American Society of Appraisers Urges Rejection of Labor Department Proposed Rule

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In a comment letter to the Department of Labor, the American Society of Appraisers (ASA) expressed its strong opposition to a proposed rule that would impose fiduciary status, including personal legal liability, on appraisers who perform valuations for federally-regulated employee stock ownership plans (ESOPs). The National Association of Independent Appraisers (NAIFA) joined ASA on the letter.

"We hope that the Department of Labor and the Employee Benefit Securities Administration (EBSA) seriously consider the sound, tested alternatives ASA has proposed."

In its letter, ASA stated that while it shared the Department’s interest in strengthening the reliability of ESOP-related valuations, adoption of the proposed rule was ill-suited to accomplishing that purpose and was completely out-of-sync with the appraisal reform policies of all other federal agencies with responsibility for regulating appraisal practices. ASA said that the rule, as proposed, would only result in negative consequences: It would impose “unacceptable and unnecessary burdens both on appraisers and on the thousands of companies with ESOP plans”; it “would greatly increase the costs of ESOP appraisals; and, because of the personal legal liability, would cause many appraisers who value ESOPs to leave that book of business.”

The potential harm to the marketplace – steep cost increases as willing appraisers offset the price of additional insurance coverage, fewer appraisers willing to do ESOP work given the risk exposure – coupled with the unproven nature of the proposed approach to improving the reliability and independence of appraisals, make adoption of the proposed rule a bad public policy idea.

Instead, the ASA/NAIFA letter urged the Department to adopt the appraisal reform programs successfully in place throughout the rest of the federal government – specifically, reliance on professionally designated appraisers who earned their credentials by objectively demonstrating
their valuation competency, by adhering to the Ethics requirements of generally-accepted appraisal standards (i.e., the Uniform Standards of Professional Appraisal Practice) and by being fully accountable for their professional conduct to the recognized professional appraisal organizations that awarded the designations, which can revoke their licenses or certifications. ASA’s International President Robert C. Schlegel, ASA comments, “We hope that the Department of Labor and the Employee Benefit Securities Administration (EBSA) seriously consider the sound, tested alternatives ASA has proposed. The lessons learned from other agencies efforts in the area of valuation quality and appraiser standards should act to guide DOL and EBSA to make a final rule which balances the need for quality appraisals and the costs and burdens to appraisers and ESOP plans.”

A hearing on this issue will be held March 1, 2011; ASA looks forward to the opportunity to testify.

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Christy Jones
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