2018 SCCAI RESIDENTIAL SYMPOSIUM USPAP OF THE FUTURE. Paula Konikoff, JD, MAI, AI GRS

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Dwight Norris
5 years ago
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1 USPAP OF THE FUTURE Paula Konikoff, JD, MAI, AI GRS

2 WHERE WE ARE NOW 2

3 Joint task force for Improvement of USPAP Appraisal Institute and Appraisal Foundation develop USPAP Optimization Concept 3

4 When unnecessary for an assignment, hard and fast requirements can make the appraisal process unnecessarily cumbersome, result in unnecessary cost to the client, and cause an appraisal report to be less understandable. Such consequences must be addressed for purposes of clarity and to benefit the public interest. 4

5 Any set of standards that is to be applicable to all valuations should be principles based and should exclude requirements that are not necessary for all intended uses. Requirements that are specific to certain intended uses should be presented separately. To accomplish this, USPAP itself should include only those requirements that are necessary to all valuation assignments. Requirements that are necessary only for certain intended uses should be removed; they may then be included in the requirements currently existing or to be promulgated by specific intended users in the form of standards, regulations, guidelines, or requirements, depending on the authority of the user(s) developing those appraisal requirements. 5

6 Standards Rule 1 5 is an example of an existing USPAP requirement that is not necessary in every appraisal assignment. In fact, it may be an impediment in some assignments. This Standards Rule requires the appraiser to analyze all agreements of sale, options, and listings of the subject property current as of the effective date of the appraisal, and all sales of the subject property that occurred within the three years prior to the effective date of the appraisal when appraising market value. 6

7 This requirement clearly is important when the intended use is for mortgage lending because it provides the intended user information needed to properly assess loan collateral risk. If an appraisal report presents an opinion of value of $500,000, and the property has been listed for sale with an asking price of $400,000, or the property sold recently for $400,000, there is cause for concern. However, another intended user may receive no benefit from the Standards Rule 1 5 requirement and even be hindered by the cost and time related to a requirement which provides no meaningful benefit to the user. Consider a Department of Transportation budget setting process. Every year Departments of Transportation plan projects for possible ranking in their work flow and a part of that process is setting an acquisition budget for each alternative being considered. Having the budgeted acquisition cost as part of the proposal assists the decision makers with rankings to decide which project best fits available funds. This intended user has no need, interest, or willingness to pay for the appraiser to research the past sale history on all 100 of the acquisition properties in the budgeting process. But they do have a need for a professional appraiser to assist them to set their budget. 7

8 An example of a requirement which is not in USPAP but is specific to solving the problem of another intended use is the Uniform Appraisal Standards for Federal Land Acquisitions requirement that the property owner be offered the ability to be present during the property inspection. This is a specific requirement exclusive to eminent domain and is important for that intended use. But it is not important for other intended uses and would even create an unneeded burden if it were a part of USPAP. Therefore, it is appropriately not included in USPAP and should remain a specific requirement to that intended use. 8

9 Branches, leaves 9

10 AI Standards of Valuation Practice (SVP) 10

11 Standards of Valuation Practice Effective January 1, 2015 Contents Definitions... 3 STANDARD A:... 5 An appraisal must be credible STANDARD B:... 7 A review must be credible STANDARD C:... 9 A Report must be clear and not misleading

12 USPAP HOT TOPICS ASB Q&A 12

13 : APPRAISAL DEVELOPMENT EXTRAORDINARY ASSUMPTIONS AND HYPOTHETICAL CONDITIONS (revised 3/29/18) Employing an Extraordinary Assumption when a Client Provides Inspection Data Question: A client has asked me to perform an appraisal, but instead of requiring me to physically inspect the subject property, they will provide me with the results of an inspection done by someone else. If I rely upon that inspection, should I employ an extraordinary assumption? 13

14 Response: The answer to this question is dependent upon the appraiser s judgment about the reliability and completeness of the information contained in the client provided inspection report. The Comment to Standards Rule 1 2(e) states, in part: The information used by an appraiser to identify the property characteristics must be from sources the appraiser reasonably believes are reliable. If the appraiser determines that the information contained in the inspection report is reliable and sufficient to allow the appraiser to identify the property characteristics and develop credible assignment results, then an extraordinary assumption would not be necessary. 14

15 USPAP FAQ #215 The difference between whether a condition is an extraordinary assumption or a hypothetical condition rests on what the appraiser knows about the condition in question. If an appraiser cannot verify a certain condition that is critical to the valuation, but which the appraiser has a reasonable basis to accept as true, then the condition is an extraordinary assumption. The appraiser must comply with appropriate Standards having to do with both the development and reporting of the condition as an extraordinary assumption 15

16 USPAP DEFINITION OF EXTRAORDINARY ASSUMPTION an assignment specific assumption as of the effective date regarding uncertain information used in an analysis which, if found to be false, could alter the appraiser s opinions or conclusions. Comment: Uncertain information might include physical, legal, or economic characteristics of the subject property; or conditions external to the property, such as market conditions or trends; or the integrity of data used in an analysis 16

17 : APPRAISAL REPORTING CERTIFICATIONS AND SIGNATURES Signing and Labeling of Supplemental Certifications Question: I am using an appraisal form that has an appraiser s certification which cannot be altered. The certification does not include USPAP s required disclosure on whether I performed any services on the property in the three years prior to the assignment. May I simply add such a statement elsewhere in the report, outside of the certification? 17

18 Response: No. Simply adding information in the body of a report is not the same as a signed certification. Any supplemental certification should be clearly identified, and it must be signed as required by Standards Rule 2 3. USPAP does not require the report to be signed; it requires a signed certification. USPAP acknowledges that signatures may appear elsewhere in the report, and if so, per the Comment to Standards Rule 2 3, any party signing elsewhere must also sign the certification. 18

19 USPAP SR 2 3, lines any appraiser(s) who signs a certification accepts full responsibility for all elements of the certification, for the assignment results, and for the contents of the appraisal report. 19

20 USPAP OF THE FUTURE QUESTIONS AND COMMENTS

Appraisal Review & Advisory Opinion 20 Controversy. Presenter: Lisa Kimbro, MAI, AI-GRS

Appraisal Review & Advisory Opinion 20 Controversy Presenter: Lisa Kimbro, MAI, AI-GRS Practicing appraisers know USPAP, and appraisers that complete review work know USPAP s Standard 3. But what about