FirstExposureDraft 2014-15 USPAP

First Exposure Draft of Proposed Changes for the 2014-15 USPAP 1

TO: All Interested Parties

FROM: J. Carl Schultz, Jr., Chair

Appraisal Standards Board

RE: First Exposure Draft of proposed changes for the 2014-15 edition of the

Uniform Standards of Professional Appraisal Practice

DATE: May 24, 2012

The goal of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote

and maintain a high level of public trust in appraisal practice by establishing requirements for

appraisers. With this goal in mind, the Appraisal Standards Board (ASB) regularly solicits and

receives comments and suggestions for improving USPAP. Proposed changes are intended to

improve USPAP understanding and enforcement, and thereby achieve the goal of promoting and

maintaining public trust in appraisal practice.

The ASB is currently considering changes for the 2014-15 edition of USPAP. All interested

parties are encouraged to comment in writing to the ASB before the deadline of July 6,

2012. Respondents should be assured that each member of the ASB will thoroughly read and

consider all comments. Comments are also invited at the ASB public meeting on July 13, 2012,

in Denver, Colorado.

Written comments on this exposure draft can be submitted by mail, email and facsimile.

Mail: Appraisal Standards Board

The Appraisal Foundation

1155 15th

Street, NW, Suite 1111

Washington, DC 20005

Email: [email protected]

Facsimile: (202) 347-7727

mailto:[email protected]


IMPORTANT NOTE: All written comments will be posted for public viewing, exactly as

submitted, on the website of The Appraisal Foundation. Names may be redacted upon

request.

The Appraisal Foundation reserves the right not to post written comments that contain

offensive or inappropriate statements.

If you have any questions regarding the attached exposure draft, please contact Emily Mann,

Standards Administrator at The Appraisal Foundation, via e-mail at

[email protected] or by calling (202) 624-3058.

Background

The Appraisal Standards Board promulgates USPAP for both appraisers and users of appraisal

services. The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is

to promote and maintain a high level of public trust in appraisal practice by establishing

requirements for appraisers. USPAP represents the generally accepted and recognized standards

of appraisal practice in the United States.

The ASB’s work plan for the 2014-15 edition of USPAP includes reviewing and revising as

needed the following areas of USPAP:

Reporting and Communication Requirements

Reporting Options

Retirement of STANDARDS 4 and 5

Other revisions and additions as needed to ensure clarity and relevance.

The Board will review every comment submitted in response to this exposure draft and based on

the feedback received, will likely issue a Second Exposure Draft in late summer after its public

meeting in Denver this July. If that occurs, the Board will again solicit comments leading up to

its final public meeting of the year in Washington D.C. in October. And if necessary, the Board

may issue a Third Exposure Draft after that meeting, again soliciting feedback up through early

2013.

The Board currently intends to adopt any revisions for the 2014-15 edition of USPAP at its

public meeting in San Francisco on February 1, 2013. Any such revisions to USPAP would

become effective on January 1, 2014, and any updates related to USPAP course material should

be available by late summer 2013.

mailto:[email protected]


First Exposure Draft of Proposed Changes for the

2014-15 edition of the Uniform Standards of Professional Appraisal Practice

Issued: May 24, 2012

Comment Deadline: July 6, 2012

Each section of this exposure draft begins with a rationale for the proposed changes to USPAP.

The rationale is identified as such and does not have line numbering. Where proposed changes

to USPAP are noted, the exposure draft contains line numbers. This difference is intended to

distinguish for the reader those parts that explain the changes to USPAP from the proposed

changes themselves.

When commenting on various aspects of the exposure draft, it is very helpful to reference the

line numbers, fully explain the reasons for concern or support, provide examples or illustrations,

and suggest any alternatives or additional issues that the ASB should consider.

Unless otherwise noted, where text is proposed to be deleted from USPAP, that text is shown as

strikeout. For example: This is strikeout text proposed for deletion. Text that is proposed to be

added to USPAP is underlined. For example: This is text proposed for insertion.

For ease in identifying the various issues being addressed, the exposure draft is presented in

sections.

NOTE: For the sake of clarity, in Sections 2a through 8, the proposed edits are shown based on

the assumption the STANDARDS 4 and 5 will be retired as presented in Section 1. If that

change is not adopted, additional edits will be necessary.

TABLE OF CONTENTS

Section Issue Page

1 Proposed Retirement of STANDARDS 4 and 5 (including proposed

edits to the Conduct section of the ETHICS RULE) 4

2a Proposed Revisions to the DEFINITION of “Assignment Results” 8

2b Proposed Revisions to the DEFINITION of “Report” 10

3 Proposed Revisions to the RECORD KEEPING RULE 11

4 Proposed Revisions to Scope of Work Acceptability section of the

SCOPE OF WORK RULE 14

5a Proposed Revisions to the DEFINITION of “Scope of Work” and the

SCOPE OF WORK RULE 16

5b Proposed DEFINITION of “Scope of Report” and SCOPE OF

REPORT RULE 21

6 Report Options (includes separate proposals for two report options, and

for a single report option) 25

7 Proposed Revisions to the COMPETENCY RULE 41

8 Proposed Revisions to the PREAMBLE - When Do USPAP Rules and

Standards Apply? 43


Section 1: Proposed Retirement of STANDARDS 4 and 5 (including proposed edits to

the Conduct section of the ETHICS RULE)

RATIONALE

Prior to adoption of the 2012-13 edition of USPAP, the ASB exposed the idea of retiring

STANDARDS 4 and 5 (REAL PROPERTY APPRAISAL CONSULTING DEVELOPMENT

and REPORTING). One of the primary reasons the ASB considered retirement of these

Standards was concern from the enforcement community that there was confusion and

misapplication. The rationale for retirement centered on relying on the appraisal development

and reporting standards to cover assignments where the value opinion used in the appraisal

consulting assignment was developed by the appraiser performing the assignment. In

assignments where the value opinion was accepted after an appraisal review, STANDARD 3

would apply.

Many of the responses received by the Board supported the proposed retirement of these

standards. A smaller number of responses expressed a concern that the consulting elements of

the real property appraisal consulting assignment would no longer have any development or

reporting standards. Without appraisal consulting Standards, if the value used by the consulting

appraiser was developed by another appraiser and accepted based on an extraordinary

assumption, that assignment would have no applicable development or reporting standards.

Another area of concern regarding the consulting components of what is currently an appraisal

consulting assignment is the use of extraordinary assumptions or hypothetical conditions. While

the appraiser must disclose these assignment conditions if they affect the development of a value

opinion (or review opinion), it is also important for users to be aware of conditions that affect the

consulting portion of the assignment in order to understand the context in which the appraiser

arrived at the recommendations or conclusions. The retirement of STANDARD 5 could lead to

assignments where extraordinary assumptions and hypothetical conditions are used, but not

disclosed.

The Board decided that unless there are some requirements in place to address the development

and reporting of analyses, recommendations and opinions other than opinions of value or

appraisal review opinions, the retirement of STANDARDS 4 and 5 was not the best option in

terms of promoting and maintaining public trust in appraisal practice.

Another factor that was considered was the difference in requirements applicable to appraisal

consulting assignments in the various disciplines. The Rules, including the SCOPE OF WORK

RULE and the RECORD KEEPING RULE, apply to all appraisal consulting assignments,

regardless of property type. However, STANDARDS 4 and 5 apply only to real property

appraisal consulting assignments; there are no Standards that apply to personal property appraisal

consulting assignments or business appraisal consulting assignments.

With the confusion and misapplication of STANDARDS 4 and 5, the Board is proposing the

retirement of STANDARDS 4 and 5 in this First Exposure Draft. In a related change, the

definition of appraisal consulting would be retired and references to appraisal consulting

throughout USPAP would be removed. In order to address concerns expressed in responses


regarding a possible gap in requirements regarding the consulting portions of what are currently

known as appraisal consulting assignments, an addition to the ETHICS RULE is being proposed.

The addition to the ETHICS RULE will require appraisers of all property types to clearly and

accurately disclose the use of an extraordinary assumption or hypothetical condition in all

assignments. This requirement previously existed for real property appraisers engaged in an

appraisal consulting assignment reported under STANDARD 5. Extending this requirement to

appraisers of all property types and to all assignments that involve appraisal practice is in the

best interest of public trust.

The retirement of STANDARDS 4 and 5 would not affect the numbering of STANDARDS 6

through 10.

NOTE: Because the proposal is to retire STANDARDS 4 and 5 and the definition of appraisal

consulting, those edits are not shown on the following pages. However, the proposed edits to the

Conduct section of the ETHICS RULE are shown (the remainder of the ETHICS RULE would

remain unchanged).


Conduct section of the ETHICS RULE

An appraiser must perform assignments with impartiality, objectivity, and independence, 1

and without accommodation of personal interests. 2

An appraiser: 3

must not perform an assignment with bias; 4

must not advocate the cause or interest of any party or issue; 5

must not accept an assignment that includes the reporting of predetermined 6

opinions and conclusions; 7

must not use, without clear and accurate disclosure, an extraordinary assumption or 8

a hypothetical condition in an assignment; 9

must not misrepresent his or her role when providing valuation services that are 10

outside of appraisal practice; 11

must not communicate assignment results with the intent to mislead or to defraud; 12

must not use or communicate a report that is known by the appraiser to be 13

misleading or fraudulent; 14

must not knowingly permit an employee or other person to communicate a 15

misleading or fraudulent report; 16

must not use or rely on unsupported conclusions relating to characteristics such as 17

race, color, religion, national origin, gender, marital status, familial status, age, 18

receipt of public assistance income, handicap, or an unsupported conclusion that 19

homogeneity of such characteristics is necessary to maximize value; 20

must not engage in criminal conduct; 21

must not willfully or knowingly violate the requirements of the RECORD 22

KEEPING RULE; and 23

must not perform an assignment in a grossly negligent manner. 24

Comment: Development standards (1-1, 3-1, 4-1, 6-1, 7-1 and 9-1) address the 25

requirement that “an appraiser must not render appraisal services in a careless or 26

negligent manner.” The above requirement deals with an appraiser being grossly 27

negligent in performing an assignment which would be a violation of the Conduct section 28

of the ETHICS RULE. 29


If known prior to accepting an assignment, and/or if discovered at any time during the 30

assignment, an appraiser must disclose to the client, and in the subsequent report 31

certification: 32

any current or prospective interest in the subject property or parties involved; and 33

any services regarding the subject property performed by the appraiser within the 34

three year period immediately preceding acceptance of the assignment, as an 35

appraiser or in any other capacity. 36

Comment: Disclosing the fact that the appraiser has previously appraised the property is 37

permitted except in the case when an appraiser has agreed with the client to keep the 38

mere occurrence of a prior assignment confidential. If an appraiser has agreed with a 39

client not to disclose that he or she has appraised a property, the appraiser must decline 40

all subsequent assignments that fall within the three year period. 41


NOTE: For the sake of clarity, in Sections 2a through 8, the proposed edits are shown based on

the assumption the STANDARDS 4 and 5 will be retired as presented in Section 1. If that

change is not adopted, additional edits will be necessary.

Section 2a: Proposed Revisions to the DEFINITION of “Assignment Results”

RATIONALE

The ASB has received numerous comments and requests for additional clarification of the

meaning of the term “assignment results.” The current definition needs more clarity as some

believe the definition could be narrowly interpreted as being limited to the final opinions and

conclusions while others believe the definition includes myriad of opinions and conclusions

developed and reported by the appraiser throughout the report.

The ASB is exposing two alternatives that will differentiate between those opinions and

conclusions that would require a report that complies with applicable Standards Rules when

transmitted to a client versus other communication that would be subject only to existing Rules.

Alternative 1

Under this Alternative, assignment results are more narrowly defined than in Alternative 2.

Under Alternative 1, assignment results are only the final opinions relative to a particular

assignment. For example, in the valuation of real, personal, or intangible property, the

concluded or reconciled opinion of value would represent the assignment result. In an appraisal

review assignment, consistent with the reviewer’s scope of work, assignment results would be

the appraiser’s final opinion as to the completeness, accuracy, adequacy, relevance, and

reasonableness of the analysis in the work under review. Other analyses, opinions and

conclusions utilized by an appraiser in the process of developing the final opinion would not rise

to the level of an assignment result. For example, in real or personal property appraisal

assignments, an indication of value by a particular method, such as the sales comparison

approach, cost approach, or income approach, would not represent an assignment result unless

the appraiser knows that the results of a particular method would be the opinion of value.

Analyses, opinions, and conclusions communicated to the client and any other intended users

would have no applicable reporting standards unless communicated in conjunction with a final

opinion.

In this same example, opinions or conclusions regarding the subject property’s condition or

quality would not represent assignment results.

Alternative 2

Under Alternative 2, assignment results are more broadly defined than in Alternative 1, and

would include opinions and conclusions in addition to the final opinion of value. The rationale

for this alternative is that in an assignment, an appraiser might perform multiple analyses and

reach various opinions and conclusions. For example, in a real estate appraisal where the

objective is market value, an appraiser will develop opinions regarding market conditions,

qualitative factors regarding the subject property, reasonable exposure time, highest and best use,


indicated value by various approaches, and other factors in addition to the final value conclusion.

In addition, the appraiser may analyze listings, options, and pending and recent sales of the

subject.

All of the opinions and analyses are being developed or performed as part of an assignment, thus

those results would be included within assignment results under this Alternative.

DEFINITION

Alternative 1

ASSIGNMENT RESULTS: an appraiser’s opinions: and conclusions developed specific to an 42

assignment. 43

Comment: Assignment results include an appraiser’s: 44

opinions or conclusions developed in an appraisal assignment, such as value; 45

of value developed specific to an appraisal assignment; 46

about the quality of another appraiser’s work developed specific to an appraisal 47

review assignment; or 48

opinions, conclusions, or recommendations developed in an appraisal consulting 49

assignment. 50

developed when performing a valuation service other than within an appraisal or 51

appraisal review assignment. 52

Alternative 2

ASSIGNMENT RESULTS: an appraiser’s opinions and or conclusions developed specific to 53

an assignment. 54

Comment: Assignment results include an appraiser’s: 55

opinions or conclusions developed in an appraisal assignment, such as including, but 56

not limited to value; 57

about the quality of another appraiser’s work developed specific to an appraisal 58

review assignment; or 59

opinions, conclusions, or recommendations developed in an appraisal consulting 60

assignment. 61

opinions or conclusions developed when performing a valuation service other than 62

within an appraisal or appraisal review assignment. 63


Section 2b: Proposed Revisions to the DEFINITION of “Report”

RATIONALE

The ASB proposes revising the current definition of “Report” in the DEFINITIONS section in

USPAP.

Revising the definitions of “Report”

The proposed revised definition of report removes the linking of a report to the completion of an

assignment. There have been many requests for the ASB to provide guidance on when an

assignment is complete. As the ASB studied the overall concept of reporting, it appeared more

important to address all communication of assignment results regardless of where an appraiser is

in the process.

The words “written or oral” have also been proposed for removal. All communications that

include assignment results are included in the proposed definition of report. The Comment to the

definition of report is proposed for deletion. The current Comment merely states that oral report

requirements are included and why. This does not appear to add anything meaningful to the

definition.

The ASB is also proposing to add “any other intended user, at any time,” in addition to the client,

as part of the definition of a report. The flexibility that is being proposed for reporting options

makes it important for an appraiser to consider any additional intended users, as well as a client,

in determining an appropriate scope of work.

DEFINITION

REPORT: any communication, written or oral, of an opinion of value in an appraisal, appraisal 64

review, or appraisal consulting service assignment or an opinion about the quality of another 65

appraiser’s work in an appraisal review assignment, which is transmitted to the client upon 66

completion of an assignment or any other intended user, at any time. 67

Comment: Most reports are written and most clients mandate written reports. Oral report 68

requirements (see the RECORD KEEPING RULE) are included to cover court testimony 69

and other oral communications of an appraisal, appraisal review, or appraisal consulting 70

service. 71


Section 3: Proposed Revisions to the RECORD KEEPING RULE

RATIONALE

From the comments received in prior exposure drafts, discussion drafts, and requests for public

comments, it is recognized that the record keeping requirements may lack specificity with regard

to revisions to assignment results communicated to intended users.

In order to add clarity, the Board is proposing that all revisions to assignment results, as defined

in Section 2 of this exposure draft, must be identified and retained in the workfile. The rationale

for all changes to the assignment results must also be documented.

Appraiser independence is of the utmost importance in an appraiser completing an assignment

and that independence will be enhanced by requiring the rationale for any change in

communicated assignment results to be documented in the workfile.


RECORD KEEPING RULE

An appraiser must prepare a workfile for each appraisal, or appraisal review, or appraisal 72

consulting assignment. A workfile must be in existence prior to the issuance of any report. 73

A written summary of an oral report must be added to the workfile within a reasonable 74

time after the issuance of the oral report. 75

The workfile must include: 76

the name of the client and the identity, by name or type, of any other intended users; 77

true copies of any all written reports, documented on any type of media. (A true 78

copy is a replica of the report transmitted to the client. A photocopy or an 79

electronic copy of the entire report transmitted to the client satisfies the 80

requirement of a true copy.); 81

summaries of all oral reports or testimony, or a transcript of testimony, including 82

the appraiser’s signed and dated certification; 83

the rationale for all changes to assignment results when a revised report has been 84

communicated to the client or other intended users; 85

all other data, information, and documentation necessary to support the appraiser’s 86

opinions and conclusions and to show compliance with USPAP, or references to the 87

location(s) of such other documentation; and 88

a workfile in support of a Restricted Use Appraisal Report must be sufficient for the 89

appraiser to produce a Summary Appraisal Report (for assignments communicated 90

under STANDARDS 2 and 8) or an Appraisal Report (for assignments 91

communicated under STANDARD 10). 92

An appraiser must retain the workfile for a period of at least five years after preparation 93

or at least two years after final disposition of any judicial proceeding in which the 94

appraiser provided testimony related to the assignment, whichever period expires last. 95

An appraiser must have custody of the workfile, or make appropriate workfile retention, 96

access, and retrieval arrangements with the party having custody of the workfile. This 97

includes ensuring that a workfile is stored in a medium that is retrievable by the appraiser 98

throughout the prescribed record retention period. 99

An appraiser having custody of a workfile must allow other appraisers with workfile 100

obligations related to an assignment appropriate access and retrieval for the purpose of: 101

submission to state appraiser regulatory agencies; 102

compliance with due process of law; 103

submission to a duly authorized professional peer review committee; or 104

compliance with retrieval arrangements. 105


Comment: A workfile must be made available by the appraiser when required by a state 106

appraiser regulatory agency or due process of law. 107

An appraiser who willfully or knowingly fails to comply with the obligations of this 108

RECORD KEEPING RULE is in violation of the ETHICS RULE. 109


Section 4: Proposed Revisions to Scope of Work Acceptability section of the SCOPE OF

WORK RULE

RATIONALE

There has been discussion about providing alternative or additional benchmarks for determining

the acceptability of the scope of work performed in an assignment. The belief is that it may

provide better enforceability of the scope of work’s acceptability. Comments have been received

from appraisers and appraiser regulatory officials regarding the difficulty of applying the current

tests for scope of work acceptability. The current test requires that the appraiser identify his

peers and determine what their actions would be in a similar assignment. This poses several

problems which include the following:

1. In some assignments there are very few peers.

2. The appraiser may have developed a new method of valuation which has been peer

reviewed, is reproducible and meets all other tests of being considered legitimately

scientific, yet no “peers” may be willing to speak publicly in support of the method.

3. Some appraisers, believed to be “peers,” may disregard a standard of care and in effect

create a contingent of appraisers who are not protecting the public trust.

The proposed language encourages the advancement of well-researched and tested methods

while at the same time assisting ethical appraisers from being portrayed as someone who is

outside recognized methods and techniques because a significant number of appraisers abandon a

scope of work which best protects public trust.

It is recognized that there is the need for a weighing of the tests, but by adding the new test as an

alternative there is a benefit as the discussion becomes broader than those who can be brought

before a trier of fact. That is in the best interest of public trust.

The proposed revisions on the following pages address the Scope of Work Acceptability section

of the SCOPE OF WORK RULE.


Scope of Work Acceptability

The scope of work must include the research and analyses that are necessary to develop 110

credible assignment results. 111

Comment: The scope of work is acceptable when it meets or exceeds: 112

both the expectations of parties who are regularly intended users for similar 113

assignments; and what an appraiser’s peers’ actions would be in performing the same 114

or a similar assignment; or 115

recognized methods and techniques prescribed by the Appraisal Practices Board of 116

The Appraisal Foundation, or in other peer-reviewed, published appraisal or 117

valuation books and articles, and published appraisal or valuation coursework taught 118

by a college, university, professional appraisal or valuation organization, or state and 119

federal governmental agencies. 120

Determining the scope of work is an ongoing process in an assignment. Information or 121

conditions discovered during the course of an assignment might cause the appraiser to 122

reconsider the scope of work. 123

An appraiser must be prepared to support the decision to exclude any investigation, 124

information, method, or technique that would appear relevant to the client, another 125

intended user, or the appraiser’s peers. 126

An appraiser must not allow assignment conditions to limit the scope of work to such a 127

degree that the assignment results are not credible in the context of the intended use. 128

Comment: If relevant information is not available because of assignment conditions that 129

limit research opportunities (such as conditions that place limitations on inspection or 130

information gathering), an appraiser must withdraw from the assignment unless the 131

appraiser can: 132

modify the assignment conditions to expand the scope of work to include gathering 133

the information; or 134

use an extraordinary assumption about such information, if credible assignment 135

results can still be developed. 136

An appraiser must not allow the intended use of an assignment or a client’s objectives to 137

cause the assignment results to be biased. 138

First Exposure Draft of Changes for the 2014-15 USPAP 16

Section 5a: Proposed Revisions to the DEFINITION of “Scope of Work” and the SCOPE

OF WORK RULE

NOTE: The Appraisal Standards Board is exposing two mutually-exclusive changes to

USPAP. These two potential alternatives will be considered. The Board may adopt neither

alternative, or it may adopt one of the alternatives. It will not adopt both. The two

alternatives are shown in Section 5a and Section 5b.

RATIONALE

The SCOPE OF WORK RULE currently addresses only the development side of an assignment.

While the scope of work needs to be disclosed in a report, the SCOPE OF WORK RULE does

not acknowledge the type and extent of the communication of an assignment. Appraisers

engage in assignments that include communication of the assignment results and not just the

development. An appraiser’s actual work for every appraisal and appraisal review assignment

includes communication. The specific development of an assignment often can incorporate part

of the agreed-upon communication or reporting such as whether a specific form will be utilized

or the level of detail requested by the client or providing interim communication. Hence

communication or reporting is an integral part of an assignment, is an integral part of an

appraiser’s work on an assignment, and some believe that it must be recognized as part of the

Scope of Work definition and RULE.

Just as the SCOPE OF WORK RULE currently gives appraisers broad flexibility in the

development driven by the intended use and intended users, incorporating communication would

give appraisers broad flexibility in the reporting driven by the intended use and intended users.

Given a specific assignment, the appraiser may or may not need to inspect the subject property.

The development may require a detailed analysis of the highest and best use, or the assignment

may necessitate use of a discounted cash flow analysis. On the reporting side for a given

assignment, the intended use and intended user might dictate a short property description but a

detailed sales analysis including current competitive listings or providing the complete model for

the discounted cash flow analysis or the use of a form specified by the client.

The work in an assignment is driven by communication requirements, such as the form the client

requires or providing interim communication to the client, such as providing rent comparables to

the client before completing the assignment. Including communication in the scope of work

would reflect that the problem identification includes the type and extent of communicating the

assignment results to the client.

While the goal of development is to produce credible assignment results, the client and intended

users may not be able to determine whether these assignment results are credible unless they are

clearly communicated. Thus, the scope of work for an assignment is driven by producing and

communicating credible assignment results.


This proposed modification extends the scope of work beyond development and recognizes that

when a client hires an appraiser to complete an assignment, the appraiser’s work on an

assignment includes development and communication of the assignment results.

Communication can vary by assignment and this proposed change to the scope of work reflects

that flexibility. Under this modification, the scope of work concept will include the entire

assignment, from identifying the problem, to gathering information, analysis, and

communicating conclusions to the client. The work for an assignment includes the

communication of the assignment results which are driven by the intended use, intended user,

and the needs of the client.

If an appraiser is engaged by a homeowner to provide independent valuation advice as the

homeowner is planning on selling their house, the appraiser could provide an abbreviated

property description, but provide a detailed sales comparison approach including a detailed

analysis of competitive listings. If an appraiser is engaged by an investment firm or a real estate

investment trust (REIT) to provide quarterly update appraisals, the appraiser could provide a

detailed income capitalization approach with a brief summary of the remaining information

referring the reader to the year-end comprehensive appraisal report for the details. If an

appraiser has been providing fair value appraisals for financial reporting purposes on an annual

basis to the same intended user, the appraiser could provide an abbreviated summary of the

information that has remained the same and a more detailed explanation of the changes from the

prior annual report. For all of the above noted assignments, having the SCOPE OF WORK

RULE encompass both development and communication of the credible assignment results

allows for flexibility but responsibility of the appraiser to meet the demands dictated by the

intended use and intender users.

Recognizing communication within the SCOPE OF WORK RULE addresses that the problem

identification includes the type and extent of communicating the assignment results to the client,

interim communications, and the need for flexibility in reporting driven by the intended use and

intended users.

The following pages include the proposed modifications to the scope of work definition and to

the SCOPE OF WORK RULE (this assumes that the Scope of Work Acceptability section is

changed as proposed in Section 4 of this document).


DEFINITION

SCOPE OF WORK: the type and extent of research, and analyses, and communication in an 139

assignment. 140

SCOPE OF WORK RULE

For each appraisal, and appraisal review, and appraisal consulting assignment, an 141 appraiser must: 142

1. identify the problem to be solved; 143

2. determine and perform the scope of work necessary to develop credible assignment 144

results and to communicate each analysis, opinion, and conclusion in a manner that 145

is meaningful and not misleading; and 146

3. disclose the scope of work in the report. 147

An appraiser must properly identify the problem to be solved in order to determine the 148

appropriate scope of work. The appraiser must be prepared to demonstrate that the scope 149

of work is sufficient to produce and communicate credible assignment results in a manner 150

that is meaningful and not misleading. 151

If assignment conditions exist which preclude the appraiser from producing credible 152

assignment results communicated in a manner that is meaningful and not misleading, the 153

appraiser must decline or withdraw from the assignment. 154

Comment: Scope of work includes, but is not limited to: 155

the extent to which the property is identified; 156

the extent to which tangible property is inspected; 157

the type and extent of data researched; and 158

the type and extent of analyses applied to arrive at opinions or conclusions.; and 159

the type and extent of communication of assignment results. 160

Appraisers have broad flexibility and significant responsibility in determining the 161

appropriate scope of work for an appraisal, and appraisal review, and appraisal consulting 162

assignment. 163

Credible assignment results require support by relevant evidence and logic. The 164

credibility of assignment results is always measured in the context of the intended use. 165

An appraiser must communicate each analysis, opinion, and conclusion in a manner that 166

is meaningful and not misleading. 167

Problem Identification 168


An appraiser must gather and analyze information about those assignment elements that 169

are necessary to properly identify the appraisal, or appraisal review or appraisal 170

consulting problem to be solved. 171

Comment: The assignment elements necessary for problem identification are addressed in 172

the applicable Standards Rules (i.e., SR 1-2, SR 3-1, SR 4-2, SR 6-2, SR 7-2 and SR 9-2). 173

In an appraisal assignment, for example, identification of the problem to be solved 174

requires the appraiser to identify the following assignment elements: 175

client and any other intended users; 176

intended use of the appraiser’s opinions and conclusions; 177

type and definition of value; 178

effective date of the appraiser’s opinions and conclusions; 179

subject of the assignment and its relevant characteristics; and 180

assignment conditions. 181

182

This information provides the appraiser with the basis for determining the type and extent of 183

research and analyses to include in the development of an appraisal or appraisal review, as well 184

as the type and extent of the communication of the assignment. 185

Communication with the client is required to establish most of the information necessary for 186

problem identification. However, the identification of relevant characteristics is a judgment 187

made by the appraiser that requires competency in that type of assignment. 188

Assignment conditions include assumptions, extraordinary assumptions, hypothetical conditions, 189

laws and regulations, jurisdictional exceptions, and other conditions that affect the scope of 190

work. Laws include constitutions, legislative and court-made law, administrative rules, and 191

ordinances. Regulations include rules or orders, having legal force, issued by an administrative 192

agency. 193

Scope of Work Acceptability 194

The scope of work must include the research and analyses that are necessary to develop 195

credible assignment results and to communicate those results in a manner that is 196

meaningful and not misleading. 197

Comment: The scope of work is acceptable when it meets or exceeds: 198

both the expectations of parties who are regularly intended users for similar 199

assignments; and what an appraiser’s peers’ actions would be in performing the same 200

or a similar assignment; or 201


recognized methods and techniques prescribed by the Appraisal Practices Board of 202

The Appraisal Foundation, or in other peer-reviewed, published appraisal or valuation 203

books and articles, and published appraisal or valuation coursework taught by a 204

college, university, professional appraisal or valuation organization, or state and 205

federal governmental agencies. 206

Determining the scope of work is an ongoing process in an assignment. Information or 207

conditions discovered during the course of an assignment might cause the appraiser to 208

reconsider the scope of work. 209

An appraiser must be prepared to support the decision to exclude any investigation, 210

information, method, or technique that would appear relevant to the client, another 211

intended user, or the appraiser’s peers. 212

An appraiser must not allow assignment conditions to limit the scope of work to such a 213

degree that the assignment results are not credible in the context of the intended use, or 214

that those results are not communicated in a manner that is meaningful and not 215

misleading. 216

Comment: If relevant information is not available because of assignment conditions that 217

limit research opportunities (such as conditions that place limitations on inspection or 218

information gathering), an appraiser must withdraw from the assignment unless the 219

appraiser can: 220

modify the assignment conditions to expand the scope of work to include gathering the 221

information; or 222

use an extraordinary assumption about such information, if credible assignment results 223

can still be developed. 224


cause the assignment results to be biased. 226

Disclosure Obligations 227

The report must contain sufficient information to allow intended users to understand the 228

scope of work performed. 229

Comment: Proper disclosure is required because clients and other intended users rely on 230

the assignment results. Sufficient information includes disclosure of research and 231

analyses performed and might also include disclosure of research and analyses not 232

performed. 233


Section 5b: Proposed DEFINITION of “Scope of Report” and SCOPE OF REPORT

RULE

NOTE: The Appraisal Standards Board is exposing two mutually-exclusive changes to

USPAP. These two potential alternatives will be considered. The Board may adopt neither

alternative, or it may adopt one of the alternatives. It will not adopt both. The two

alternatives are shown in Section 5a and Section 5b.

RATIONALE

The ASB has received numerous comments regarding reporting and communications. Among

these comments have been several in support of treating the appraiser’s decision regarding the

breadth and depth of reporting in a manner similar to the scope of work decision. That is, allow

the appraiser some flexibility in determining the appropriate level of report content based on

some or all of the assignment elements that an appraiser must identify in determining the scope

of work in an assignment.

Some have suggested redefining scope of work, combining most of the development functions

and reporting into the definition, and rewriting the SCOPE OF WORK RULE to include the

determination of what is currently defined as scope of work and the determination of appropriate

report content.

Others have opined that while addressing report content in a manner similar to scope of work

should be pursued, combining development and reporting is not the best way to do that. Those

who have expressed this opinion have presented several reasons for their position. Among the

concerns about integrating reporting and development are:

Development and reporting are two different functions;

The two functions apply different skill sets (analysis and communication);

The scope of work is determined by the appraiser based on communication with the client

at the time of the assignment, while to some extent the report content is often based on

client requirements; and

The objective of development is credible results (in the context of the intended use) while

the objective of reporting is communication in a manner that is meaningful and not

misleading (must include sufficient information for the intended users to understand the

report).

Given these factors, it appears that maintaining the distinction between development and

reporting is justified. However, it also appears that there are many valid reasons to consider an

approach to reporting that is similar to the SCOPE OF WORK RULE, but addressed in a

separate rule.

The ASB is proposing a SCOPE OF REPORT RULE. The Rule would follow the SCOPE OF

WORK RULE in the document and would address, in general terms, the issue of communicating


assignment results to the client and other intended users. In conjunction with the proposed new

Rule, the ASB is also proposing a definition for the expression “scope of report.”

DEFINITION

SCOPE OF REPORT: the type and amount of information included in a report. 234

SCOPE OF REPORT RULE 235

For each appraisal and appraisal review assignment, an appraiser must: 236

1. determine an appropriate, format or style for communicating assignment 237

results; 238

2. determine the scope of report necessary to communicate assignment results in a 239

manner that is meaningful and not misleading; and 240

3. prepare and communicate a report in manner that is meaningful and not 241

misleading. 242

Comment: USPAP does not dictate the form, format or style of a report. The form, 243

format, and style of a report are functions of the needs of intended users and appraisers. 244

An appraiser must properly identify the needs of intended users in order to determine the 245

appropriate scope of report. The appraiser must be prepared to demonstrate that the 246

scope of report is sufficient and appropriate to communicate assignment results in a 247

manner that is meaningful to intended users and not misleading. 248

Comment: Scope of report includes, but is not limited to: 249

the type of information that is included in the report; and 250

the amount of information that is included in the report. 251

Appraisers have broad flexibility and significant responsibility in determining the 252

appropriate scope of report for an appraisal or appraisal review assignment. Meaningful 253

communication requires that the information is presented to intended users in enough 254

depth and detail to allow them to apply the results in the intended use. Appraisers must 255

not communicate results, either intentionally or through a lack of competency or 256

diligence, in a manner that is misleading. 257

Scope of Report Determination 258


An appraiser must consider the relevant assignment elements that are necessary to 259

properly determine the scope of report necessary for the appraisal or appraisal review 260

assignment. 261

Comment: The appraiser must consider the following assignment elements in 262

determining an appropriate scope of report: 263

client and any other intended users; 264

intended use of the appraiser’s opinions and conclusions; and 265

assignment conditions. 266

This information provides the appraiser with the basis for determining the type and 267

amount of information to include in the report. Communication with the client is 268

required to establish most of the information necessary for scope of report determination. 269

Assignment conditions include laws and regulations, jurisdictional exceptions, client and 270

intended user requirements, and other conditions affect the scope of report. Laws include 271

constitutions, legislative and court-made law, administrative rules, and ordinances. 272

Regulations include rules or orders, having legal force, issued by an administrative 273

agency. 274

Scope of Report Acceptability 275

The scope of report must include the information that is necessary to communicate 276

assignment results and any other required information in a manner that is meaningful and 277

not misleading. 278

Comment: The scope of report is acceptable when it meets or exceeds: 279

the expectations of parties who are regularly intended users for similar assignments; 280

and 281

what an appraiser’s peers’ actions would be in performing the same or a similar 282

assignment. 283

The scope of report may vary depending on the needs of intended users and the 284

complexity of the information needed to understand the report properly. 285

An appraiser must be prepared to support the decision to exclude any information or 286

explanation that would appear relevant to the client, another intended user, or the 287

appraiser’s peers. 288

An appraiser must not allow assignment conditions or other factors to limit the scope of 289

report to such a degree that the communication is misleading or not meaningful to the 290

intended users. 291


Comment: Under certain circumstances, a Restricted Use Appraisal Report may be an 292

appropriate means of communicating assignment results. When a Restricted Use 293

Appraisal Report is used as allowed under Standards Rules 2-2(c), 8-2(c), and 10-2(b) or 294

when an oral report is used under Standards Rules 2-4, 3-7, 8-4, or 10-4, the appraiser 295

must have sufficient reason to believe that the Restricted Use Appraisal Report or oral 296

report is sufficient given the intended use and needs of the intended user(s). 297


cause the assignment results to be communicated with bias or in a manner that is 299

misleading. 300

NOTE: Changes to reporting Standards may require additional edits (e.g., Restricted Appraisal

Report instead of Restricted Use Appraisal Report).


Section 6: Report Options (includes separate proposals for two report options, and for

a single report option)

RATIONALE

Over the past several years, the Appraisal Standards Board has reached out to all categories of

stakeholders regarding problems with and improvements needed in reporting an appraiser’s

analyses, opinions, and conclusions.

Some of the most significant and common issues are as follows:

1. Why, if USPAP sets minimum standards, are there multiple reporting options?

2. A common concern in STANDARDS 2 and 8 is the difficulty in adequately

distinguishing between language that “summarizes” or “describes” as the terms are used

in differentiating between two of the three reporting options.

For example, when does a summary become a description? Appraisers ask this question

when trying to comply with USPAP. State appraiser regulators ask this question when

trying to appropriately enforce USPAP.

3. Many appraisers and users of appraisal services have commented that creating a “Self-

Contained” report, as implied by the name, is neither feasible nor demanded by clients.

Others say that the label “Self-Contained Report” does not an accurately convey what

this report option requires.

4. The ASB has been asked why a Restricted Use Appraisal Report is restricted to “use”

when the restriction is really on the “user.”

5. Why, if STANDARD 10, Business Appraisal Reporting, only offers two options, do

STANDARD 2, Real Property Appraisal Reporting and STANDARD 8, Personal

Property Appraisal Reporting offer three?

The ASB believes that before addressing the proposed changes it is important to remind all

parties that the development and record keeping requirements are not affected by these proposed

changes. Furthermore, it is important to remember that the development and record keeping

requirements for what is currently a Summary Appraisal Report and a Restricted Use Report in

STANDARDS 2 and 8 are the same as an appraiser’s workfile for a Restricted Use Appraisal

Report must contain sufficient support to produce a Summary Appraisal Report. In short, a

Restricted Use Appraisal Report only diminishes the level of reporting and nothing else.

These concerns have led the ASB to study the reporting standards with great care as each of the

listed items raises a valid point. Therefore, the ASB is exposing two possible options. The first

would bring STANDARDS 2 and 8 in line with STANDARD 10 by utilizing two report options:

Appraisal Report and Restricted Use Appraisal Report (but change Restricted Use Appraisal


Report to Restricted Appraisal Report); Self-Contained Appraisal Report would be eliminated.

The second option would be the creation of new reporting STANDARDS 2, 8 and 10. In this

scenario only one reporting option would be available, and would be very similar to the current

Summary Appraisal Report option in STANDARDS 2 and 8, and the Appraisal Report option in

STANDARD 10.

The option of leaving the report options in STANDARDS 2, 8, and 10 unchanged also exists.

As stated previously, the ASB is exposing two mutually-exclusive changes to USPAP. These

two potential alternatives will be considered. The Board may adopt neither alternative, or it may

adopt one of the alternatives. It will not adopt both.

The rationale for each of the two proposals is expressed in their respective sections.

TWO REPORTING OPTIONS

Changing STANDARDS 2 and 8 to allow for two report options would address issues 2 through

5 listed above. But it fails to address the first issue of minimum standards including multiple

reporting options.

The proposed changes would:

1. Eliminate the Self-Contained Report and Summary Appraisal Report options in

STANDARDS 2 and 8 and replace them with an Appraisal Report option with

requirements very similar to the current 2-2(b) and 8-2(b) Summary Appraisal Report.

2. Rename the Restricted Use Appraisal Report to Restricted Appraisal Report in

STANDARDS 2, 8, AND 10 and clarify that the restriction is that this report option can

only be used when the client is the only intended user of the report.

These re-named report formats would prescribe the minimum level of reporting and would hold

the appraiser accountable to judge whether an expansion in the level of information provided in

specific areas is necessary to ensure the report is sufficient, given the intended use and intended

users.

A chart comparing the basic requirements of a (Summary) Appraisal Report and a Restricted

(Use) Appraisal Report is included in Advisory Opinion 11 (AO-11). The following page

includes an expansion of that chart to further identify the differences in the proposed

requirements for an assignment with an Appraisal Report and an assignment with a Restricted

Appraisal Report.


Appraisal Report Restricted Appraisal

Report

ETHICS and COMPETENCY

RULES Must be followed Must be followed

SCOPE OF WORK RULE Must be followed Must be followed

Appropriate Development Standard Must be followed Must be followed

RECORD KEEPING RULE Must be followed Workfile sufficient to

produce an Appraisal Report

Intended users Client and any other party

identified by the appraiser Client only

Summarize the information analyzed

and the reasoning that supports the

analyses, opinions and conclusions

Yes, it must be reported No, it does not need to be

reported

Must the intended users be able to

understand the rationale for the

opinion?

Yes No

Standard Rules that do not differ State State

Standard Rules that differ Summarize State

The scope of work required to develop credible assignment results is independent of the report

option followed by the appraiser. The research and analysis required for credible results in an

assignment would be the same whether the appraiser used an Appraisal Report, or a Restricted

Appraisal Report to communicate the results. Except for the RECORD KEEPING RULE, the

requirements imposed by the Rules (ETHICS, etc.) are also the same regardless of the report

option used. When a Restricted Appraisal Report is used, the workfile must contain sufficient

documentation to produce an Appraisal Report.

An Appraisal Report must summarize the appraiser’s analysis and the rationale for the

conclusions. On the other hand, a Restricted Appraisal Report might not include sufficient

information for the client (no other intended users are allowed) to understand either the

appraiser’s analyses or rationale for the appraiser’s conclusions.

Following are edits to the relevant portion of STANDARD 2 to reflect two report options.

Corresponding edits would also be made to STANDARDS 8, 10 and any other USPAP sections

requiring edit if this change is implemented for the 2014-15 edition of USPAP.

NOTE: The following pages show the changes to Standards Rule 2-2(b) and (c) to reflect two

reporting options. What is currently Standards Rule 2-2(a) would be deleted. Standards Rule 2-

2(b) would become 2-2(a) and Standards Rule 2-2(c) would become 2-2(b). The remainder of

STANDARD 2 would be unchanged.


TWO REPORT OPTION VERSION

STANDARD 2: REAL PROPERTY APPRAISAL, REPORTING

Standards Rule 2-2

Each written real property appraisal report must be prepared under one of the following 301 three options and prominently state which option is used: Self-Contained Appraisal 302 Report, Summary Appraisal Report or Restricted Use Appraisal Report.

1 303

Comment: When the intended users include parties other than the client, either a 304 Self-Contained Appraisal Report or a Summary an Appraisal Report must be 305 provided. When the intended users do not include parties other than the client, a 306 Restricted Use Appraisal Report may be provided. 307

The essential difference among between these three two options is in the content 308 and level of information provided. The appropriate reporting option and the level 309 of information necessary in the report are dependent on the intended use and the 310 intended users. 311

An appraiser must use care when characterizing the type of report and level of 312 information communicated upon completion of an assignment. An appraiser may 313 use any other label in addition to, but not in place of, the label set forth in this 314 Standard for the type of report provided. 315

The report content and level of information requirements set forth in this Standard 316 are minimums for each type of report. An appraiser must supplement a report 317 form, when necessary, to ensure that any intended user of the appraisal is not 318 misled and that the report complies with the applicable content requirements set 319 forth in this Standards Rule. 320

A party receiving a copy of a Self-Contained Appraisal Report, Summary an 321 Appraisal Report, or Restricted Use Appraisal Report in order to satisfy disclosure 322 requirements does not become an intended user of the appraisal unless the 323 appraiser identifies such party as an intended user as part of the assignment. 324

(a) The content of a Self-Contained Appraisal Report must be consistent with the 325 intended use of the appraisal and, at a minimum: 326

(i) state the identity of the client and any intended users, by name or type;2

327

Comment: An appraiser must use care when identifying the client to 328 ensure a clear understanding and to avoid violations of the Confidentiality 329 section of the ETHICS RULE. In those rare instances when the client 330

1 See Advisory Opinion 11, Content of the Appraisal Report Options of Standards Rules 2-2 and 8-2, and Advisory

Opinion 12, Use of the Appraisal Report Options of Standards Rules 2-2 and 8-2. 2 See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users.


wishes to remain anonymous, an appraiser must still document the identity 331 of the client in the workfile but may omit the client’s identity in the report. 332

Intended users of the report might include parties such as lenders, 333 employees of government agencies, partners of a client, and a client’s 334 attorney and accountant. 335

(ii) state the intended use of the appraisal;3 336

(iii) describe information sufficient to identify the real estate involved in the 337 appraisal, including the physical and economic property characteristics 338 relevant to the assignment;

4 339

Comment: The real estate involved in the appraisal can be specified, for 340 example, by a legal description, address, map reference, copy of a survey 341 or map, property sketch and/or photographs or the like. The information 342 can include a property sketch and photographs in addition to written 343 comments about the legal, physical, and economic attributes of the real 344 estate relevant to the type and definition of value and intended use of the 345 appraisal. 346

(iv) state the real property interest appraised; 347

Comment: The statement of the real property rights being appraised must 348 be substantiated, as needed, by copies or summaries of title descriptions or 349 other documents that set forth any known encumbrances. 350

(v) state the type and definition of value and cite the source of the definition; 351

Comment: Stating the definition of value also requires any comments 352 needed to clearly indicate to the intended users how the definition is being 353 applied.

354

When reporting an opinion of market value, state whether the opinion of 355 value is: 356

in terms of cash or of financing terms equivalent to cash, or 357 based on non-market financing or financing with unusual conditions or 358

incentives. 359

When an opinion of market value is not in terms of cash or based on 360 financing terms equivalent to cash, summarize the terms of such financing 361 and explain their contributions to or negative influence on value. 362

3 See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users.

4 See Advisory Opinion 2, Inspection of Subject Property, and Advisory Opinion 23, Identifying the Relevant

Characteristics of the Subject Property of a Real Property Appraisal Assignment.


When an opinion of reasonable exposure time has been developed in 363 compliance with Standards Rule 1-2(c), the opinion must be stated in the 364 report.

5 365

(vi) state the effective date of the appraisal and the date of the report;6

366

Comment: The effective date of the appraisal establishes the context for 367 the value opinion, while the date of the report indicates whether the 368 perspective of the appraiser on the market and property as of the effective 369 date of the appraisal was prospective, current, or retrospective. 370

(vii) describe the scope of work used to develop the appraisal;7 371

Comment: Because intended users’ reliance on an appraisal may be 372 affected by the scope of work, the report must enable them to be properly 373 informed and not misled. Sufficient information includes disclosure of 374 research and analyses performed and might also include disclosure of 375 research and analyses not performed. 376

When any portion of the work involves significant real property appraisal 377 assistance, the appraiser must describe the extent of that assistance. The 378 signing appraiser must also state the name(s) of those providing the 379 significant real property appraisal assistance in the certification, in 380 accordance with Standards Rule 2-3.

8 381

(viii) describe the information analyzed, the appraisal methods and techniques 382 employed, and the reasoning that supports the analyses, opinions, and 383 conclusions; exclusion of the sales comparison approach, cost approach, or 384 income approach must be explained; 385

Comment: A Self-Contained Appraisal Report must include sufficient 386 information to indicate that the appraiser complied with the requirements 387 of STANDARD 1. The amount of detail required will vary with the 388 significance of the information to the appraisal. 389

The appraiser must provide sufficient information to enable the client and 390 intended users to understand the rationale for the opinions and 391 conclusions, including reconciliation of the data and approaches, in 392 accordance with Standards Rule 1-6. 393

5 See Statement on Appraisal Standards No. 6, Reasonable Exposure Time in Real Property and Personal Property

Opinions of Value. See also Advisory Opinion 7, Marketing Time Opinions, and Advisory Opinion 22, Scope of

Work in Market Value Appraisal Assignments, Real Property. 6 See Statement on Appraisal Standards No. 3, Retrospective Value Opinions, and Statement on Appraisal

Standards No. 4, Prospective Value Opinions. 7 See Advisory Opinion 28, Scope of Work Decision, Performance, and Disclosure and Advisory Opinion 29, An

Acceptable Scope of Work. 8 See Advisory Opinion 31, Assignments Involving More than One Appraiser.


When reporting an opinion of market value, a summary of the results of 394 analyzing the subject sales, options, and listings in accordance with 395 Standards Rule 1-5 is required.

9 If such information is unobtainable, a 396

statement on the efforts undertaken by the appraiser to obtain the 397 information is required. If such information is irrelevant, a statement 398 acknowledging the existence of the information and citing its lack of 399 relevance is required. 400

(ix) state the use of the real estate existing as of the date of value and the use of 401 the real estate reflected in the appraisal; and, when an opinion of highest and 402 best use was developed by the appraiser, describe the support and rationale 403 for that opinion; 404

(x) clearly and conspicuously: 405

state all extraordinary assumptions and hypothetical conditions; 406 and 407

state that their use might have affected the assignment results; 408 and 409

(xi) include a signed certification in accordance with Standards Rule 2-3. 410

(ab) The content of a Summary an Appraisal Report must be consistent with the 411 intended use of the appraisal and, at a minimum: 412

Comment: The essential difference between the Self-Contained Appraisal Report 413 and the Summary Appraisal Report is the level of detail of presentation. 414


415

Comment: An appraiser must use care when identifying the client to 416 ensure a clear understanding and to avoid violations of the Confidentiality 417 section of the ETHICS RULE. In those rare instances when the client 418 wishes to remain anonymous, an appraiser must still document the identity 419 of the client in the workfile but may omit the client’s identity in the report. 420


(ii) state the intended use of the appraisal;11

424

(iii) summarize information sufficient to identify the real estate involved in the 425 appraisal, including the physical and economic property characteristics 426 relevant to the assignment;

12 427

9 See Advisory Opinion 1, Sales History.




Comment: The real estate involved in the appraisal can be specified, for 428 example, by a legal description, address, map reference, copy of a survey 429 or map, property sketch, and/or photographs or the like. The summarized 430 information can include a property sketch and photographs in addition to 431 written comments about the legal, physical, and economic attributes of the 432 real estate relevant to the type and definition of value and intended use of 433 the appraisal. 434





442


in terms of cash or of financing terms equivalent to cash, or 445

based on non-market financing or financing with unusual conditions or 446 incentives. 447



13 453


454


12

See Advisory Opinion 2, Inspection of Subject Property, and Advisory Opinion 23, Identifying the Relevant

Characteristics of the Subject Property of a Real Property Appraisal Assignment. 13

See Statement on Appraisal Standards No. 6, Reasonable Exposure Time in Real Property and Personal Property


Work in Market Value Appraisal Assignments, Real Property. 14

See Statement on Appraisal Standards No. 3, Retrospective Value Opinions, and Statement on Appraisal

Standards No. 4, Prospective Value Opinions.


(vii) summarize the scope of work used to develop the appraisal;15

459


When any portion of the work involves significant real property appraisal 465 assistance, the appraiser must summarize the extent of that assistance. The 466 signing appraiser must also state the name(s) of those providing the 467 significant real property appraisal assistance in the certification, in 468 accordance with Standards Rule 2-3.

16 469

(viii) summarize the information analyzed, the appraisal methods and techniques 470 employed, and the reasoning that supports the analyses, opinions, and 471 conclusions; exclusion of the sales comparison approach, cost approach, or 472 income approach must be explained; 473

Comment: A Summary An Appraisal Report must include sufficient 474 information to indicate that the appraiser complied with the requirements 475 of STANDARD 1. The amount of detail required will vary with the 476 significance of the information to the appraisal. 477

The appraiser must provide sufficient information to enable the client and 478 intended users to understand the rationale for the opinions and 479 conclusions, including reconciliation of the data and approaches, in 480 accordance with Standards Rule 1-6. 481




(ix) state the use of the real estate existing as of the date of value and the use of 489 the real estate reflected in the appraisal; and, when an opinion of highest and 490 best use was developed by the appraiser, summarize the support and 491 rationale for that opinion; 492


15

See Advisory Opinion 28, Scope of Work Decision, Performance, and Disclosure, and Advisory Opinion 29, An

Acceptable Scope of Work. 16

See Advisory Opinion 31, Assignments Involving More than One Appraiser. 17

See Advisory Opinion 1, Sales History


state all extraordinary assumptions and hypothetical conditions; and 494

state that their use might have affected the assignment results; and 495


(bc) The content of a Restricted UseAppraisal Report must be consistent with the 497 intended use of the appraisal and, at a minimum: 498

(i) state the identity of the client, by name or type;18

and state a prominent use 499 restriction that limits use of the report to the client and warns that the 500 appraiser’s the rationale for how the appraiser arrived at the opinions and 501 conclusions set forth in the report may not be understood properly without 502 additional information in the appraiser’s workfile; 503

Comment: An appraiser must use care when identifying the client to 504 ensure a clear understanding and to avoid violations of the Confidentiality 505 section of the ETHICS RULE. In those rare instances when the client 506 wishes to remain anonymous, an appraiser must still document the identity 507 of the client in the workfile but may omit the client’s identity in the report. 508

The Restricted Use Appraisal Report is for client use only. Before 509 entering into an agreement, the appraiser should establish with the client 510 the situations where this type of report is to be used and should ensure that 511 the client understands the restricted utility of the Restricted Use Appraisal 512 Report. 513


514

Comment: The intended use of the appraisal must be consistent with the 515 limitation on use of the Restricted Use Appraisal Report option in this 516 Standards Rule (i.e., client use only). 517

(iii) state information sufficient to identify the real estate involved in the 518 appraisal;

20 519

Comment: The real estate involved in the appraisal can be specified, for 520 example, by a legal description, address, map reference, copy of a survey 521 or map, property sketch, and/or photographs or the like. 522


(v) state the type of value and cite the source of its definition;21

524

18

See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users. 19


See Advisory Opinion 2, Inspection of Subject Property. References to Advisory Opinions are for guidance only

and do not incorporate Advisory Opinions into USPAP. 21



Comment: When an opinion of reasonable exposure time has been developed in 525 compliance with Standards Rule 1-2(c), the opinion must be stated in the report. 526


527


(vii) state the scope of work used to develop the appraisal;23

532

Comment: Because the client’s reliance on an appraisal may be affected by 533 the scope of work, the report must enable them to be properly informed 534 and not misled. Sufficient information includes disclosure of research and 535 analyses performed and might also include disclosure of research and 536 analyses not performed. 537

When any portion of the work involves significant real property appraisal 538 assistance, the appraiser must state the extent of that assistance. The 539 signing appraiser must also state the name(s) of those providing the 540 significant real property appraisal assistance in the certification, in 541 accordance with Standards Rule 2-3.

24 542

(viii) state the appraisal methods and techniques employed, state the value 543 opinion(s) and conclusion(s) reached, and reference the workfile; exclusion of 544 the sales comparison approach, cost approach, or income approach must be 545 explained; 546

Comment: An appraiser must maintain a specific, coherent workfile in 547 support of a Restricted Use Appraisal Report. The contents of the 548 workfile must include sufficient information to indicate that the appraiser 549 complied with the requirements of STANDARD 1 and for the appraiser to 550 produce a Summary an Appraisal Report. 551

When reporting an opinion of market value, a summary of the results of 552 analyzing the subject sales, options, and listings in accordance with 553 Standards Rule 1-5 is required. If such information is unobtainable, a 554 statement on the efforts undertaken by the appraiser to obtain the 555 information is required. If such information is irrelevant, a statement 556




Standards No. 4, Prospective Value Opinions. 23

See Advisory Opinions 28, Scope of Work Decision, Performance, and Disclosure, and Advisory Opinion 29,

An Acceptable Scope of Work. 24

See Advisory Opinion 31, Assignments Involving More than One Appraiser.


acknowledging the existence of the information and citing its lack of 557 relevance is required. 558

(ix) state the use of the real estate existing as of the date of value and the use of 559 the real estate reflected in the appraisal; and, when an opinion of highest and 560 best use was developed by the appraiser, state that opinion; 561





NOTE: The following pages contain the proposed “Single Report Option” variation of STANDARD 2. Since the remainder of STANDARD 2 would not be affected, the edits shown for the “Single Report Option” simply reflect the changes that would appear in Standards Rule 2-2.


SINGLE REPORT OPTION VERSION

STANDARD 2: REAL PROPERTY APPRAISAL, REPORTING

Standards Rule 2-2

Each written real property appraisal report must be consistent with the intended use of the 566 appraisal and meet the minimum requirements of an Appraisal Report as described in this 567 Standards Rule prepared under one of the following three options and prominently state 568 which option is used: Self-Contained Appraisal Report, Summary Appraisal Report or 569 Restricted Use Appraisal Report.

25 570

Comment: When the intended users include parties other than the client, either a 571 Self-Contained Appraisal Report or a Summary Appraisal Report must be 572 provided. When the intended users do not include parties other than the client, a 573 Restricted Use Appraisal Report may be provided. 574

The essential difference among these three options is in the content and level of 575 information provided. The appropriate reporting option and the level of 576 information necessary in the report are dependent on the intended use and the 577 intended users. 578

An appraiser must use care when characterizing the type of report and level of 579 information communicated upon completion of an assignment. An appraiser may 580 use any other label in addition to, but not in place of, the label set forth in this 581 Standard for an Appraisal Report the type of report provided. 582

The report content and level of information requirements set forth in this Standard 583 are minimums for each type of report. An appraiser must supplement a report 584 form, when necessary, to ensure that any intended user of the appraisal is not 585 misled and that the report complies with the applicable content requirements set 586 forth in this Standards Rule. 587

A party receiving a copy of an Appraisal Report Self-Contained Appraisal Report, 588 Summary Appraisal Report, or Restricted Use Appraisal Report in order to satisfy 589 disclosure requirements does not become an intended user of the appraisal unless 590 the appraiser identifies such party as an intended user as part of the assignment. 591

(a) The content of an Appraisal Report must, at a minimum: 592


593

Comment: An appraiser must use care when identifying the client to 594 ensure a clear understanding and to avoid violations of the Confidentiality 595 section of the ETHICS RULE. In those rare instances when the client 596

25

See Advisory Opinion 11, Content of the Appraisal Report Options of Standards Rules 2-2 and 8-2, and Advisory

Opinion 12, Use of the Appraisal Report Options of Standards Rules 2-2 and 8-2. 26

See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users.


wishes to remain anonymous, an appraiser must still document the identity 597 of the client in the workfile but may omit the client’s identity in the report. 598



602

(iii) summarize information sufficient to identify the real estate involved in the 603 appraisal, including the physical and economic property characteristics 604 relevant to the assignment;

28 605

Comment: The real estate involved in the appraisal can be specified, for 606 example, by a legal description, address, map reference, copy of a survey 607 or map, property sketch, and/or photographs or the like. The summarized 608 information can include a property sketch and photographs in addition to 609 written comments about the legal, physical, and economic attributes of the 610 real estate relevant to the type and definition of value and intended use of 611 the appraisal. 612





620


in terms of cash or of financing terms equivalent to cash, or 623 based on non-market financing or financing with unusual conditions or 624

incentives. 625


27


See Advisory Opinion 2, Inspection of Subject Property, and Advisory Opinion 23, Identifying the Relevant

Characteristics of the Subject Property of a Real Property Appraisal Assignment.



29 631


632


(vii) summarize the scope of work used to develop the appraisal;31

637


When any portion of the work involves significant real property appraisal 643 assistance, the appraiser must summarize the extent of that assistance. The 644 signing appraiser must also state the name(s) of those providing the 645 significant real property appraisal assistance in the certification, in 646 accordance with Standards Rule 2-3.

32 647

(viii) summarize the information analyzed, the appraisal methods and techniques 648 employed, and the reasoning that supports the analyses, opinions, and 649 conclusions; exclusion of the sales comparison approach, cost approach, or 650 income approach must be explained; 651

Comment: An Appraisal Report must include sufficient information to 652 indicate that the appraiser complied with the requirements of STANDARD 653 1. The amount of detail required will vary with the significance of the 654 information to the appraisal. 655

The report must include sufficient information to enable the client and any 656 other intended user(s) to understand the analyses, opinions and 657 conclusions, including reconciliation of the data and approaches, in 658 accordance with Standards Rule 1-6. 659

29





Standards No. 4, Prospective Value Opinions. 31

See Advisory Opinion 28, Scope of Work Decision, Performance, and Disclosure, and Advisory Opinion 29, An

Acceptable Scope of Work. 32

See Advisory Opinion 31, Assignments Involving More than One Appraiser.





(ix) state the use of the real estate existing as of the date of value and the use of 667 the real estate reflected in the appraisal; and, when an opinion of highest and 668 best use was developed by the appraiser, summarize the support and 669 rationale for that opinion; 670





33

See Advisory Opinion 1, Sales History


Section 7: Proposed Revisions to the COMPETENCY RULE

RATIONALE

The COMPETENCY RULE currently requires that an appraiser be competent to perform the

assignment, or acquire the necessary competency to perform the assignment, or withdraw from

the assignment. However, the COMPETENCY RULE does not expressly require the appraiser

to act competently in the given assignment.

To address this issue, the following section is proposed to be added at the end of the

COMPETENCY RULE:

Performing Competently

The appraiser must perform competently throughout the assignment.

COMPETENCY RULE

An appraiser must: (1) be competent to perform the assignment; (2) acquire the necessary 675

competency to perform the assignment; or (3) decline or withdraw from the assignment. 676

An appraiser must perform competently throughout the assignment. 677

Being Competent 678

The appraiser must determine, prior to accepting an assignment, that he or she can 679

perform the assignment competently. Competency requires: 680

1. the ability to properly identify the problem to be addressed; and 681

2. the knowledge and experience to complete the assignment competently; and 682

3. recognition of, and compliance with, laws and regulations that apply to the 683

appraiser or to the assignment. 684

Comment: Competency may apply to factors such as, but not limited to, an 685

appraiser’s familiarity with a specific type of property or asset, a market, a 686

geographic area, an intended use, specific laws and regulations, or an analytical 687

method. If such a factor is necessary for an appraiser to develop credible 688

assignment results, the appraiser is responsible for having the competency to 689

address that factor or for following the steps outlined below to satisfy this 690

For assignments with retrospective opinions and conclusions, the appraiser must 691

meet the requirements of this COMPETENCY RULE at the time of the 692

assignment, rather than the effective date. 693


Acquiring Competency 694

If an appraiser determines he or she is not competent prior to accepting an assignment, the 695

appraiser must: 696

1. disclose the lack of knowledge and/or experience to the client before accepting the 697

assignment; 698

2. take all steps necessary or appropriate to complete the assignment competently; and 699

3. describe, in the report, the lack of knowledge and/or experience and the steps taken 700

to complete the assignment competently. 701

Comment: Competency can be acquired in various ways, including, but not 702

limited to, personal study by the appraiser, association with an appraiser 703

reasonably believed to have the necessary knowledge and/or experience, or 704

retention of others who possess the necessary knowledge and/or experience. 705

In an assignment where geographic competency is necessary, an appraiser who is 706

not familiar with the relevant market characteristics must acquire an 707

understanding necessary to produce credible assignment results for the specific 708

property type and market involved. 709

When facts or conditions are discovered during the course of an assignment that cause an 710

appraiser to determine, at that time, that he or she lacks the required knowledge and 711

experience to complete the assignment competently, the appraiser must: 712

1. notify the client, and 713

2. take all steps necessary or appropriate to complete the assignment competently, and 714

3. describe, in the report, the lack of knowledge and/or experience and the steps taken 715

to complete the assignment competently. 716

Lack of Competency 717

If the assignment cannot be completed competently, the appraiser must decline or 718

withdraw from the assignment. 719

Performing Competently 720

The appraiser must perform competently throughout the assignment. 721


Section 8: Proposed Revisions to the PREAMBLE - When Do USPAP Rules and

Standards Apply?

RATIONALE

Individuals who at times work as an appraiser, and at other times work in other roles such as a

consultant, broker, or investment advisor, perform an array of services for a variety of clients

raising questions of when specific USPAP Rules and Standards apply. The distinction of when

one is acting as an appraiser and when one is not is important to understanding the foundational

obligations under USPAP. Furthermore, when one is acting as an appraiser, it is important to

understand what activities fall under what section of USPAP. Must a “draft” appraisal report

with an appraiser’s opinion of value comply with the appropriate reporting standard? If

governed by a jurisdiction’s mandatory USPAP adherence, must an individual acting as an

appraiser adhere to the ETHICS RULE before being engaged in an assignment? Which Rules

(i.e., ETHICS RULE, SCOPE OF WORK RULE, etc.) must an appraiser adhere to for the

consulting section of a feasibility report?

A revision is being proposed to the PREAMBLE as indicated on the following pages (this

assumes the Board retires STANDARDS 4 and 5, as shown in Section 1 of this exposure draft).

PREAMBLE

The purpose of the Uniform Standards of Professional Appraisal Practice (USPAP) is to 722

promote and maintain a high level of public trust in appraisal practice by establishing 723

requirements for appraisers. It is essential that appraisers develop and communicate their 724

analyses, opinions, and conclusions to intended users of their services in a manner that is 725

meaningful and not misleading. 726

The Appraisal Standards Board promulgates USPAP for both appraisers and users of appraisal 727

services. The appraiser’s responsibility is to protect the overall public trust and it is the 728

importance of the role of the appraiser that places ethical obligations on those who serve in this 729

capacity. USPAP reflects the current standards of the appraisal profession. 730

USPAP does not establish who or which assignments must comply. Neither The Appraisal 731

Foundation nor its Appraisal Standards Board is a government entity with the power to make, 732

judge, or enforce law. Compliance with USPAP is required when either the service or the 733

appraiser is obligated to comply by law or regulation, or by agreement with the client or intended 734

users. When not obligated, individuals may still choose to comply. 735

USPAP addresses the ethical and performance obligations of appraisers through DEFINITIONS, 736

Rules, Standards, Standards Rules, and Statements. 737

The DEFINITIONS establish the application of certain terminology in 738

USPAP. 739


The ETHICS RULE sets forth the requirements for integrity, impartiality, 740

objectivity, independent judgment, and ethical conduct. 741

The RECORD KEEPING RULE establishes the workfile requirements for 742

appraisal, appraisal review, and appraisal consulting assignments. 743

The COMPETENCY RULE presents pre-assignment and assignment 744

conditions for knowledge and experience. 745

The SCOPE OF WORK RULE presents obligations related to problem 746

identification, research and analyses. 747

The JURISDICTIONAL EXCEPTION RULE preserves the balance of 748

USPAP if a portion is contrary to law or public policy of a jurisdiction. 749

The ten Standards establish the requirements for appraisal, appraisal review, 750

and appraisal consulting service and the manner in which each is 751

communicated. 752

STANDARDS 1 and 2 establish requirements for the development and 753

communication of a real property appraisal. 754

STANDARD 3 establishes requirements for the development and 755

communication of an appraisal review. 756


communication of a real property appraisal consulting assignment. 758

STANDARD 6 establishes requirements for the development and 759

communication of a mass appraisal. 760


communication of a personal property appraisal. 762


communication of a business or intangible asset appraisal. 764

Statements on Appraisal Standards clarify, interpret, explain, or elaborate on a 765

Rule or Standards Rule. 766

Comments are an integral part of USPAP and have the same weight as the 767

component they address. These extensions of the DEFINITIONS, Rules, and 768

Standards Rules provide interpretation and establish the context and 769

conditions for application. 770

USPAP does not establish who or which assignments must comply. Neither The Appraisal 771

Foundation nor its Appraisal Standards Board is a government entity with the power to make, 772

judge, or enforce law. An appraiser must comply with USPAP when either the service or the 773

appraiser is required by law, regulation, or agreement with the client or intended user. 774

Individuals may also choose to comply with USPAP any time that individual is performing the 775

service as an appraiser. In order to comply with USPAP, an appraiser must meet the following 776

obligations: 777


An appraiser must act competently and in a manner that is independent, 778

impartial, and objective. 779

An appraiser must comply with the ETHICS RULE in all aspects of appraisal 780

practice. 781

Appraisers must maintain the data, information and analysis necessary to 782

support their opinions for appraisal and appraisal review assignments in 783

accordance with the RECORD KEEPING RULE. 784

An appraiser must comply with the COMPETENCY RULE and the 785

JURISDICTIONAL EXCEPTION RULE for all assignments. 786

When an appraiser provides his or her opinion of value in an assignment, the 787

appraiser must comply with the SCOPE OF WORK RULE, the RECORD 788

KEEPING RULE, the applicable development and reporting Standards and 789

applicable Statements. 790

When an appraiser provides his or her opinion about the quality of another 791

appraiser’s work that was performed as part of an appraisal or appraisal 792

review assignment, the appraiser must comply with the SCOPE OF WORK 793

RULE, the RECORD KEEPING RULE, STANDARD 3 and applicable 794

Statements. 795

When preparing an appraisal or appraisal review that is a component of a 796

larger (consulting) assignment, the appraisal or appraisal review component 797

must comply with the SCOPE OF WORK RULE, the RECORD KEEPING 798

RULE, the applicable development and reporting Standards and applicable 799

Statements, and the other components of the assignment must comply with the 800

COMPETENCY RULE and the JURISDICTIONAL EXCEPTION RULE. 801

FirstExposureDraft 2014-15 USPAP

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