The Engagement Letter: Where an Appraisal Begins
The team at Argianas and Associates build relationships with each engagement letter
When we work with our clients, we provide more than just a service. We like to think that with each assignment, we build a relationship. We want our clients to know they can trust us to be the experts they can count on to provide them with a credible, accurate valuation every time. To do that, we begin with a legally binding document called an engagement letter. This letter serves as a precursor to the report and defines the terms and conditions of the appraiser-client relationship. It answers questions like, “what property will be appraised?” and “who will the appraisal report be prepared for?” As a properly-drafted engagement letter lays out the agreement between the appraiser and client (no surprises to either party), you could say it’s a way for us to manage client expectations.
what makes a good letter?
Properly drafted engagement letters can and usually do vary depending on the level of service provided. When it comes to what information should be included, think of the 4 w’s – who, what, where and when. The letter will state the subject property, the property type, the interest valued and any other property to be valued. One of the most important pieces of information included in the engagement letter is client information. The preparer should clearly spell out who the client is including the name of the person signing on behalf of the client along with the person’s business title, the full/correct name of the company, and the person or company’s proper mailing address. If the client is also the sole intended user, this should be clearly stated in the letter, and additional intended users should be likewise identified in full. Identifying the intended user as well as the intended use is critical to the appraisal report. And of course, the legal interest to be appraised needs to be clearly stated. To learn more about these considerations including intended use and intended user, read our three-part series here.
The “who” is also another piece of important information. Who will be conducting the appraisal? Clients expect a licensed and certified professional to conduct their appraisal. Inserting information on the person that will conduct the appraisal and their certification level allows the client to make a well-informed decision before proceeding with the appraisal.
The engagement letter is also where the client and appraiser agree on several dates. Both parties should be on the same page about the valuation date (effective value date) and the date on which the report is due (date of appraisal).
The last piece of information to include in the engagement letter is the payment terms. How much will the client be charged for this service? Will a one-time payment be made, or should a payment schedule be outlined? All payment terms should be communicated in the engagement letter, so the expectation is clear.
why do you need it?
While an engagement letter isn’t required by USPAP, the team at Argianas recommends that all assignments begin with one. The letter sets expectations so both the client and appraiser are clear on the scope of work, and a properly drafted engagement letter also limits liability for the appraiser.
If you are needing a commercial appraisal report prepared or have any questions, do not hesitate to give us a call at 630.390.0113 or complete this form. To receive more real estate appraisal resources or to receive our original thought pieces, be sure to join our mailing list to receive our e-newsletter.