An appraiser pays an outside party a referral fee to procure an assignment. What does the Management section require?
Correct Answer
B) Disclose it in the certification and transmittal letter; no amount needed
Disclose payment of a fee, commission or thing of value connected with procuring an assignment. The disclosure appears in the certification and in any transmittal letter in which conclusions are stated, but this provision does not require the payment amount. Intra-company payments to employees for business development have the stated exception. Meet other applicable law; disclosure does not authorize prohibited result-contingent compensation.
Why This Is the Correct Answer
Option B is correct because USPAP requires disclosure of a fee, commission or thing of value paid in connection with procuring an assignment. The disclosure must appear in the certification and in any transmittal letter in which conclusions are stated, and disclosure of the amount paid is not required. Other applicable law must also be met.
Why the Other Options Are Wrong
Option A: No disclosure, since procurement payments are a private matter
Option A says no disclosure is needed because procurement payments are a private matter. USPAP specifically requires that such payments be disclosed, so treating them as private violates the Management section.
Option C: Disclose the ordinary appraisal fee shown on the client invoice
Option C says to disclose the ordinary appraisal fee shown on the client invoice. The requirement concerns the payment made to procure the assignment, not the appraiser's ordinary fee for the work.
Option D: Treat the referral payment as permission for a contingent value fee
Option D treats the referral payment as permission for a contingent value fee. Disclosing a procurement payment does not authorize prohibited compensation tied to reaching a particular result.
Disclose that, not how much
For a referral payment, say that it was paid in the certification and any transmittal letter stating conclusions, but you need not say how much.
How to use: Use this phrase when a question asks what disclosure a procurement payment requires.
Exam Tip
Watch for the two details USPAP pairs together: the location (certification and transmittal letter with conclusions) and the fact that the amount is not required.
Common Mistakes to Avoid
- -Thinking referral payments can stay confidential
- -Believing the dollar amount of the payment must be disclosed
- -Assuming disclosure makes otherwise prohibited contingent compensation acceptable
Concept Deep Dive
Analysis
This question tests the Management section of the Ethics Rule on payments made to procure an assignment. You need to recall both where the disclosure goes and whether the amount must be stated. USPAP requires disclosure in the certification and in any transmittal letter that states conclusions, but not the amount paid.
Background Knowledge
The Management section of the Ethics Rule addresses how appraisal business conduct can affect public trust. Payments to procure assignments must be disclosed so intended users know about them, and compensation contingent on a predetermined or favorable result remains prohibited.
Real-World Application
An appraiser pays a marketing firm a fee for each assignment it refers. In each resulting report, the appraiser's certification notes that a fee was paid to procure the assignment, without stating the dollar amount, and the same statement appears in any transmittal letter that states conclusions.
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