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Summary of 2014-2015 USPAP Revisions
There are some
significant changes in 2014-2015 USPAP that will
affect Appraisers:
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2012-2013 USPAP Report Options
(Standards 2 & 8) |
2014-2015 USPAP Report Options
(Standards 2 & 8) |
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Self-Contained Report |
Appraisal Report |
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Summary Appraisal Report
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Restricted Use Appraisal Report |
Restricted Appraisal Report |
The changes that will likely
affect appraisers on "day 1" of the new USPAP
cycle, are the revisions to the Report Options
under STANDARDS 2 and 8. The
Self-Contained Report
& Summary Appraisal
Report options will be eliminated and
replaced with the new
Appraisal Report option. The
new Standard prescribes the minimum level
of reporting necessary in an Appraisal Report.
It then becomes the appraiser's responsibility
to determine whether greater "detail or
explanation" is required based on the Intended
Use and the Intended User(s) of the report.
The minimum standards for an Appraisal Report
are generally similar to
the requirements for a Summary Appraisal
Report, and this option must be used:
- When there are Intended
Users in addition to the Client
- When the Client may need to
understand the appraiser's rationale for
options and conclusions
- When the Client may not
have specialized knowledge about the subject
property
Other labels may be used in
addition to the USPAP Report Option labels,
however, care should be taken to avoid confusion
and it may be good practice to refrain from
using the pre-2014 labels whenever possible.
When utilizing Form Reports (such as the URAR)
with the label "built-in" to the form, there may
be no way to delete the "Summary
Appraisal Report" label from the form, but it
should be viewed as an unnecessary [2nd] label
and the USPAP "Appraisal Report" label should
be prominently displayed somewhere near the
beginning of the report. Simple revisions
to the forms (by the GSE's and software
companies) could easily make this issue
irrelevant, but there is no telling if that will
get done by January 1, 2014 (or at all).
For form
reports that cannot be changed, it is our
opinion that relying on the fact that the phrase
"Summary Appraisal Report" includes the term
"Appraisal Report" is NOT adequate to properly
identify the report option used and the term
Appraisal Report should be prominently
displayed by itself or within a longer
identifying sentence.
We suggest something
to the effect of "Appraisal Report;
Prepared in Accordance with USPAP Standards Rule
2-2(a)" or "This report was prepared in
accordance with the requirements of the Appraisal Report
option of USPAP." Just the sentence
"This is an Appraisal Report" may appear
odd to the eye of the "untrained" reader, as it
might seem to be "stating the obvious."
The Restricted Use Appraisal
Report option was renamed Restricted
Appraisal Report and clarifications were
made that make clear it can only be used when
the Client is the only Intended User of
the report. Although the minimum level of
reporting may be less than that required in an
Appraisal Report, the appraiser's
opinions and conclusions MUST be understood,
even though the rationale for how the appraiser
arrived at the opinions and conclusions may not
be understood.
Additional edits were made in
STANDARDS 2 and 8 for consistency and clarity.
Advisory Opinions 11 and 12 were also revised in
order to be consistent with the new report
option labels.
In all Standards
that address reporting requirements, except
Standard 3, there is a requirement to indicate
the report date (signature date). Standards
Rule 3-5(e) was revised to be consistent with
other reporting standards and it now states:
"state the effective date
of the appraisal review
and the date of the
appraisal review report;"
Underlined phrase
was added for 2014-2015.
The ASB has retired these two
STANDARDS out of a concern for "the clarity,
understandability, and enforceability of USPAP."
Requirements previously associated with these
STANDARDS will be covered under other STANDARDS,
such as STANDARDS 1 AND 2 (if the consulting
assignment includes one or more value
conclusions), STANDARD 3 (if there are opinions
about the quality of other appraisers work), or
may be covered (as Appraisal Practice) by other
RULES such as the COMPETENCY RULE or the ETHICS
RULE.
Advisory Opinion 21 has been
revised for consistency and to better address
assignments where appraisers provide services
other than Appraisal or Appraisal Review.
The COMPETENCY RULE
requires that an appraiser be competent to
perform the assignment, or acquire the necessary
competency to perform the assignment, or to
withdraw from the assignment. However, the
COMPETENCY RULE did not expressly require
the appraiser to perform competently in
the given assignment. This sentence was added to
the first paragraph of the COMPETENCY RULE:
"In all cases, the appraiser must perform
competently when completing the assignment."
- Assignment Results:
The edits adopted clarify that
assignment results include opinions or
conclusions and the assignment results are
not specifically limited to the value conclusion
in an appraisal assignment, or to the final
opinion of the quality of another appraiser’s
work in an appraisal review assignment.
The new definition is...
ASSIGNMENT RESULTS:
An appraiser’s opinions or conclusions developed
specific to an assignment.
Comment: Assignment results include an
appraiser’s:
-
opinions or conclusions developed in an
appraisal assignment, not limited to value;
- opinions or conclusions developed in
an appraisal review assignment, not limited to
an opinion about the quality of another
appraiser’s work; or
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opinions or conclusions developed when
performing a valuation service other than an
appraisal or appraisal review assignment .
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Scope
of Work:
The SCOPE OF WORK RULE only applies to appraisal
and appraisal review assignments, whereas the
term "scope of work" is broadly defined to include
all assignments performed under appraisal
practice.
Similar to the SCOPE OF WORK RULE, fundamental
concepts of the "scope of work" definition may
apply to appraisers in appraisal practice
outside of appraisal and appraisal review. The
purpose of the adopted edits is not intended to
restrict scope of work concepts from other
services. Rather, the edits are intended to
clarify and align the definition to the SCOPE OF
WORK RULE. Therefore, the ASB added “appraisal
or appraisal review” to the "scope of work"
definition. The new definition is...
SCOPE OF WORK:
the type and extent of research and analyses in
an appraisal or appraisal review assignment.
The ETHICS RULE,
which applies to all assignments within
appraisal practice, requires disclosure of any
current or prospective interest in the subject
property and any services provided (regarding the subject
property) that were performed by the appraiser in
the three years immediately preceding acceptance
of
the assignment. This disclosure must be made
both prior to accepting the assignment and “in
the subsequent report certification.”
The ASB received inquiries about how this
requirement affects assignments that do not
include an appraisal or appraisal review, since
no certification is required in such
assignments. Some were concerned that the
rule "triggers" a requirement to include a
certification when the service provided would
not otherwise require it.
It was not the Board’s intent that present or
prospective interests or prior services would
require a certification when such a
certification is not otherwise required. The
edits adopted by the Board are intended to make
this clear.
The ASB adopted the following revisions (with
deletions shown in strikethrough and additions
shown in underscore text as follows):
If known prior to accepting an assignment,
and/or if discovered at any time during the
assignment, an appraiser must disclose to the
client, and in
the each
subsequent report certification:
- any current or prospective interest in the
subject property or parties involved; and
- any services regarding the subject property
performed by the appraiser within the three year
period immediately preceding acceptance of the
assignment, as an appraiser or in any other
capacity.
Comment: Disclosing the fact that the
appraiser has previously appraised the property
is permitted except in the case when an
appraiser has agreed with the client to keep the
mere occurrence of a prior assignment
confidential. If an appraiser has agreed with a
client not to disclose that he or she has
appraised a property, the appraiser must decline
all subsequent assignments that fall within the
three year period.
In assignments in which there is no
report, only the initial disclosure to the
client is required.
The rest of the Conduct section of the ETHICS
RULE will remain as previously published.
An individual who
at times works as an appraiser, and at other
times works in other roles such as a consultant,
broker, or investment advisor, performs 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. 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 an assignment of an appraisal or
appraisal review with additional opinions? The
revisions made to the PREAMBLE are intended to
address these questions.
Brief review of 2012-2013 USPAP Revisions
There were also changes in 2012 that affected
Appraisers:
While USPAP has
always required that appraisers develop an
opinion of "reasonable exposure time" whenever
it was relevant to the value definition (i.e.
market value), appraisers were not necessarily
required to report the
opinion of EXPOSURE TIME.
The new
requirement is that appraisers report the
EXPOSURE TIME in the appraisal, anytime it is developed (and
it MUST be developed when it is relevant to the
definition of value).
Bottom line: We are now required to
report EXPOSURE TIME when estimating market
value.
Remember,
EXPOSURE TIME is NOT the
same as "Marketing Time." Most appraisers
already include an estimate of "marketing time"
(especially when completing "form reports" that
require a checkbox), so this will require the
addition of specific statements to indicate the
appraiser's opinion of the reasonable EXPOSURE
TIME that was developed in the process of
estimating Market Value.
The ASB has added
a definition of EXPOSURE TIME to the USPAP
document (see new Definitions below).
While Exposure
Time and Marketing Time may frequently be a
similar number, it is important to clearly
understand the difference - there are times when
these estimates may be substantially different.
Exposure time is
a "retrospective" opinion, looking back (from
the effective date) to the beginning of the
"hypothetical" process of selling the asset, so
that the sale would have beenconsummated on
the "effective date" of appraisal.
While marketing
time is a "forward looking" estimate (from the
effective date), to estimate the amount of time
it might take a seller (sometimes the Intended
User of the appraisal), to
market and sell the asset.
The existing
requirement to disclose any prior services, if
performed in the preceding 3 years, has been
"upgraded" and now requires certification whether
you have OR
HAVE NOTperformed any services in the
preceding 3 years. Some Clients have required
this since 2010, but it was not required by
USPAP. We recommend the following language be
inserted into your report certification.
I have performed no (or the specified) services,
as an appraiser or in any other capacity,
regarding the property that is the subject of
this report within the three-year period
immediately preceding acceptance of this
assignment.
With regard to residential "form reports" that
won't allow changes to the certification, it
will be necessary to include a "supplemental
certification" page. Some of the software
providers have already designed a supplemental
certification form that can be added to form
reports, in order to help with compliance, or
you can create your own, however, be careful to
use an addendum page which includes date and signature as
both of these items must be included in a
"certification."
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Revisions to DEFINITIONS of “CLIENT,”
“EXTRAORDINARY ASSUMPTION,” AND
“HYPOTHETICAL CONDITION,” as well
as a new definition of “EXPOSURE
TIME”
CLIENT: the
party or parties who engage, by employment or
contract, an appraiser in a specific assignment.
Comment: The client may be an individual,
group, or entity, and may engage and communicate
with the appraiser directly or through an agent.
EXPOSURE TIME: estimated
length of time that the property interest being
appraised would have been offered on the market
prior to the hypothetical consummation of a sale
at market value on the effective date of the
appraisal.
Comment: Exposure time is a retrospective
opinion based on an analysis of past events
assuming a competitive and open market.
EXTRAORDINARY
ASSUMPTION: an
assumption, directly related to a specific
assignment, as of the effective date of the
assignment results, which, if found to be false,
could alter the appraiser’s opinions or
conclusions.
Comment: Extraordinary assumptions presume as
fact otherwise uncertain information about
physical, legal, or economic characteristics of
the subject property; or about conditions
external to the property, such as market
conditions or trends; or about the integrity of
data used in an analysis.
HYPOTHETICAL
CONDITION: a
condition, directly related to a specific
assignment, which is contrary to what is known
by the appraiser to exist on the effective date
of the assignment results, but is used for the
purpose of analysis.
Comment:
Hypothetical conditions are contrary to known
facts about physical, legal, or
economic characteristics of the subject
property; or about conditions external to the
property, such as market conditions or trends;
or about the integrity of data used in an
analysis.
Moves
most of the requirements, related to Record
Keeping, from the ETHICS RULE to the new RECORD
KEEPING RULE. This was done so that minor
record keeping infractions would not be viewed,
by the state regulatory agencies, as "ethical"
violations, however, the ETHICS RULE still
prohibits "willfully and knowingly" violating
the RECORD KEEPING RULE.
Advisory Opinion
21 was significantly updated and edited to
include more current examples and to reflect
other recent USPAP changes.
STANDARD 7
was significantly changed to reflect current
practice in the personal property appraisal
discipline. STANDARD 8
was edited to reflect these and other changes in
the USPAP document. If you appraise personal
property, we recommend a complete review of
these revised STANDARDS.
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