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
2006 USPAP: Actual Edits
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
2006 USPAP: Actual Edits
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)
2006 USPAP: Actual Edits
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?
2006 USPAP: Actual Edits
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)
2006 USPAP: Actual Edits
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
2006 USPAP: Actual Edits
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
2006 USPAP: Actual Edits
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.
2006 USPAP: Actual Edits
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
Scope of Work Acceptability
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.
Scope of Work Acceptability
Appraiser’s Peers: other appraisers who have expertise and competency in a similar type of assignment
Scope of Work Acceptability
Might need to reconsider the initially planned scope of work.
Scope of Work Acceptability
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
Disclosure/Reporting
Includes disclosure of research and analyses performed; might include disclosure of research and analyses not performed
Disclosure/Reporting
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?
Examples from New AO’s
AO-28, Illustration 4AO-28, Illustration 4
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?
Examples from New AO’s
AO-28, Illustration 6AO-28, Illustration 6
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?
Examples from New AO’s
AO-29, Illustration 1AO-29, Illustration 1
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?
Examples from New AO’s
AO-29, Illustration 2AO-29, Illustration 2
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?
Examples from New AO’s
AO-29, Illustration 4AO-29, Illustration 4
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?
Concept Paper: Reporting
Does USPAP provide a clear way to measure the adequacy of report content?
Concept Paper: Reporting
Are there any specific reporting-related edits to USPAP that you would recommend?
Concept Paper: Reporting
Given the recent changes related to scope of work, is now the time to consider changing anything related to reporting?
Concept Paper: Reporting
The End