Certified Valuation Analyst (CVA) Practice Exam

What do most engagement letters of major firms include to protect appraisers?

1. Payment terms for services

2. Indemnification clauses

3. Dispute resolution procedures

4. Confidentiality agreements

The correct answer is: Indemnification clauses

Indemnification clauses are included in engagement letters of major firms to protect appraisers by ensuring that they are not held liable for certain claims or damages that may arise during the course of their work. An indemnification clause provides a legal shield, stipulating that the firm or client will cover any losses or legal fees that the appraiser may incur as a result of actions taken in good faith while performing their duties. This protection is crucial in the field of valuation, where appraisers may face challenges or disputes regarding their assessment or methodology. While payment terms for services are indeed important, they do not directly serve to protect the appraiser in legal contexts. Dispute resolution procedures are also valuable; however, they typically focus on how disputes will be handled rather than providing direct protection against claims. Confidentiality agreements serve to protect sensitive information, but they don't address legal liability in the same way that indemnification clauses do. Thus, indemnification clauses are critical for ensuring that appraisers can operate without fear of undue legal repercussions related to their professional services.