Is USPAP Good for Residential Appraisers? Friday, August 6, 2004

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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 Day
Survive 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 Trust
USPAP Promotes Public Trust in the Appraisal
ProfessionIt is that trust that makes an
appraisers 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

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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
  clients 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

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Scope of Work
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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 appraisers 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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When Does USPAP Apply?

• 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

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When Does USPAP Apply?

• 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 clients
  expectations.

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When Does USPAP Apply?

• 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
  individuals role in providing that property
  service.

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When Does USPAP Apply?

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

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2004 Changes - What is it?

• Its a new assignment!

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Its 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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Its 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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Its 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 its 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
  clients 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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Its 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 BUSINESS AO-24
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Normal Course of Business

• Scope of Work Acceptable When
• Expectations of Market Participants
• Actions of Appraisers Peers
• Appraisers Peers
• Other appraisers who have expertise and
  competency in the same or a similar type of
  assignment

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Normal Course of Business
Normal Course of Business is NOT - Work
habits of an individual appraiser
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SCOPE PROJECT
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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 Project

• Look 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

• Questions
• Thank You!