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

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

2. Introduction • Moderator • Dave Snook, ASB Chair 1996 and 1997 • Instructor • Danny Wiley, ASB Chair 2002 - 2004 • Schedule • Materials • Housekeeping

3. 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”

4. The Question Is USPAP Good for Residential Appraisers?

5. My (Expected) Answer USPAP Is Good for ALL Appraisers

6. Public Trust USPAP Promotes Public Trust in the Appraisal ProfessionIt is that trust that makes an appraiser’s opinion valuable

7. 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

8. 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

9. 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)

10. Duties of the ASB • Writes and Interprets the Uniform Standards of Professional Appraisal Practice (USPAP). • Promulgates USPAP

11. Primary USPAP Concepts • Assignment Elements • Problem Identification • Scope of Work

12. Assignment Elements • Client & Intended Users • Intended Use • Type and Definition of Value • Effective Date • Assignment Conditions • Subject & Relevant Characteristics

13. Problem Identification

14. 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.

15. 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 client’s objectives to cause the assignment results to be biased.

16. Intended Use • Development - scope of work • Extent of research and analysis • Reporting - level of detail in report • Benchmark • Credibility • Due Diligence

17. Type and Definition of Value • Provides the objective basis for determining “what kind” of information and analysis to include in these processes.

18. Intended Use & User • Provide objective basis for deciding “how much” information and analysis to include in the development and reporting processes

19. Effective Date • Effective date • Retrospective • Current • Prospective • Date of the report

20. Assignment Conditions • Include, among other things, assumptions, extraordinary assumptions, hypothetical conditions, supplemental standards, and jurisdictional exceptions • Driven by intended use and intended users

21. 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

22. Problem Identification

23. Scope of Work

24. Significant Changes for 2005 • Reporting of Exposure Time • Reporting Requirements Related to Extraordinary Assumptions and Hypothetical Conditions • When Does USPAP Apply?

25. Reporting of Exposure Time • Currently required to report exposure time whenever developing an opinion of market value • This requirement is in Statement No. 6

26. Reporting of Exposure Time • Confusion about the term • Not in the “normal” reporting Standards • Is this truly necessary?

27. Reporting of Exposure Time Starting in 2005, this will be required only when significant to the assignment

28. Extraordinary Assumptions/Hypothetical Conditions • EXTRAORDINARY ASSUMPTION: an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

29. Extraordinary Assumptions/Hypothetical Conditions • HYPOTHETICAL CONDITION: that which is contrary to what exists but is supposed for the purpose of analysis.

30. Extraordinary Assumptions/Hypothetical Conditions • Currently required to: • Analyze Impact on Value • Disclose in Conjunction with Each Opinion and Conclusion Affected

31. Extraordinary Assumptions/Hypothetical Conditions • For 2005 USPAP: • Clear and Conspicuous Disclosure • Warning in Report

32. Broker Appraiser When Does USPAP Apply? • AO-21 • Individuals perform numerous roles within the broad realm of property services

33. 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

34. 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 client’s expectations.

35. 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 individual’s role in providing that property service.

36. When Does USPAP Apply? • AO-21 Illustrations • Brokerage and Appraisal • Appraisal Review • Rent Survey • Appraisal and Market Information • Property Measurement

37. 2004 Changes - What is it? It’s a new assignment!

38. It’s 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

39. 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?

40. It’s 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)

41. 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

42. 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.

43. Readdressing/Transferring • AO-26 • Simply put, USPAP does not allow readdressing a report to a new client after the assignment has been completed

44. 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: it’s a new assignment!

45. 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.

46. 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

47. 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

48. Recertification USPAP Myth #147 USPAP Does NOT Prohibit Recertifications of Value It Simply Defines the Term

49. 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.

50. 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