Transcript USPAP in the Real World Danny Wiley Foundation

USPAP in the Real World
Presented by
Danny Wiley
Appraisal Standards Board of The Appraisal
Foundation
GOALS 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:
2006 USPAP
2006 USPAP
Many edits to USPAP for 2006
Scope of Work Project
Review of STANDARDS 9 and 10
Fundamental obligations unchanged
2006 USPAP
Departure concept eliminated
Many edits, but no change to core
requirements of development process
Must still disclose scope of work
performed
2006 USPAP
Scope of work must produce credible
assignment results in the context of the
intended use
Better understanding, enhanced public
trust, improved clarity.
2006 USPAP: Actual Edits
Modified USPAP Definitions
New SCOPE OF WORK RULE
Revised language in STANDARDS
Application and Testing: SCOPE OF
WORK RULE (AO-28 and 29)
Revised Advisory Opinion 2
2006 USPAP: Actual Edits
DEPARTURE RULE and associated
terms removed
 Complete 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:
Standards Rule 1-4(b)
When a cost approach is applicable, an
appraiser must:
(underline/color added for emphasis)
2006 USPAP: Actual Edits
Apply Departure Tests
Is the approach applicable?
Is the approach necessary for
credible assignment results?
2006 USPAP: Actual Edits
Standards Rule 1-4(b)
When a cost approach is necessary for
credible assignment results, an
appraiser must:
(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
Derived from Black’s Law
Comment: Dictionary,
Credible assignment
results
a recognized
require support,
by relevant
evidence and
authoritative
source
logic, to the degree necessary for the
intended use
2006 USPAP: Actual Edits
Scope of Work: the type and extent of
research and analyses in an assignment.
SCOPE OF WORK RULE
Added SCOPE OF WORK
RULE for 2006 Edition of
USPAP
SCOPE OF WORK RULE
Three Main Points in Rule
a. Identify the problem
b. Determine and perform scope
of work necessary
c. Disclose the scope of work
(performed) in the report
Credibility
Credible assignment results
a. Require support by relevant
evidence and logic
b. Credibility is measured in
context 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
Intended Users
Effective Date
Intended Use
Relevant
Characteristics
Type / Definition of
Value
Assignment
Conditions
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 work
a. 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 1
I have agreed to appraise a 12-unit
apartment with three unit types. I initially
planned to inspect the interior of two of
each of the unit types. When I arrived, the
manager only had a key for one of the two
bedroom units. What should I do?
Examples from New AO’s
AO-28, Illustration 4
I have been asked to appraise a
manufacturing facility. The client does not
want me to disturb the occupants by
inspecting the property. Additionally, the
client wants me to specifically include a
cost approach. Is this acceptable?
Examples from New AO’s
AO-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 1
An appraiser is appraising a single-family
home for a home equity loan. Another
appraiser is appraising the same property
for an FHA loan. Do these assignments
require the same scope of work?
Examples from New AO’s
AO-29, Illustration 2
A state certified general real estate
appraiser is appraising a specialized
industrial facility. The assignment requires
specific knowledge and expertise. Who
would qualify as the “appraiser’s peers” for
this assignment?
Examples from New AO’s
AO-29, Illustration 4
An appraiser has agreed to complete an
assignment in the next two days. While
conducting research, the appraiser
discovers that the primary data source for
the assignment (MLS) is off-line and will
not be available. What is the appropriate
course of action?
Revised AO-2
AO-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.”
Certification 23
This is not an open door to add limiting
conditions!!
Cannot add statements that contradict items
printed as part of the form!!
Update Form
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 !!
Cost Approach
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!!
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
Concept Paper: Reporting
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 reportingrelated 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?
The End