Cameron Tipton, ASA, ARM
Machinery & Technical Specialty – Aircraft
Abstract: Competency is a necessary hallmark of creating a credible valuation. Within the requirements of the USPAP competency rule and the guidance of its related FAQs, this article discusses practical considerations of appraisal competency, including the ability of an appraiser to identify competency limits and acquire competency if needed. This article also considers how the scale of competency required for an assignment can fluctuate as conditions change throughout the valuation process. USPAP does not insist that the appraiser is an undeniable expert at the beginning of each assignment. Instead, there is a straightforward process that includes being clear with the client, making whatever effort is necessary to become competent, and then explaining to the intended users of the report how the necessary competency was acquired.
Prudent appraisers, consciously or not, continually assess their competency as an aspect of appraisal assignments. Even a minor change in circumstances can trigger a new consideration of the USPAP competency rule. For example, an appraiser who has appraised 15 Gulfstream G450 airplanes in one year for a regular client may discover that the aircraft in the 16th assignment has been registered and operated by a government in South America for carrying heads of state for the last 10 years. The appraiser begins to question their ability to determine aspects of any provenance, realizing they may not have the technical knowledge to know if there is diminution of value resulting from long-term operation in and around South America, or may not know how to go about translating records in the logbooks that were not consistently in English.
Where does this appraiser land within the competency rule of USPAP? Would the average appraiser consider continuing with this assignment or look to pass the assignment to someone with more technical knowledge? An exploration of the competency rule and its related FAQs will show that there are clear methods for our stressed appraiser to be successful by using an appraiser’s uncanny research abilities and perhaps even a little appraisal management skill.
The first and primary reality is, there will be times when competency is out of reach at the beginning of an assignment, that is okay. The USPAP Competency Rule[i] describes competency as
If we check back in with our aircraft appraiser, it is obvious that at a minimum, there is confidence they do not meet the criteria of the second item 2 and perhaps not that of the first item either.
So where does the assignment go from here? This is an institutional client that has relied on this appraiser for many years and the appraiser would really prefer to handle this assignment to the end. Fortunately, USPAP is clear that competency is not required at the onset of the assignment but only at the completion and provides a procedure described as Acquiring Competency.[i] This procedure is as simple as letting the client know about the lack of experience in the area where competency is lacking; taking all actions required to become competent; and describing in the report the journey taken to become competent.
Newly minted appraisers might be hesitant to disclose lack of competency to their client. However, the majority of the time, particularly with repeat assignments, the client is happy to engage an appraiser that they are already in communication with; in addition, being upfront with the client about the limits of the knowledge-base and the willingness to go out and become competent is often a boost in the appraiser’s credibility.
The conversation can be as simple as this: “Mr./Ms. Banker, I know I have valued other Gulfstream G450s for you in the past, but there are some interesting details regarding the aircraft’s location and history that make this case more complicated. It is not something I have dealt with before, but I am going to work with some other experts to make sure I can deliver a credible report.” After the disclosure has been made, it is up to the appraiser to become competent before results are transmitted to the client.
USPAP comments on Acquiring Competency acknowledge several different tactics appraisers can implement in the course of taking all actions required to become competent; of these, perhaps the most common are “personal study by the appraiser,” which includes research, and by association or retention of those who have the necessary competency.
Appraisers are expert researchers, but sometimes subject matter requires highly specialized knowledge outside of the scope of normal practice. It can often make sense to begin the process to become competent by simply making a call or email to someone specializing in that field. USPAP gives a comment that good ways to gain competency are by consulting with other appraisers who have the necessary expertise or with non-appraisers who have the knowledge the appraiser lacks. In the Gulfstream situation, the aircraft appraiser may want to make an initial call to an ASA aircraft appraiser who is based in South America. The idea here is not to farm out the work to another appraiser but to begin gaining insight towards more productive and informed research. An added reward is gaining enough understanding that given a similar assignment in the future, the appraiser will be competent and capable of producing credible results with less effort.
In other cases, if gaining the required knowledge is unrealistic, a lead appraiser may subcontract a subject matter expert to work on particular appraisal problems that are outside of the competency of the lead appraiser. For instance, the aircraft appraiser – could contract directly with an appraiser based in (and with extensive knowledge of) South America to provide input regarding proper adjustments specific to being a South American aircraft. The lead appraiser, who is familiar with general methodologies of valuing aircraft and even more specifically, has a host of recent experience regarding the exact type of aircraft, a G450, would be competent for the majority of the assignment. For subcontracting or other significant assistance, the lead appraiser will want to be aware of USPAP obligations for certifications and signatures on the final report. USPAP Advisory Opinion 31 (AO-31) [i] explains that “when more than one appraiser is involved in an assignment, USPAP allows for certification in a variety of ways.”
Using appraisal management skills in this type of collaboration with other appraisers can add a host of flexibility to the appraiser’s practice. It provides an opportunity to expand a practice into more complicated and cumbersome projects while maintaining strong credibility and competency.
Picking one last time on our aircraft appraiser, who hopefully is making strong progress on the report – What if the client offered an assignment condition that a deliverable was expected within a week? The appraiser is immediately concerned that timeframe would not allow them to coordinate with the subject matter experts, complete the research, and still perform the normal analysis and reporting. This is a bind… but the appraiser does not want to turn away this client. Well, certainly the first step would be to disclose to the client that the appraiser does not currently possess the knowledge necessary to be competent and that the time required to become competent would be greater than a week.
USPAP FAQ 112[i] discusses the difficulty of a timeline that is not sufficiently flexible to accommodate the acquisition of competency. The response to FAQ 112 reminds the appraiser of the consequences if conditions of the assignment will lead to results that cannot be relied upon and candidly dictates the outcome of that scenario: “you should decline the assignment.” Equally important, if at any point it becomes obvious that competency cannot be gained to produce credible results despite the best efforts described above, the appraiser must notify the client and withdraw from the assignment.
As experts, it is sometimes difficult to admit when the limit of knowledge is truly met. Given that an appetite for knowledge and above-average skill for research are hallmark qualities appraisers possess – it is not likely a frequent occurrence to feel truly out of options. However, it is imperative, not only to the individual appraiser’s standing, but also to the wider credibility of valuation practice, that valuers make a staunch habit of assessing competency. Many assignments may not have the added twists and turns of the aircraft appraisal assignment discussed in the scenarios above, but USPAP makes it clear that even seemingly small changes or considerations can affect the appraiser’s competency.
All appraisers should continually assess their competency as an aspect of appraisal assignments. Some important Competency Rule issues include:
USPAP does not expect perfection with the Competency Rule. In fact, USPAP more accurately states that “perfection is impossible attain” when speaking about competency.[i] Valuation is an ever-evolving art and science as the world in which appraisers operates constantly changes. The expectation that USPAP sets forth is that valuers should be constantly adapting and aware that there are literal limits to the knowledge each appraiser can hold. While competency is a necessity and hallmark of creating a credible valuation, an appraiser need not be the undeniable expert at the beginning of each assignment. Instead, USPAP provides a straightforward process that includes being clear with the client, making whatever effort is necessary to become competent, and then explaining in the report what was required to gain that competency.
Appraisers must also remember that because conditions can change throughout the valuation process, competency is not a one-and-done check box at the beginning of the assignment. If an assignment devolves into something that wasn’t expected, the appraiser needs to take a pause and assess if action should be taken. Credibility rests in an appraiser’s ability to identify the limits of their expertise and the discernment to go out and remedy any lapses in knowledge. The appraiser and the profession are better when competency is a focus of every report.
Cameron Tipton is an accredited senior appraiser (ASA) in the aircraft specialty of MTS and holds an appraisal review and management designation (ARM). Cameron co-founded Flight Level Partners in 2016, an aviation consulting firm which specializes in the valuation of corporate turboprops and jets in addition to buyer-side brokerage service and consultation. He currently is serving his second term as President of ASA’s Houston Chapter. Nationally, Cameron serves as an at-large member of Appraisal Review and Management (ARM) committee and is chair of the ARM marketing subcommittee and ARM conference planning subcommittee. Email cameron@flightlevel.co
[1] USPAP: 2020-2021 Uniform Standards of Professional Appraisal Practice, The Appraisal Foundation, p. 11. The 2020-2021 edition of USPAP is effective through December 31, 2023.
[1] USPAP, p. 11.
[1] USPAP, p. 147.
[1] USPAP, p. 233.
[1] USPAP, p. 235.
[1] USPAP, p. 234.
[1] USPAP, p. 233-234.
[1] USPAP, p. 11.