The Necessity of a Commercial Engagement Letter

Posted Filed under Blog.

The Necessity of a Commercial Engagement Letter

A commercial engagement letter is a written agreement to perform services in exchange for compensation. Engagement letters are traditionally used by certain professional service firms, particularly in the fields of finance, accounting, law, real estate appraisal and consulting in order to define the specifics of the business relationship, or in the case of an appraisal – the assignment expectations. Once the party or parties have signed the engagement letter or indicated acceptance of an appraisal order, the letter or correspondence to an appraiser serves as a contract.

Since an engagement letter serves the same purposes as a traditional contract, it is important to carefully lay out the scope of the engagement, any contingencies that must be addressed, and any compliance specifics that need to be addressed in the development of an appraisal report, completion deadlines, and compensation arrangements. Ensuring that these details are correct at the beginning of the assignment helps to avoid costly and time-consuming misunderstandings later on in the process. Since an engagement letter is more informal than a full contract, it can be a good way to establish a written agreement where the parties would otherwise be reluctant to enter into a full contract.

The following are typical must-knows for an appraiser before accepting a commercial assignment:

  • What is the property type? Vacant land, retail, industrial, multi-family, etc.
  • What is the property location, and when is the report due?
  • Who is the intended user of the appraisal report and for what purpose is it being used?
  • Who are the client and all intended users with addressees?
  • What are the value scenarios being requested?
  • Should the value be current, prospective, or retrospective to serve the intended purpose?
  • What interest in the property is to be valued?
  • Are there existing improvements? Are there any known issues about the condition of the property and/or improvements? Planned renovations? Proposed construction, and if so is a Prospective Value scenario appropriate?
  • Will the appraiser possibly be required to testify in court?
  • What type of report is needed?

All of these questions are very important and need to be answered before a mutual agreement for an appraisal assignment can be reached. The engagement letter protects both parties regarding what is required, what is expected and the payment arrangement. This is why an engagement letter, or correspondence, is so important and required by Valuation Management Group.

Valuation Management Group makes every attempt to obtain all pertinent information for an assignment before engaging an appraiser. We are sensitive to and understand all that must be in place regarding compliance issues in all disciplines of appraisal. It is important to utilize qualified and trained individuals for all valuations. As such, setting clear expectations when requesting a commercial appraisal is critical to an efficient and effective appraisal process. As part of Valuation Management Group’s appraisal management services, we ensure that written expectations are set forth and only qualified appraisers are engaged for all appraisal assignments.

The standard engagement letter utilized by Valuation Management Group on behalf of our clients has evolved over time and is utilized on approximately 4,000 commercial appraisal assignments per year. Our commercial engagement letter is very comprehensive and has been successful for our clients and the appraisers.

Valuation Management Group is a national, full service appraisal management service company that manages the appraisal process for banks, mortgage bankers and credit unions. We offer the full array of commercial and residential appraisal products and services. We take the appraisal process from ordinary to extraordinary.

Comments are closed.