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Is USPAP Good for Residential Appraisers?

Friday, August 6, 2004

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Introduction

Moderator Dave Snook, ASB Chair 1996 and

1997

Instructor Danny Wiley, ASB Chair 2002 -

2004

Schedule Materials Housekeeping

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Goals for the DaySurvive – After all, it IS USPAP!!

Have a little fun

Share useful information

Take home practical information

Answer YOUR Question

“This may be a little uncomfortable”

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The Question

Is USPAP Good for Residential Appraisers?

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My (Expected) Answer

USPAP Is Good for ALL Appraisers

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Public TrustUSPAP Promotes Public Trust in the Appraisal

Profession

It is that trust that makes an appraiser’s opinion

valuable

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Benefits of USPAP Provides common basis for appraisers to

follow in an assignment

Provides protection for appraisers to defend against unwarranted charges/claims

Provides users and courts a source of reference

Facilitates uniform enforcement

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Topics For Today

Who/What is the ASB

Review of Fundamental Concepts

Significant Changes for 2005

Changes for 2004

Scope of Work vs Departure

Other Issues

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Appraisal Standards Board

Danny Wiley, Chair (4 years) Carla G. Glass, Vice-Chair (4

years) Lawrence E. Ofner (6 years) Gregory J. Accetta (2 years) Paula K. Konikoff (2 years) Dawn M. Molitor Gennrich (2

years)

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Duties of the ASB

Writes and Interprets the Uniform Standards of Professional Appraisal Practice (USPAP).

Promulgates USPAP

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Primary USPAP Concepts

Assignment Elements

Problem Identification

Scope of Work

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Assignment Elements

Client & Intended Users Intended Use Type and Definition of Value Effective Date Assignment Conditions Subject & Relevant Characteristics

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Problem Identification

Intended Users

Intended Users

Relevant Characteristics

Relevant Characteristics

Effective Date

Effective Date

AssignmentConditions

AssignmentConditions

Type and Definition of Value

Type and Definition of Value

Intended Use

Intended Use

Problem Identification

Problem Identification

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Client & Intended Users

Identified by the appraiser through communication with the client at the time of the assignment.

Obligations to intended users impose development and reporting requirements.

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Intended Use Established by the client Identified by the appraiser

through communication with the client at the time of the assignment

An appraiser must not allow the intended use or a client’s objectives to cause the assignment results to be biased.

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Intended Use

Development - scope of work Extent of research and analysis

Reporting - level of detail in report

Benchmark Credibility Due Diligence

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Type and Definition of Value

Provides the objective basis for determining “what kind” of information and analysis to include in these processes.

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Intended Use & User

Provide objective basis for deciding “how much” information and analysis to include in the development and reporting processes

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Effective Date

Effective date Retrospective Current Prospective

Date of the report

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Assignment Conditions

Include, among other things, assumptions, extraordinary assumptions, hypothetical conditions, supplemental standards, and jurisdictional exceptions

Driven by intended use and intended users

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Subject Property

Relevant characteristics identified by the appraiser

Relevant characteristics driven by Type and definition of value Intended use

Relevant characteristics drive relevance of Standards Rules

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Problem Identification

Intended Users

Intended Users

Relevant Characteristics

Relevant Characteristics

Effective Date

Effective Date

AssignmentConditions

AssignmentConditions

Type and Definition of Value

Type and Definition of Value

Intended Use

Intended Use

Problem Identification

Problem Identification

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Scope of Work

Public Trust

Ethics

Competency

Problem Identification

Scope of Work

Performance Standards

Credible Assignment

Results

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Significant Changes for 2005

Reporting of Exposure Time

Reporting Requirements Related to Extraordinary Assumptions and Hypothetical Conditions

When Does USPAP Apply?

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Reporting of Exposure Time

Currently required to report exposure time whenever developing an opinion of market value

This requirement is in Statement No. 6

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Reporting of Exposure Time

Confusion about the term

Not in the “normal” reporting Standards

Is this truly necessary?

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Reporting of Exposure Time

Starting in 2005, this will be required only when significant to the assignment

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Extraordinary Assumptions/Hypothetical Conditions

EXTRAORDINARY ASSUMPTION: an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

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Extraordinary Assumptions/Hypothetical Conditions

HYPOTHETICAL CONDITION: that which is contrary to what exists but is supposed for the purpose of analysis.

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Extraordinary Assumptions/Hypothetical Conditions

Currently required to:

Analyze Impact on Value

Disclose in Conjunction with Each Opinion and Conclusion Affected

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Extraordinary Assumptions/Hypothetical Conditions

For 2005 USPAP:

Clear and Conspicuous Disclosure

Warning in Report

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When Does USPAP Apply?

AO-21 Individuals perform numerous roles within

the broad realm of property services

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What does acting “as an appraiser” or performing a service “as an appraiser” mean? “Acting as an appraiser” means

representing oneself as an appraiser Appraiser: is one who is expected to

perform property services competently and in a manner that is independent, impartial, and objective

When Does USPAP Apply?

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What are the responsibilities of an appraiser regarding intended user expectations? The appraiser has a professional

responsibility to recognize the capacity in which he or she is performing. The responsibility includes inquiry about, and recognition of, the client’s expectations.

When Does USPAP Apply?

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What are the USPAP obligations for property services outside of appraisal practice? An appraiser acting in another role must

ensure that intended users are not misled as to the individual’s role in providing that property service.

When Does USPAP Apply?

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AO-21 Illustrations Brokerage and Appraisal Appraisal Review Rent Survey Appraisal and Market Information Property Measurement

When Does USPAP Apply?

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2004 Changes - What is it?

It’s a new assignment!

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It’s a New Assignment

An appraiser has previously appraised the property, then is asked to: Readdress (or transfer) the report to

another party Provide subsequent appraisal involving

the property (update) Appraise the property for a new client

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It’s a New Assignment

The common feature of these requests is that the appraiser has previously appraised the property that is the subject of the new request.

How does an appraiser deal with these situations?

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It’s a New Assignment

Assignments linked to prior assignments Update of a Prior Assignment (AO-3) Readdressing (Transferring) a Report to

Another Party (AO-26) Appraising the Same Property for a New

Client (AO-27)

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Assignments are Specific

The characteristics of a given assignment are defined by assignment elements

Assignment elements are the basis for: Scope of work Content and level of report

Assignment results are specific to assignment elements and the assignment

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Assignments are Specific

Modification of the assignment elements alter the scope of work and report content.

When an service is requested on a property that was the subject of a previous assignment, the scope of work in the new assignment may be different from the scope of work in the prior one.

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Readdressing/Transferring

AO-26 Simply put, USPAP does not

allow readdressing a report to a new client after the assignment has been completed

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Readdressing/Transferring

Why not? Intended users & intended use are

established at the time of the assignment Intended users & intended use are drivers

of scope of work and report content. Any change alters assignment.

Solution: it’s a new assignment!

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Update of Prior Assignment

AO-3 When a client seeks a more current

value or analysis of a property that was the subject of a prior assignment, it is simply a new assignment.

Not an extension of a prior assignment-- simply a new assignment.

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Update of Prior Assignment

The same USPAP requirements apply when appraising or analyzing a property that was the subject of a prior assignment.

Appraiser may incorporate all or part of the previous analysis and all or part of the previous report

In certain circumstances, you may incorporate the previous report by reference

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Update of Prior Assignment

No restrictions on who the appraiser is who the client is what length of time may have elapsed, or whether the characteristics of the subject

property are unchanged or significantly different than in the prior assignment

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Recertification

USPAP Myth #147

USPAP Does NOT Prohibit Recertifications of Value

It Simply Defines the Term

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Recertification

AO-3 Performed to confirm whether or not the

conditions of a prior appraisal have been met Does not change the effective date of the

value opinion. Most common “Recertifications of Value” are

the final inspection for a new construction appraisal and compliance inspections.

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Same Property & New Client

AO-27 Client and the assignment results are

specific to an assignment If you have a new client, then you

must have a new assignment New assignment would produce new

assignment results

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Same Property & New Client

New assignment to appraise the same property would not be considered revealing the first client’s assignment results to the second client, even if the value conclusions were the same.

Value conclusion could easily be different if the scope of work changed in any manner

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Same Property & New Client

If a prior assignment included any confidential information, its disclosure to a different client or intended user would violate the ETHICS RULE if the information were still classified as confidential information

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It’s a New Assignment

Client Expectations The decision to be made is about business

practice, not appraisal standards Obtaining a release is a matter of choice,

but not required by USPAP Informing a client about the existence of

an assignment for another client may not comply with confidentiality obligations

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Normal Course of Business

NORMAL COURSE OF BUSINESSNORMAL COURSE OF BUSINESS

AO-24AO-24

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Scope of Work Acceptable When:• Expectations of Market Participants• Actions of Appraiser’s Peers

Appraiser’s Peers –

Other appraisers who have expertise and competency in the same or a similar type of assignment

Normal Course of Business

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Normal Course of Business is NOT -

Work habits of an individual appraiser

Normal Course of Business

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SCOPE PROJEC

T

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Scope of Work Project

Exposure Draft Currently Out for Comments

Biggest Change in 10 Years

No Real Change

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Scope of Work Project

Departure – a misunderstood concept

When can you depart?

Purpose of Departure

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Scope of Work ProjectLook at SR 1-4(b)

When a cost approach is applicable, an appraiser must:

(i) develop an opinion of site value by an appropriate appraisal method or technique;

(ii) analyze such comparable cost data as are available to estimate the cost new of the improvements (if any); and

(iii) analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements (accrued depreciation).

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Scope of Work Project

When it is applicable, you must do it What does applicable mean? But this is a Specific Requirement, not a

Binding Requirement Is it necessary for credible results

Really, must you do the cost approach whenever it is applicable?

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Scope of Work Project

Pieces of the Puzzle Standards Rules DEFINITIONS DEPARTURE RULE

Applicable Necessary

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Scope of Work Project

You MUST do a Cost Approach When it is Necessary for Credible Results

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Scope of Work Project

Proposed New Version of SR 1-4(b)

When a cost approach is necessary for credible results, an appraiser must….

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Scope of Work Project

No change to existing requirements for the work you must do

More simple statement of the requirement

New SCOPE OF WORK RULE to lay out obligations for developing the Scope of Work, and effectively communicating it in the report

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Fannie Mae Forms

ASB has NOT reviewed, approved, endorsed, etc., the new forms

We will be submitting comments to Fannie Mae

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Fannie Mae Forms

Forms do NOT comply with USPAP, appraisers do

Forms help organize presentation

No form could comply for ALL assignments

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The End

QuestionsThank You!