In the context of a real estate appraisal, especially a residential real estate appraisal for a lender thru an AMC, what is confidential? First, look at USPAP’s definition of confidential information (lines 105 – 108 in the 2018-2019 edition). It says “[c]onfidential information [is] information that is either…identified by the client as confidential when providing it to an appraiser and that is not available from any other source; or…classified as confidential or private by applicable law or regulation” (ibid; emphasis added).
Notice confidentiality flows to the client, not to any other party. What does this mean? Assume you measure a house at 1,945 square feet, but the assessor’s office states 1,893 square feet. Assuming your client is the potential lender, not the homeowner, your measurements of the square footage data are not confidential unless the client (the lender) specifically instructed you not to tell anybody about the “new” square footage.
But, then, to whom other than the client are you going to give this information? True, the client may harvest that data. However, once the appraisal report leaves your hands, you have no control over it, thus are not responsible for it. In addition, since the client is not an appraiser, USPAP does not apply to the client.
Even if your client were the homeowner, the square footage data are still not confidential. This is because the existence of the house on the site is a fact. That it is there, on site, is public record.
What about the other appraisers in the office (assuming there are other appraisers)? How do you maintain data confidential from them? Remember, the client likely hires the appraisal firm or one of its principles, not necessarily the appraiser who will actually set boots in the living room. In this circumstance, the principal owes confidentiality to the client, while the boots-in-the-living-room appraiser owes his/her confidentiality to the client thru the principal. You can be sure the principal (or manager, or supervisor, or senior appraiser) is (or should be!) aware of everything in the appraisal report and the workfile. Such sharing is not a violation of Confidentiality since these folks (a) are in privity/confidentiality with the client; and (b) they have the fight to know this stuff.
What about sending a report out (i.e., to a contractor) to be typed? Is that a violation of the Ethics Rule, specifically the Confidentiality section? The appraisal report may contain confidential information; it does contain assignment results. How can using such a contractor not be a violation? Basically, there is a two-part response to this question. Part 1 is, before the appraiser sends it out, the appraiser and the contractor should have a confidentiality agreement that the contractor will not use the data in any way, for any purpose, and keep it confidential. Second, is the fact that there is essentially no difference between hiring a contractor to do this and hiring a temporary secretary to carry out the same task to handle an extraordinary volume of work. Absent anything “official” to the contrary from TAF or the ASB, there is no reason to conclude hiring a contractor to do typing is a violation of the Ethics Rule.
There are appraisers who conclude that such contractors could harvest their data. This is true, they could. But how does this make the contractor any different than Fannie Mae? Remember, when a report goes to Fannie Mae, under A2-5.1-02
“[a]ll records related to loans (including all data and materials representing, based on, or compiled from such records) sold to or serviced for Fannie Mae are Fannie Mae’s property and any other owner of a participation interest in the loan regardless of their physical form or characteristics or whether they are developed or originated by the loan seller, servicer, or others” (ibid; emphasis added).
With this as a base, it is difficult to conclude the appraiser owns the data, since Fannie claims she does. There is no question the appraiser owns the intellectual property that went into forming the value opinion, and that such intellectual property can be copyright protected (under certain circumstances). However, contractors and lenders do no harvest intellectual property; they harvest data. Note also that FAQ #269 addresses this ownership issue.
What confidentiality provisions apply to the appraiser’s contractors and subcontractor(s)? If they are appraisers, then USPAP applies to them (see FAQ #255). If they are not, then USPAP’s confidentiality provisions do not apply to them (ibid.).
What about sending an appraisal report out for a “friendly review” before it goes to the client? USPAP does not address this issue and neither does Fannie Mae. In fact, this is likely a problem; but it is one with a solution.
First of all, your employment agreement with the client could include a provision that you are going to send the appraisal report our for such a review. If the client signs this, then the appraiser is free to send the report out. A second possible solution is to require the “friendly” reviewer to sign a confidentiality agreement as an extension of your confidentiality agreement.
Likely, however, the best solution, is to redact any data describing the property (address, legal description, assessment number, photos, maps, the client’s identity, and so forth) so the “friendly” reviewer cannot determine the property you are appraising. In this instance, you have not divulged anything confidential since the “friendly” reviewer has no clue of the property, your client, etc.
According to USPAP (and likely to state law, too), appraisers have an ethical obligation to comply with the Confidentiality section of the Ethics Rule. This means they must be familiar with it. Since it is rather short, the Confidentiality section, as USPAP now contains it, is not as clear as it could be.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 193 Are You Inadvertently Breaking Confidentiality Rules?