Transcript Slide 1

Is USPAP Good for
Residential Appraisers?
Friday, August 6, 2004
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Introduction
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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
“This may be a little
uncomfortable”
Answer YOUR Question
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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 Profession
It is that trust that makes an
appraiser’s opinion valuable
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Benefits of USPAP
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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
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Who/What is the ASB
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Review of Fundamental Concepts
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Significant Changes for 2005
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Changes for 2004
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Scope of Work vs Departure
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Other Issues
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Appraisal Standards Board
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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
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Writes and Interprets the
Uniform Standards of
Professional Appraisal Practice
(USPAP).
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Promulgates USPAP
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Primary USPAP Concepts
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Assignment Elements
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Problem Identification
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Scope of Work
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Assignment Elements
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Client & Intended Users
Intended Use
Type and Definition of Value
Effective Date
Assignment Conditions
Subject & Relevant Characteristics
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Problem Identification
Intended
Use
Intended
Users
Type and
Definition of Value
Problem
Identification
Relevant
Characteristics
Assignment
Conditions
Effective
Date
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Client & Intended Users
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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
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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
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Extent of research and analysis
Reporting - level of detail in report
Benchmark
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Credibility
Due Diligence
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Type and Definition of Value
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Provides the objective basis for
determining “what kind” of
information and analysis to include in
these processes.
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Intended Use & User
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Provide objective basis for deciding
“how much” information and analysis
to include in the development and
reporting processes
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Effective Date
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Effective date
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Retrospective
Current
Prospective
Date of the report
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Assignment Conditions
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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
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Relevant characteristics identified by
the appraiser
Relevant characteristics driven by
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Type and definition of value
Intended use
Relevant characteristics drive
relevance of Standards Rules
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Problem Identification
Intended
Use
Intended
Users
Type and
Definition of Value
Problem
Identification
Relevant
Characteristics
Assignment
Conditions
Effective
Date
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Scope of Work
Credible
Assignment
Results
Public Trust
Performance
Standards
Ethics
Competency
Scope of Work
Problem
Identification
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Significant Changes for 2005
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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
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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
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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
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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
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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
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Currently required to:
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Analyze Impact on Value
Disclose in Conjunction with Each
Opinion and Conclusion Affected
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Extraordinary Assumptions/
Hypothetical Conditions
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For 2005 USPAP:
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Clear and Conspicuous Disclosure
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Warning in Report
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When Does USPAP Apply?
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AO-21
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Individuals perform numerous roles within the
broad realm of property services
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When Does USPAP Apply?
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What does acting “as an appraiser” or
performing a service “as an appraiser”
mean?
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“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?
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What are the responsibilities of an
appraiser regarding intended user
expectations?
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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.
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When Does USPAP Apply?
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What are the USPAP obligations for
property services outside of appraisal
practice?
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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.
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When Does USPAP Apply?
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AO-21 Illustrations
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Brokerage and Appraisal
Appraisal Review
Rent Survey
Appraisal and Market Information
Property Measurement
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2004 Changes - What is it?
It’s a new assignment!
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It’s a New Assignment
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An appraiser has previously appraised the
property, then is asked to:
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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
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Assignments linked to prior assignments
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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
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The characteristics of a given assignment
are defined by assignment elements
Assignment elements are the basis for:
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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
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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
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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
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Why not?
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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
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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
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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
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No restrictions on
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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
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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
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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
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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
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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
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Client Expectations
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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 Appraiser’s Peers
Appraiser’s 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
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Exposure Draft Currently Out
for Comments
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Biggest Change in 10 Years
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No Real Change
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Scope of Work Project
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Departure – a misunderstood concept
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When can you depart?
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Purpose of Departure
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Scope of Work Project
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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
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When it is applicable, you must do it
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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
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Pieces of the Puzzle
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Standards Rules
DEFINITIONS
DEPARTURE RULE
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Applicable
Necessary
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Scope of Work Project
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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)
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When a cost approach is necessary
for credible results, an appraiser
must….
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Scope of Work Project
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No change to existing requirements for the
work you must do
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More simple statement of the requirement
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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
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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
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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!
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