An appraisal agreement says the fee is owed only if the loan closes; no fee is owed if the loan fails. Under USPAP, this arrangement is:
Correct Answer
A) Prohibited, because the fee depends on a stipulated result
Compensation contingent on attaining a stipulated result such as a loan closing is prohibited; consent or disclosure does not cure it. Distinguish that entitlement condition from a payment schedule under which the fee remains unconditionally owed regardless of whether the transaction closes. USPAP does not universally require every invoice to be paid on report delivery.
Why This Is the Correct Answer
Option A is correct because USPAP prohibits accepting compensation contingent on the attainment of a stipulated result, and its own example is that the loan closes. An agreement making the fee owed only if the loan closes ties payment to that result. Client consent and report disclosure do not make it acceptable.
Why the Other Options Are Wrong
Option B: Permitted, because the client signed a written consent to it
Option B, permitted because the client signed written consent, is wrong because consent does not cure a prohibited contingent fee; the prohibition applies regardless of the client's agreement.
Option C: Permitted, as long as the report discloses the arrangement
Option C, permitted if the report discloses the arrangement, is wrong because disclosure does not make compensation contingent on a loan closing permissible.
Option D: Required for federally related mortgage transactions
Option D, required for federally related mortgage transactions, is wrong because no rule requires closing-contingent fees; such fees are prohibited under USPAP.
Paid for work, not results
An appraiser earns the fee for doing the work, not for the loan closing or any other outcome.
How to use: Use this to spot fee arrangements where payment depends on what happens with the deal.
Exam Tip
Distinguish when a fee is paid from whether it is owed: paying at closing can be fine if the fee is owed even when the loan does not close.
Common Mistakes to Avoid
- -Believing client consent makes a contingent fee acceptable
- -Believing disclosure in the report cures a contingent fee
- -Confusing a payment-timing term with a fee that depends on the outcome
Concept Deep Dive
Analysis
This question tests USPAP's prohibition on contingent compensation. A fee that is owed only if the loan closes is compensation contingent on attaining a stipulated result. Consent or disclosure does not cure it, and it is distinct from a payment schedule where the fee is owed regardless of outcome.
Background Knowledge
The Management section of the Ethics Rule bars compensation contingent on reporting a predetermined result, a direction favoring the client, a specific value range, a stipulated result such as a loan closing, or a subsequent event tied to the opinion. Payment timing can vary, so long as the fee is owed regardless of the outcome.
Real-World Application
A mortgage broker offers an appraiser a 'no close, no fee' arrangement. The appraiser declines and proposes terms under which the fee is owed on delivery of the report whether or not the loan closes.
More USPAP Questions
Under USPAP, what are assignment results?
The certification required by Standards Rule 2-3 must be signed by:
Under 2024 USPAP, which statement correctly combines the requirements for an oral real property appraisal report and its workfile?
An appraiser accepts an assignment involving a property type the appraiser has valued once before, years ago. Competency requires:
A Certified General appraiser is asked to value a specialized industrial property for the first time. The appraiser knows a competency gap exists before agreeing to the assignment. What is required if the appraiser proceeds?
Under 2024 USPAP Standard 1, which listed assignment element must be identified in developing a real property appraisal?
An appraiser provided an appraisal of the same property for another client 18 months ago. No confidentiality obligation prevents disclosing the fact of that service. Before agreeing to a new assignment, the appraiser must:
According to USPAP, what is the primary purpose of the Ethics Rule?
An appraiser is asked to determine 'fair market value' for an assignment. According to USPAP, the appraiser should:
Which list gives the sections of the 2024 USPAP Ethics Rule?
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