USPAP in the Real World Presented by Danny Wiley Appraisal Standards Board of The Appraisal...

USPAP in the Real WorldUSPAP in the Real World

Presented by

Danny Wiley

Appraisal Standards Board of The Appraisal Foundation

GOALS FOR THE DAYGOALS FOR THE DAY

Survive – After all, it IS USPAP!!

Have a little fun

Share useful information

Take home practical knowledge

Make more money!! “This may be a little uncomfortable”

Topics:

Scope of Work Project: 2006 USPAP

USPAP “Hot Potatoes”

New Reporting Forms

Workfiles

Comp Checks

Open Forum

Scope of Work Project: Scope of Work Project: 2006 USPAP2006 USPAP

2006 USPAP

Many edits to USPAP for 2006Many edits to USPAP for 2006

Scope of Work ProjectScope of Work ProjectReview of STANDARDS 9 and 10Review of STANDARDS 9 and 10

Fundamental obligations unchangedFundamental obligations unchanged

2006 USPAP

Departure concept eliminatedDeparture concept eliminated

Many edits, but no change to core Many edits, but no change to core requirements of development processrequirements of development process

Must still disclose scope of work Must still disclose scope of work performedperformed

2006 USPAP

Scope of work must produce credible Scope of work must produce credible assignment results in the context of the assignment results in the context of the intended useintended use

Better understanding, enhanced public Better understanding, enhanced public trust, improved clarity.trust, improved clarity.

2006 USPAP: Actual Edits

Modified USPAP DefinitionsModified USPAP DefinitionsNew SCOPE OF WORK RULENew SCOPE OF WORK RULERevised language in STANDARDSRevised language in STANDARDSApplication and Testing: SCOPE OF Application and Testing: SCOPE OF WORK RULE (AO-28 and 29)WORK RULE (AO-28 and 29)

Revised Advisory Opinion 2Revised Advisory Opinion 2

DEPARTURE RULE and associated DEPARTURE RULE and associated terms removedterms removed

Complete AppraisalComplete Appraisal Limited Appraisal Limited Appraisal


Binding Requirement and Specific Requirement Deleted

New language in each Standards Rules changed to clarify when the work addressed must be completed without reference to DEPARTURE RULE


Example from 2005 USPAP:Example from 2005 USPAP:

Standards Rule 1-4(b)Standards Rule 1-4(b)

When a cost approach is When a cost approach is applicableapplicable, an , an appraiserappraiser must:must:

(underline/color added for emphasis)(underline/color added for emphasis)


Apply Departure TestsApply Departure Tests

Is the approach applicable?Is the approach applicable?

Is the approach necessary for Is the approach necessary for credible assignment results? credible assignment results?


Standards Rule 1-4(b)Standards Rule 1-4(b)

When a cost approach is When a cost approach is necessary for necessary for credible assignment resultscredible assignment results, an , an appraiserappraiser must:must:

(underline/color added for emphasis)(underline/color added for emphasis)


Words changed, performance requirements did not change

If required by 2005 USPAP, required by 2006 USPAP

If not required by 2005 USPAP, not required by 2006 USPAP

2005 & 2006 USPAP same analytical process required to determine whether or not work addressed by SR has to be completed


New Definition Credible: worthy of belief Comment: Credible assignment results require support, by relevant evidence and logic, to the degree necessary for the intended use


Derived from Black’s Law Dictionary, a recognized

authoritative source

Derived from Black’s Law Dictionary, a recognized

authoritative source

Scope of Work: the type and extent of research and analyses in an assignment.


Added SCOPE OF WORK Added SCOPE OF WORK RULE for 2006 Edition of RULE for 2006 Edition of

USPAPUSPAP

SCOPE OF WORK RULE

SCOPE OF WORK RULE

Three Main Points in RuleThree Main Points in Rule

a.a. Identify the problemIdentify the problem

b.b. Determine and perform scope Determine and perform scope of work necessaryof work necessary

c.c. Disclose the scope of work Disclose the scope of work (performed) in the report(performed) in the report

Credibility

Credible assignment resultsCredible assignment results

a.a. Require support by relevant Require support by relevant evidence and logicevidence and logic

b.b. Credibility is measured in Credibility is measured in context of the intended usecontext of the intended use

Problem Identification

Goal of problem identification is to gather and analyze information about the problem to be solved

Problem Identification

Proper problem identification is necessary for proper determination of scope of work

Problem identification requires identification of assignment elements

Assignment Elements

For real property appraisals, the required elements are:

Client / Other Client / Other Intended UsersIntended Users

Intended UseIntended Use

Type / Definition of Type / Definition of ValueValue

Effective DateEffective Date

Relevant Relevant CharacteristicsCharacteristics

Assignment Assignment ConditionsConditions

Assignment Elements

Establishing most of the information About the assignment elements requires communication with client

Assignment Elements

Identification of subject’s relevant characteristics is a judgment made by the appraiser that requires competency.

Scope of Work Acceptability

Scope of work performed (research and analyses) must be sufficient to develop credible assignment results


Comment: Scope of work acceptable when it meets or exceeds both:

■ expectations of parties who are regularly intended users for similar assignments; and

■ what an appraiser’s peers’ actions would be in performing the same or a similar

assignment.


Appraiser’s Peers: other appraisers who have expertise and competency in a similar type of assignment


Might need to reconsider the initially planned scope of work.


Must be prepared to support the exclusion of any investigation, information, method, or technique that would appear relevant to the client, other intended users, or appraiser’s peers

Client Input

Client input regarding the scope of worka. 2005 USPAP required client “agreement” to

“depart” from “specific requirements”

b. 2006 USPAP does not require client agreement with the scope of work, but

c. 2006 USPAP does recognize the role of the client in shaping the full range of the scope of work (assignment elements)

Disclosure/Reporting

Report must contain sufficient for intended users to understand scope of work performed


Includes disclosure of research and analyses performed; might include disclosure of research and analyses not performed


Must disclose scope of work actually performed

Does not have to be in separate section of report

Real World Affect

Residential Appraisers

• No new work required

• Delete old “boilerplate” referencing “complete appraisal,” “limited appraisal,” or “departure

• Strongly encourage you NOT to use a canned Scope of Work statement!!

Real World Affect

Commercial Appraisers

• No new work required

• Delete old “boilerplate” referencing “complete appraisal,” “limited appraisal,” or “departure

• Strongly encourage you NOT to use a canned Scope of Work statement!!

Examples from New AO’s

AO-28, Illustration 1AO-28, Illustration 1

I have agreed to appraise a 12-unit I have agreed to appraise a 12-unit apartment with three unit types. I initially apartment with three unit types. I initially planned to inspect the interior of two of planned to inspect the interior of two of each of the unit types. When I arrived, the each of the unit types. When I arrived, the manager only had a key for one of the two manager only had a key for one of the two bedroom units. What should I do?bedroom units. What should I do?



I have been asked to appraise a I have been asked to appraise a manufacturing facility. The client does not manufacturing facility. The client does not want me to disturb the occupants by want me to disturb the occupants by inspecting the property. Additionally, the inspecting the property. Additionally, the client wants me to specifically include a client wants me to specifically include a cost approach. Is this acceptable?cost approach. Is this acceptable?



An appraiser was engaged to appraise a one-unit residence. At the time of inspection, the appraiser discovered that the property was a three-unit property. What should the appraiser do?



An appraiser is appraising a single-family An appraiser is appraising a single-family home for a home equity loan.home for a home equity loan. Another Another appraiser is appraising the same property appraiser is appraising the same property for an FHA loan. Do these assignments for an FHA loan. Do these assignments require the same scope of work?require the same scope of work?



A state certified general real estate A state certified general real estate appraiser is appraising a specialized appraiser is appraising a specialized industrial facility. The assignment requires industrial facility. The assignment requires specific knowledge and expertise.specific knowledge and expertise. Who Who would qualify as the “appraiser’s peers” for would qualify as the “appraiser’s peers” for this assignment?this assignment?



An appraiser has agreed to complete an An appraiser has agreed to complete an assignment in the next two days. While assignment in the next two days. While conducting research, the appraiser conducting research, the appraiser discovers that the primary data source for discovers that the primary data source for the assignment (MLS) is off-line and will the assignment (MLS) is off-line and will not be available. What is the appropriate not be available. What is the appropriate course of action?course of action?

Revised AO-2

AO-2, Inspection of Subject PropertyAO-2, Inspection of Subject Property

What is the reason for inspecting the

subject property?

Does USPAP mandate a minimum level of property inspection?

What are the disclosure obligations

relating to inspection?

Revised AO-2

A. Primary reason for inspection is to gather information about the relevant characteristics

B. USPAP does not require inspection

C. Extent of the inspection process

D. Information can come from combination of sources

Revised AO-2

Must clearly communicate the degree of the inspection

Desktop?

“Full”?

Exterior Only?

Hot Potatoes!!

New Forms

Certification 23

Cost Approach

Update Form 1004D

Certification 23

Reminder: What is an intended user?

the client and any other party as identified, by name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client at the time of the assignment

Certification 23

Form clearly identifies the lender as the intended user.

No other intended users are identified, as such

Cert. 23 Provides a list of other parties who “may rely” on the report

Certification 23

Two Possible Meanings of “May”

Permission –You may use the car.

Possibility – It may rain today.

Rachel may use the car today.

Certification 23

Reports must clearly identify intended users.

The position of the ASB is that the language in Certification item 23 is not clear.

Additional clarification must be made. See July 2005 Q&A by ASB.

Certification 23

Sample language has been provided by Fannie Mae.

Available at efanniemae.com

Certification 23

“The Intended User of this appraisal report is the Lender/Client. The Intended Use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated Scope of Work, purpose of the appraisal, reporting requirements of this appraisal report form, and Definition of Market Value. No additional Intended Users are identified by the appraiser.”

This is not an open door to add limiting conditions!!

Cannot add statements that contradict items printed as part of the form!!

Certification 23

Update Form – 1004D

A new Appraisal Update form was included as part of the new Fannie Mae forms

This is an appraisal report!!

Update Form

“…An appraisal must be numerically expressed as a specific amount, as a range, or as a relationship (e.g., not more than, not less than) to a previous value opinion..”

Definition of Appraisal, USPAP

Update Form

Recall that “updates” must meet the same requirements as other appraisal reports

Can accomplish this through incorporation of a previous report

Update Form

Update Form 1004D is identified as a Summary Appraisal Report

Therefore, there must be a summary of the analysis that supports the appraiser’s conclusion

This does NOT mean you must do a 2055 or a new 1004 !!

Update Form

Cost Approach

When must you do a cost approach? Must do it when it is necessary for credible

assignment results

Clients can have additional requirements!!

Cost Approach

You must always explain the omission of the comparison approach, cost approach or income approach.

Cost Approach

If you do not do the cost approach as part of the appraisal, there is no need to have a cost approach in the workfile!!

Cost Approach

Creating Sales

Fannie Mae says that it is unacceptable to create comps by adding land sale to the cost of the home

This does NOT mean that you cannot use sales of new homes

It does mean that you cannot add two transactions together and treat them as one

“5 Acre Rule”

Fannie Mae says that it is unacceptable to appraise part of a parcel

USPAP allows this (subject property must be identified)

Workfiles

Workfile Issues

Workfiles

Your are a trainee working for a certified appraiser. You leave to work for another appraiser or to work on your own.

Who owns the workfiles for the work you have done under the previous appraiser?

Workfiles

An appraiser must have custody of his or her workfile, or make appropriate workfile retention, access and retrieval arrangements with the party having custody of the workfile.

ETHICS RULE – Lines 329-330

Workfiles

“…groups or organizations engaged in appraisal practice share the same ethical obligations.”

ETHICS RULE Lines 222-223

Questions/ Other Hot Potatoes!!

Comp Checks

AVMs

AAVMs

Anything else

New Concept Paper Issued July 15, 2006

Asks Four Basic Questions About Reporting

Concept Paper: Reporting

Do the current reporting requirements provide sufficient flexibility to meet existing needs?


Does USPAP provide a clear way to measure the adequacy of report content?


Are there any specific reporting-related edits to USPAP that you would recommend?


Given the recent changes related to scope of work, is now the time to consider changing anything related to reporting?


The End

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USPAP in the Real World Presented by Danny Wiley Appraisal Standards Board of The Appraisal...

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