides peace-of-mind – considering you’re in compliance with USPAP obligations and other requirements. Develop a sound plan today for your workfiles.