The ethics provision of the USPAP states:

The conduct section requires the appraiser to act as a disinterested third party. He or she is required to avoid any action that could be considered misleading or fraudulent. Accordingly, appraisal independence is paramount. Objectivity must be present. To help assume independence and objectivity, FDIC, OCC, and Federal Reserve System (FRS) final rules require that fee appraisers not permanently employed by a given regulated institution, be hired by a regulated institution or its agent rather than the borrower. This requirement and the inclusion of a conduct section in the ethics provision are intended to remove any and all doubt about for whom the appraiser works.

To further the goal of complete independence, the appraiser should always be employed via a letter of employment (engagement) by the financial institution. Furthermore, the agreed-to fee for services rendered should always be paid by the financial institution directly to the appraiser, even though the appraisal fee may in turn be charged to the potential borrower as part of the loan application fees. Independent contractors, such as real estate fee appraisers, historically have defined or understood their client to be (1) the person who orders the report and (2) the person from whom payment is expected. Thus, the understanding that the financial institution is the appraiser's client is made clear if the institution orders the appraisal and pays the appraiser.

The development of an appraisal, review, or consulting service based on a hypothetical condition is unethical unless the appraiser takes certain steps. Examples of unethical conduct would include assumptions of below-market financing or of full occupancy without inclusion of the rationale as to why such assumptions were made.

Management Section

The management section does not permit an appraiser to accept contingency fees. This section states:

The acceptance of compensation that is contingent upon the reporting of a predetermined value or a direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event is unethical.

Standards rule 2-3 requires that as part of the written real property report, the appraiser must include a certification statement that includes the following acknowledgment:

‘My compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event."

Appraisers, and the general public, should not confuse the unethical practice of collecting a contingency fee, with a consulting assignment where the appraiser is clearly not acting as a disinterested party, or is not reasonably perceived as performing a service that requires impartiality. Standard 4 USPAP, Real Estate/Real Property Consulting, recognizes instances in which an appraiser is not acting in a disinterested manner. However, an appraiser retained to perform a legitimate consulting service, such as giving zoning advice or doing a market analysis, may be compensated by a fee contingent on the results achieved, but only when appropriate disclosure of the role being performed by the appraiser is made. Standard 4 and the management section of the ethics provision require the appraiser to ensure that contingency compensation for a consulting service does not conflict with the independence and objectivity required of the appraiser.

Confidentiality Section

The confidentiality section of the ethics provisions simply states:

An appraiser must protect the confidential nature of the appraiser-client relationship.

Again, reference is made to the appraiser-client relationship. As previously discussed, the final rules of the FDIC, OCC, FRS, Office of Thrift Supervision (OTS), and National Credit Union Administration (NCUA)require fee appraisers to be employed by the regulated institution or its agent rather than the borrower.

The confidentiality section, of USPAP, does recognize three instances in which the appraiser may have to disclose confidential factual data. The USPAP cites specific instances in which disclosure of confidential information is acceptable. In these instances it is acceptable to make disclosures to:

1. The client and persons specifically authorized by the client.
2. Such third parties as may be authorized by due process of law
3. A duly authorized professional peer review committee

Examples of the first instance-to persons specifically authorized by the client-would include the potential borrower and other financial institutions that may be participating in the loan. Disclosure to parties authorized by due process of law would include the results of legal action in which the opposing side in a lawsuit has the legal right to review the appraisal report and related documentation through the rules of discovery. Finally, a professional peer review committee would-include, for example, an appraisal organization in which the appraiser is seeking professional membership. A common practice of such organizations is the requirement that the appraiser show samples of his or her work as part of the application for membership process. The confidentiality section of the ethics provision does, however, make it unethical for a member of such a duly authorized professional peer review committee to disclose confidential information or factual data presented to the committee.

If a financial institution is concerned that information contained in an appraisal report is of such a nature that it should not be disclosed, then the institution should include in its employment contract with its appraisers a statement that, "the appraisal cannot be used to present qualifications to a professional peer review committee", without the prior written consent of the institution.

5. FDIC Final Rules, section 323.5, OCC Final Rules, section 34.45; FRS Final Rules, section 225.65, OTS Final Rules section564.5; NCUA Final Rules, section 722.5.