USPAPFIRST REVIEW

•Definitions

•Preamble

•Ethics Rule

USPAP DISCUSSES:Appraisal assignments

(Standards 1, 2, 6, 7, 8, 9, and 10)

Appraisal review

(Standard 3)

Appraisal consulting

(Standards 4 and 5)

APPRAISAL

• SPECIFIC AMOUNT

• RANGE OF NUMBERS

• RELATIONSHIP (NOT MORE OR LESS THAN)

TO A PREVIOUS VALUE OPINION OR

NUMERICAL BENCHMARK

VALUATION SERVICES VS

APPRAISAL PRACTICE• Bankers - ∆

• Auction Houses - ∆

• Galleries - ∆

• Museums

• Lawyers

• Accountants

• Appraisers - ∆ - ∆ - ∆ - ∆ - ∆ ALWAYS

• Moving Companies

• Media (TV Shows / Columns) - ∆

• Antique Shops - ∆

• Estate Sales

• Tag Sales

• Insurance Companies - ∆

• Online Data Bases

• Art dealers - ∆

• - ∆ = when performing appraisal services

ASSUMPTIONS

• THAT WHICH IS TAKEN TO BE TRUE

EXTRAORDINARY ASSUMPTION

• AN ASSUMPTION, IF DIRECTLY RELATED TO A SPECIFIC ASSIGNMENT, WHICH IF FOUND TO BE FALSE, COULD ALTER THE APPRAISER’S OPINIONS OR CONCLUSIONS.

LIMITING CONDITION

SOMETHING THAT LIMITS THE APPRAISER’S

• EXAMINATION

• RESEARCH

• WRITING

HYPOTHETICAL CONDITION

THAT WHICH IS CONTRARY TO WHAT EXISTS BUT IS SUPPOSED FOR THE PURPOSE OF ANALYSIS.

• COST – amount required to create, produce, obtain

(fact or estimate of fact)

• PRICE – amount asked, offered, or paid (fact)

• VALUE – monetary relationship between

properties and those who buy, sell, or use those

properties (opinion)

USPAP

To promote and maintain a high level of public

trust

Appraisal should be:

• Meaningful

• Not misleading

ETHICS RULE

Four Sections

• Conduct

• Management

• Confidentiality

• Record Keeping

CONDUCT

An appraiser must perform assignments:

• With Impartiality

• With Objectivity

• With Independence

• Without Accommodation of Personal Interest

MANAGEMENT

Referral fees (“kickbacks”)

• Acceptable, if disclosed

• Acceptable within a company (intra-company payments)

NOTE that not all users of appraisal services allow such practices

CONFIDENTIALITY

An Appraiser can only disclose confidential info or assignment results to:

• The client

• A designated 3rd party

• State regulatory agencies

• 3rd parties through due process

• Authorized peer review committee

RECORD KEEPING

A workfile must include:

• Name of client

• Names of intended user (name or type)

• True copy of report (signed final copy)

• Summary of oral report + signed certification

• All other data, notes, etc. to show compliance with USPAP

USPAPSECOND REVIEW

•Competency Rule

•Scope of Work Rule

•Jurisdictional Exception

•Standard 7

COMPETENCY

COMPETENCY REQUIRES THAT APPRAISERS:

• CAN PROPERLY IDENTIFY THE PROBLEM TO

BE ADDRESSED

• HAVE THE KNOWLEDGE AND EXPERIENCE

TO COMPLETE THE ASSIGNMENT

COMPETENTLY

• RECOGNIZE AND BE COMPLIANT WITH THE

LAWS AND REGULATIONS THAT APPLY TO

THE APPRAISER OR THE ASSIGNMENT

ACQUIRING COMPETENCY

• Disclose the lack of knowledge and/or experience to the

client before accepting the assignment

• Take all of the steps necessary or appropriate to complete

the assignment competently

-Personal Study

-Association with a knowledgeable appraiser/expert

-Retention of a knowledgeable appraiser/expert

• Describe in the report the lack of competency and or

experience and the steps taken to complete the assignment

competently

SCOPE OF WORK ACCEPTABILITY

Who judges your appraisals?

THE SCOPE OF WORK IS ACCEPTABLE WHEN IT MEETS OR EXCEEDS:

• The expectations of parties who are regularly intended users for similar assignments

• What an appraiser’s peers actions would be in performing the same or a similar assignment

JURISDICTIONAL EXCEPTION

RULEIn an assignment involving a jurisdictional

exception, the appraiser must:

• Identify the law or regulation that precludes

compliance with USPAP

• Comply with the law or regulation

• Disclose in the report the part that is voided by that

law or regulation

• Cite the specific law or regulation requiring this

exception to USPAP compliance

IN DEVELOPING A PERSONAL PROPERTY APPRAISAL, AN APPRAISER MUST:

• KEEP ABREAST OF CHANGES IN THE MARKET –art market, global economy, scientific break throughs, recent scholarship, new laws and regulations, decorator trends, USPAP changes, etc.

• NOT COMMIT A SUBSTANTIONAL ERROR OF OMISSION OR COMMISSION – both equally bad

• NOT RENDER APPRAISAL SERVICES IN A CARELESS OR NEGLIGENT MANNER – perfection is impossible to attain, and competence does not require perfection.

THREE TYPES OF DATES

• RETROSPECTIVE (estate, possibly divorce)

• CURRENT (insurance)

• PROSPECTIVE (possibly donation, resale)

IDENTIFY

• Client

• Intended user(s)

• Intended use

• Value, Definition of Value, and Source for Definition

• Effective date

• Property characteristics

• Extraordinary Assumptions

• Hypothetical Conditions

• Scope of Work

CHARACTERISTICS OF THE PROPERTY

• Method of identification (in person, photo, with loupe, etc.)

• Sufficient characteristics to identify the quality of the property

• Physical attributes (artist, style, size, condition, obsolescence, etc.)

• Ownership (title)

• Issues (restrictions, ordinances, leases, etc.)

• Real property or intangibles that may be part of the item

HIGHEST AND BEST USE

• May equate to the choice of the most appropriate market or market level

• Considered in market level appraisals (not sub market appraisals)

MARKET ANALYSIS

• Analyze the relevant economic conditions

• Discuss market acceptability of the property

• Discuss supply and demand, scarcity and rarity

THREE APPROACHES TO VALUE

• SALES COMPARISION (AKA MARKET

DATA or MARKET SALES)

• COST

• INCOME

INFO AN APPRAISER MUST ASSESS WHEN CONSIDERING A VALUE

• Appropriate Approach (cost, income, market comps)

• Leased property?

• Pair/set factor

• Anticipated modifications (damage appraisals)

• Real property or intangible proprty effect, if any

HOW FAR BACK DO WE GO WHEN

WE ANALYZE OUR COMPARABLE

SALES?

Real Estate – Analyze all sales of the subject property which occurred within the 3 years prior to the effective date of the appraisal

Personal Property – Analyze all sales of the subject property that occurred within a reasonable and applicable time period, given the intended use and the type of property involved

USPAPTHIRDREVIEW

•Standard 8

•Standard 3

USPAP DOES NOT DICTATE

• FORM

• FORMAT

• STYLE

THREE OPTIONS FOR PERSONAL PROPERTY APPRAISAL REPORTS*

• Self-Contained

• Summary

• Restricted Use

*also used for Real Estate appraisal reports

DATES TO INCLUDE IN AN APPRAISAL

• Dates required by USPAP dates

–Effective valuation date

–Issue date of report

Words in red are included for clarification not required by USPAP

DATES TO INCLUDE IN AN APPRAISAL

• Dates required by users of Appraisal Services– Date of death– Alternate date of death– Date of loss– Date of gift– Date of donation or Expected date of donation– Date of separation– Date of examination– Assigned effective valuation date

APPRAISER’S CERTIFICATIONminimally include:

• Factual statements are true and correct• Disclosure of property interest and/or personal interest • No bias• Compensation not a contingency, not pre-determined,

no advocacy, no future assignments based on appraisal • Report prepared in accordance with USPAP• Disclose personal examination (or not)• Disclose names of those providing significant assistance• Appraiser’s signature• Any exposure to the property within the past 3 years• Disclose kickbacks/referral fees (if any)

RESTRICTED USE APPRAISAL REPORTS

• FOR THE CLIENT’S USE ONLY (client can be a single person, a couple, a Board of Directors, etc.)

• MUST STATE A PROMINENT USE RESTRICTION - WARNING THAT THE REPORT MAY NOT BE UNDERSTOOD PROPERLY WITHOUT ADDITIONAL INFO IN THE APPRAISER’S WORKFILE

ORAL APPRAISAL REPORTS

• Work file must be in existence prior to the issuance of an oral report

• The work file must contain enough information for the appraiser to be able to write a summary report if necessary

• A summary of the oral report must be added to the work file within a reasonable and appropriate period of time after the report

• The appraiser’s signed and dated certification must be included in the workfile

STANDARD THREE: APPRAISAL REVIEW, DEVELOPMENT AND

REPORTING

• Development of the review of another appraiser’s report

• Reporting of the review of another appraiser’s report

REVIEW APPRAISALSIdentify• Ownership of the property under review• Date of the work under review; effective date of

the original report• Original appraiser’s name (unless withheld)• Physical, legal, and economic property

characteristics of the property• Effective date of the reviewer’s report• Extraordinary assumptions• Hypothetical conditions• Scope of work

h

REVIEW APPRAISALSIf assignment requires Reviewer to address full

report, the Reviewer must address:• Whether the analysis was appropriate given the

assignment• Whether the opinions and conclusions are • appropriate given the assignment• Whether the report is appropriate and not

misleading

• Develop reasons for disagreement• If reasons for disagreement involve a differing

valuation, the reviewer must minimally prepare a SUMMARY report

Standards 4 and 5

Standard 6

Standard 9 and 10

Standards 4 and 5

Two Part Assignment

◊ To develop without advocacy, an analysis, recommendation, or opinion

◊ Where at least one opinion of value (an appraisal) is a component of the analysis leading to the assignment result

Standards 4 and 5

◊ Presently only applies to Real Estate appraisals

◊Are not to be confused with Review appraisals

◊Does not apply to an appraiser acting under the standards of another profession (i.e. auction house sale estimates)

Standard 6

◊ Can apply to Real Estate and/or Personal Property

◊Are frequently subjected to the Jurisdictional Exception Rule (because of Ad Valorem Taxation)

Standard 9

Consideration in developing and appraisal

◊ Investigation of all or parts of the business enterprise

◊Including any real estate or personal property assets

Standard 10

Report Writing Options

◊ Appraisal Report

◊Restricted Use Appraisal Report

Statement 6

◊ Reasonable Exposure period is a function of price , time, and use

◊NOT an isolated period of time alone

◊ Always consider for what type of property (market acceptability

Advisory Opinion 3

Three options for updates

◊ Option 1 – Provide a new report (start over) – updating your old report or a report of another appraiser

◊Option 2 – Provide a new report with an attachment of the prior report – updating your old report or a report of another appraiser

◊ Option – 3 Provide a new report that references the old report without full descriptions – to be used only if the SAME appraiser at the same firm wrote the original report for the same intended use