Appraisal Review And USPAP

[Matt Jacobson]

I have a Client (Portfolio Lender) which has provided a proprietary (In house) Review Form which has detailed instructions on how they would like each field of the Form addressed. They specifically state in the instructions not to label the Report as being a Complete or Limited Appraisal and not to label the type of report (Summary,Self Contained ...). My question is ... is it accurate to say that any Appraisal Review performed in which the purpose of the assignment includes the reviewer developing his or her own opinion of value about the subject property of the work under review, that opinion is an appraisal and therefore must also comply with Standards 1 and 2 as well as 3. Therefore requiring that the type of report be addressed in addition to whether departure has occured (limited, complete). I appreciate any clarification that any of you might be able to provide.

 

[David S. Roberson]

Do they tell you what time to pee, too?

 

[Nancy Wyatt]

I would think you could use the same wording as in the 2000 review form.

 

[George Hatch]

My question is ... is it accurate to say that any Appraisal Review performed in which the purpose of the assignment includes the reviewer developing his or her own opinion of value about the subject property of the work under review, that opinion is an appraisal and therefore must also comply with Standards 1 and 2 as well as 3. Therefore requiring that the type of report be addressed in addition to whether departure has occured (limited, complete).

Advisory Opinion 20 (pg 194 in the 2004 edition of USPAP) deals with this question, as do some of the ASB's replies in their Frequently Asked Questions publications.

Highlights from AO-20 that might apply to your question include:

- "The reviewer's scope of work in developing his or her own opinion of value may be different from that of the work under review." (lines 122-123)

- "Note that any additional information relied upon and the reasoning and basis for the reviewer's opinion of value must be summarized, in contrast to other requirements in this section that must only be stated. Additionally, changes to the report content by the reviewer to support a different value conclusion must match, at a minimum, the reporting requirements for a Summary Report." (lines 166-170).

AO-20 also gives several examples of verbiage for appraisal review reports to communicate the different scenarios of when the scope of work for a review assignment does and does not include the reviewer's own opinion of value.

From what I get out of all this is that in a review situation that includes the reviewer's own opinion of value, the developmental aspects of SR-1 apply but SR-2 itself does not apply other than SR2-2b lays out the criteria for how to summarize the information and analysis leading to the reviewer's opinion of value. Thus, it is not required and indeed is probably not appropriate to use such labels as would apply to an appraisal report per SR-2. Because the reviewer is required to lay out their Scope of Work (which in this case would includes elements for both the appraisal as well as the review), is also not necessary to use the labels of "complete/limited" to describe the reviewer's development process.

 

[Otis Key]

Standards Rule 3-1
(This Standards Rule contains binding requirements from which departure is not permitted.)

In developing an appraisal review, the reviewer must:

(a) identify the reviewer’s client and intended users, the intended use of the reviewer’s opinions and conclusions, and the purpose of the assignment;37

Comment: The intended use is in the context of the client’s use of the reviewer’s opinions and conclusions; examples include, without limitation, quality control, audit, qualification, or confirmation. The purpose of the assignment relates to the reviewer’s objective; examples include, without limitation, to evaluate compliance with relevant USPAP requirements, with a client’s requirements, or with applicable regulations.



A reviewer must ascertain whether the purpose of the assignment includes the development of his or her own opinion of value about the subject property of the work under review.



If the purpose of the assignment includes the reviewer developing his or her own opinion of value about the subject property of the work under review, that opinion is an appraisal whether it:



§ concurs with the opinion of value in the work under review, as of the date of value in that work or a different date of value; or

§ differs from the opinion of value in the work under review, as of the date of value in that work or a different date of value.



(B) identify the:

(i) subject of the appraisal review assignment,

(ii) date of the review,

(iii) property and ownership interest appraised (if any) in the work under review,

(iv) date of the work under review and the effective date of the opinion or conclusion in the work under review, and

(v) appraiser(s) who completed the work under review, unless the identity was withheld.



Comment: The subject of an appraisal review assignment may be all or part of a report, a workfile, or a combination of these, and may be related to an appraisal, appraisal review, or appraisal consulting assignment.

© identify the scope of work to be performed;

Comment: A reviewer must take appropriate steps to identify the precise extent of the review process to be completed in an assignment. The reviewer must have sound reasons in support of the scope of work decision, and the resulting opinions and conclusions developed in the assignment must be credible and consistent with the intended use of the review.

In making the scope of work decision, the reviewer must identify any extraordinary assumptions necessary in the assignment. An extraordinary assumption may be used in an appraisal review assignment only if:

§ it is required to properly develop credible opinions and conclusions;

§ the reviewer has a reasonable basis for the extraordinary assumption;

§ use of the extraordinary assumption results in a credible analysis; and

§ the reviewer complies with the disclosure requirements set forth in
SR 3-2(d) for extraordinary assumptions.



The appraisal review must be conducted in the context of market conditions as of the effective date of the opinion in the work being reviewed. Information available to the reviewer that could not have been available to the appraiser as of or subsequent to the date of the work being reviewed must not be used by a reviewer in the development of an opinion as to the quality of the work under review.



When the scope of work of the assignment includes a requirement for the reviewer to develop his or her own opinion of value, the following apply:



§ The reviewer’s scope of work in developing his or her own opinion of value may be different from that of the work under review.

§ The effective date of the reviewer’s opinion of value may be the same or different from the date of the work under review.

§ The reviewer is not required to replicate the steps completed by the original appraiser. Those items in the work under review that the reviewer concludes are credible and in compliance with the applicable development Standard (STANDARD 1, 4, 6, 7, or 9) can be extended to the reviewer’s value opinion development process on the basis of an extraordinary assumption by the reviewer. Those items not deemed to be credible or in compliance must be replaced with information or analysis by the reviewer, developed in conformance with STANDARD 1, 4, 6, 7, or 9, as applicable, to produce a credible value opinion.

§ The reviewer may use additional information available to him or her that was not available to the original appraiser in the development of his or her value opinion; however, the reviewer must not use such information as the basis to discredit the original appraiser’s opinion of value.

If you're going to do review work you should know this forward and backward because it's binding on you as the reviewer.

DEPARTURE RULE3

This Rule permits exceptions from sections of the Uniform Standards that are classified as specific requirements rather than binding requirements. The burden of proof is on the appraiser to decide before accepting an assignment and invoking this Rule that the scope of work applied will result in opinions or conclusions that are credible. The burden of disclosure is also on the appraiser to report any departures from specific requirements.

An appraiser may enter into an agreement to perform an assignment in which the scope of work is less than, or different from, the work that would otherwise be required by the specific requirements, provided that prior to entering into such an agreement:

1. the appraiser has determined that the appraisal process to be performed is not so limited that the results of the assignment are no longer credible;

2. the appraiser has advised the client that the assignment calls for something less than, or different from, the work required by the specific requirements and that the report will clearly identify and explain the departure(s); and

3. the client has agreed that the performance of a limited appraisal service would be appropriate, given the intended use.



Comment: Not all specific requirements are applicable to every assignment. When a specific requirement is not applicable to a given assignment, the specific requirement is irrelevant and therefore no departure is needed.

A specific requirement is applicable when:

§ it addresses factors or conditions that are present in the given assignment, or

§ it addresses analysis that is typical practice in such an assignment.



A specific requirement is not applicable when:

§ it addresses factors or conditions that are not present in the given assignment,

§ it addresses analysis that is not typical practice in such an assignment, or

§ it addresses analysis that would not provide meaningful results in the given assignment.



Of those specific requirements that are applicable to a given assignment, some may be necessary in order to result in opinions or conclusions that are credible. When a specific requirement is necessary to a given assignment, departure is not permitted.

Departure is permitted from those specific requirements that are applicable to a given assignment but not necessary in order to result in opinions or conclusions that are credible.

A specific requirement is considered to be both applicable and necessary when:

§ it addresses factors or conditions that are present in the given assignment, or

§ it addresses analysis that is typical practice in such an assignment, and

§ lack of consideration for those factors, conditions, or analyses would significantly affect the credibility of the results.



Typical practice for a given assignment is measured by:

§ the expectations of the participants in the market for appraisal services, and

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



If an appraiser enters into an agreement to perform an appraisal service that calls for something less than, or different from, the work that would otherwise be required by the specific requirements, Standards Rules 2-2(a)(xi), 2-2(B)(xi), 2-2©(xi), 6-7(p), 8-2(a)(xi), 8-2(B)(xi), 8-2©(xi), 10-2(a)(x), and 10-2(B)(x) require that the report clearly identify and explain departure(s) from the specific requirements.

Departure from the following development and reporting Rules is not permitted: Standards Rules 1 1, 1-2, 1-5, 1-6, 2-1, 2-2, 2-3, 3-1, 3-2, 3-3, 4-1, 4-2, 5-1, 5-2, 5-3, 6-1, 6-3, 6-6, 6-7, 6-8, 7-1, 7-2, 7-5, 7-6, 8-1, 8 2, 8 3, 9-1, 9-2, 9-3, 9-5, 10-1, 10-2, and 10-3. This restriction on departure is reiterated throughout the document with the reminder: "This Standards Rule contains binding requirements from which departure is not permitted."

The Departure Rule is referenced several times in SR3.

I see nothing wrong with utilizing the in house review form, but if you're to form an opinion then it is, IMHO, an appraisal of a limited or restricted presentation and limiting conditions since you may or may not see the exterior and/or interior of the subject.

A form is a form! If they want you to use their form, then use it. But don't let them push you or double talk you into violating USPAP or getting into trouble with the state.