How Are Business Appraisers Licensed and Regulated?

How are Business Appraisers Licensed and Regulated?

It is fair to say that the old days of the “Wild West” have been replaced by an increasing professionalism in the area of business appraisal (and other appraisal disciplines) during the past two decades. This has been accomplished through the development of The Appraisal Foundation, authorized by Congress as the source of Appraisal Standards and Appraiser Qualifications, which includes two independent boards: the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB).

Information available on the web site of the Appraisal Foundation states that in 1989 the U.S. Congress enacted legislation that gave responsibilities to the two boards related to both the minimum criteria an appraiser must meet as well as the minimum performance standards to which they must address. Within a Frequently Asked Question section of the Foundation’s website, the question is asked: “Does the government regulate appraisers”? The answer provided is: “Currently, the government regulates only real property appraisers. The power of regulation currently rests with the individual states and territories that issue licenses and certifications to real property appraisers. In addition, each individual state appraiser regulatory agency is responsible for disciplining appraisers. At this time, there are no immediate plans for the regulation of appraisers who specialize in other types of property.”

The Appraisal Standards Board (ASB) of The Appraisal Foundation develops, interprets, and amends the Uniform Standards of Professional Appraisal Practice (USPAP) on behalf of appraisers and users of appraisal services. The 2010-2011 Edition of USPAP (2010-2011 USPAP) is effective January 1, 2010 through December 31, 2011.

The question of compliance with business appraisers (as well as personal property and intangible asset appraisers) are required to comply with USPAP is addressed in the current edition which answers that question as follows: Are personal property, business valuation and intangible asset appraisers required to comply with USPAP?

Response: The PREAMBLE describes the obligation of all appraisers to act ethically:
The appraiser’s responsibility is to protect the overall public trust and it is the importance of the role of the appraiser that places ethical obligations on those who serve in this capacity. USPAP reflects the current standards of the appraisal profession.

The PREAMBLE further states: USPAP does not establish who or which assignments must comply… Compliance with USPAP is required when either the service or the appraiser is obligated to comply by law or regulation, or by agreement with the client or intended users. When not obligated, individuals may still choose to comply.

A personal property, business valuation, or intangible asset appraiser’s decision to comply may be prompted by choice, affiliation with a professional appraisal organization, or agreement with the client.”

The following link provides access to various state and federal regulatory agencies and organizations related to real estate appraisal, business appraisal and other appraisal fields: The Appraisal Foundation Organization Directory Search

Business appraisers with designations or certifications from the leading business appraisal organizations have completed fairly rigorous courses of study, passed examinations and provided satisfactory sample appraisal work product. The various professional business appraisal organizations have developed their own standards to be used in conjunction with USPAP.

The following are links to various professional business and ethical standards:
ASA Business Valuation Standards
IBA Code of Ethics
NACVA Standards
AICPA Code of Professional Conduct

Litigation support services and expert testimony are often required of a business appraiser. If expert witness testimony is required of a business appraiser, it is important that the attorney with whom you are working understand the local court rules regarding the admissibility of expert testimony.

The Daubert standard is a rule of evidence regarding the admissibility of expert witness’ testimony during U.S. federal legal proceedings. Wikepedia notes that: “Pursuant to this standard, a party may raise a Daubert motion, which is a special case of motion in limine raised before or during trial to exclude the presentation of unqualified evidence to the jury. The Daubert trilogy refers to the three United States Supreme Court cases that articulated the Daubert standard.” Approximately half of the states currently apply the federal standard.

Wikipedia notes that a number of states apply the Frye Standard including California, Florida, Illinois, New York, Pennsylvania, and Washington.

Additional information regarding these standards can be found by clicking on the following links:
The Judicial Gatekeeping Project
Wikipedia - The Daubert Standard
Daubert and the Law and Science of Expert Testimony in Business Litigation
Wikipedia - Frye Standard