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THE ANSWERS

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Terry Russell

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Senior Member
Joined
Feb 24, 2002
Professional Status
Appraiser Trainee
State
Montana
nOTE: The line numbers are not correlated with the 2002 USPAP.


(1) Misconception: “USPAP is enforced by The Appraisal Foundation.”
Reality: The Appraisal Foundation is not an enforcement body. (Lines 9-12.)

(2) Misconception: “The Appraisal Standards Board determines who has to comply with USPAP.”
Reality: Neither the ASB nor USPAP itself decides who must comply. Individuals comply with USPAP either because they want to or they are required by law, regulation or agreement with the client to comply. (Lines 10-12 and 60-61.)

(3) Misconception: “You can’t appraise a property if you have an interest in the property or in the parties involved.”
Reality: An interest with respect to the property or parties involved must be disclosed in the certification. (Lines 1182-1184, 2837-2838, and 3262-3263.) However, an appraiser CANNOT have a direct or indirect interest in the property of the transaction if the assignment is subject to the appraisal requirements of FIRREA.

(4) Misconception: “It’s unethical to pay a fee in order to get an appraisal assignment.”
Reality: It’s okay to pay a fee as long as it is disclosed. (Lines 87-88.)

(5) Misconception:“If you appraised a property before, you can’t appraise it again because that would be a conflict of interest.”
Reality:Just because you appraise a property doesn’t mean you now have an interest in it. USPAP has no restrictions against appraising the same property more than once, as long as the confidentiality of the appraiser-client relationship is protected.

(6) Misconception:“If the borrower is going to get a copy of the report, that means they are the intended user.”
Reality:Intended users are identified by the appraiser as intended users at the time of the assignment, based on communications with the client. (Lines 428-429) Just because a person or entity receives a copy of the report does not mean they are an intended user. (Lines 4320-4325.)

(7)Misconception:“If Client A hired you to do an appraisal, you can’t do a reappraisal for Client B unless you get a written release from Client A.”
Reality:The only reason you couldn’t reappraise the same property for Client B would be if, in doing so, you would breach the confidentiality of your relationship with Client A. Advisory Opinion 10 suggests obtaining a written release from the first client (Client A) to ensure no unauthorized breach of confidentiality occurs. However, a written release is not a USPAP requirement. (AO 10, Lines 78-80.)

(8) Misconception:“If Bank A hired you to do an appraisal, and now Bank B wants to use it, you can go ahead and ‘recertify’ or ‘readdress’ it to them.”
Reality:Simply “recertifying” or “readdressing” the appraisal report to Bank B is misleading. (AO 10, Lines 56-57.) The appraiser should treat the request from Bank B as a new assignment, with a new intended user and possibly a different intended use – and be mindful of confidentiality issues regarding the Bank A.

(9) Misconception:“If Bank A hired you to do an appraisal, and now Bank B wants to use it, there’s nothing you can do to help Bank B.”
Reality:There are two ways for the appraiser to help Bank B. First, the appraiser can remind Bank B that a regulated lender may accept an appraisal prepared by an appraiser engaged directly by another financial services institution. So even if the appraisal is addressed to Bank A, per regulation Bank B can use it. (AO 10, Lines 51-57) Second, the appraiser can take on an appraisal assignment with Bank B, as long as there is no breach of confidentiality with the first client (Bank A).

(10) Misconception:“If an attorney tells you to do something, you can because you invoke the Jurisdictional Exception.”
Reality:The Jurisdictional Exception Rule can be invoked only when a part of USPAP is contrary to law or public policy, and the appraiser must identify in the appraisal report the legal authority (i.e., law or public policy) justifying it. An attorney’s request to do something contrary to USPAP does not in itself constitute “law or public policy.” (Lines 296-317.)

(11) Misconception:“If you do an appraisal for a government agency, USPAP doesn’t apply because of the Jurisdictional Exception.”
Reality:The Jurisdictional Exception Rule can be invoked only when a part of USPAP is contrary to law or public policy. If no part of USPAP is contrary to the requirements established by law or public policy, there is no need to apply the Jurisdictional Exception Rule. Also, when the Jurisdictional Exception Rule applies to one part of USPAP, the balance of USPAP still applies. (Lines 301-303.)

(12) Misconception:: “If a property is unique and there is no market for it, you have to estimate ‘use value’ instead of ‘market value’”.
Reality:The purpose of the assignment relates to its intended use. If the intended use of the assignment calls for ‘market value’, it would be misleading to substitute ‘use value’ for ‘market value’. (Lines 190-192.)

(13) Misconception:“If the client wants you to assume that Highest and Best Use is the current use, you can go ahead and do that; just make sure you disclose the assumption.”
Reality:The use of an extraordinary assumption is okay only if it is needed to develop credible opinions and conclusions; there is a reasonable basis for it; using it results in a credible analysis; and it is properly disclosed in the report. Depending on the intended use of the appraisal, using an extraordinary assumption may be misleading. (Lines 628-635.)

(14) Misconception:“If you don’t inspect the property, that’s Departure and the appraisal is a limited appraisal.”
Reality:USPAP doesn’t have a Standards Rule that says the appraiser must inspect the property. Therefore, if you don’t inspect it, that can’t be a Departure. (Lines 235-236.) Standard 1-2© requires the appraiser to “identify the characteristics of the property that are relevant to the purpose and intended use of the appraisal.” (Lines 580-581.) This means that in some cases an inspection will be needed, and in other cases it won’t. Whether or not the appraiser inspects the property – and to what degree (e.g., interior, drive-by) – is part of the “scope of work” decision. (Line 473.)

(15) Misconception:“If you don’t use the Cost Approach, that’s Departure.”
Reality:Excluding the Cost Approach would be a departure only if the Cost Approach is applicable and it’s omitted. (Lines 252-254.) Excluding an approach that isn’t applicable does not result in Departure.

(16) Misconception:“It’s okay to provide a ‘letter update’ that states ‘there has been no change in market conditions since the previous appraisal’ so the previous appraisal is still current.”
Reality:Making so brief a statement without providing the data and analysis to supports it can be misleading. Saying “no change in market conditions” implies “no change in value”; and stating a relationship to a previous value opinion is an appraisal. (Lines 347-349.) An appraisal must be developed in accordance with Standard 1, 7, or 9. An “update” can be provided in a letter – provided it meets the reporting requirements for an appraisal.

(17) Misconception:“No matter what, you have to follow all the Standards Rules in USPAP, or the appraisal will be worthless / the appraisal won’t stand up in court / some reviewer is going to turn you in to the state.”
Reality:The scope of work (which includes the type and extent of analysis to be applied) for any assignment must be appropriate for the purpose and intended use. The applicability of Standards Rules in the Development Standards (1, 3, 7, 9) is relative to the scope of work. If the scope of work is appropriate, or if Departure is appropriate, the credibility of the appraisal is not compromised. (Lines 2950-2965, 236-237.)

(18) Misconception:“If you were hired to review an appraisal of a property, you can’t be hired later to do an appraisal of that same property.”
Reality:USPAP has no such restriction. Just because you review an appraisal of a property, it doesn’t mean you now have an interest in that property or the parties involved, or that you would necessarily be biased in the new appraisal.

(19) Misconception:“If the appraisal is basically finished, and the report will be finalized and delivered to the client in a few days, you can go ahead and send the letter of transmittal today, since the report is to follow.”
Reality:A letter of transmission that provides a value opinion is, in and of itself, an appraisal report – and therefore must comply with USPAP’s reporting requirements. To provide the value opinion in this manner could be very misleading, especially if hypothetical conditions or extraordinary assumptions are not detailed.

(20) Misconception:“You have to send the original, signed copy of the report to the client. Then in your workfile, you keep an unsigned copy. That way you can make additional copies with original signatures from the one in your workfile.”
Reality:You are required to keep a “true copy” of the report sent to the client (line 151), which by definition is what is given to the client (line 453). The “true copy” would be identical to the one sent – which means it would include a copy of the signature. How else could you later prove, should the need arise, which copy you sent to the client? [Note: USPAP doesn’t require a “report” to be signed – it requires the certification to be signed.]

(21) Misconception:: “A real estate appraisal report has to have a ‘Regional Description’ section.”
Reality:Standards Rule 2-2, which outlines the reporting requirements for real property appraisals, does not require a section with this heading. However, for a Self-Contained or Summary Appraisal Report, “regional” information is often part of the “information analyzed” (lines 903 and 1029) and therefore would be addressed.

(22) Misconception:“If the attorney who hired you says to destroy your workfile on the appraisal, that’s okay; USPAP has an exception for litigation.”
Reality:USPAP requires a workfile to be retained for a minimum of five years. There is no exception for litigation, unless the Jurisdictional Exception Rule applies (e.g., a court order – which is NOT the same as a request from an attorney).

(23) Misconception:“If you do tax appeal work, you can take a contingent fee as long as you disclose it.”
Reality:A contingent fee is NEVER allowed for the development of a value opinion, even as part of a consulting or counseling assignment. (Lines 96-103.) An appraiser may do tax appeal work, but must arrange it so the fee for the valuation portion isn’t contingent. The fee for the nonvaluation portion can be contingent. (Lines 105-120.)

(24) Misconception:“It’s okay to make an appraisal based on a hypothetical condition as long as the client agrees.”
Reality:The use of a hypothetical condition is permitted only if it is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison; using it results in a credible analysis; and it is properly disclosed in the report. Depending on the intended use of the appraisal, using a hypothetical condition may be misleading. (Lines 637-643.)

(25) Misconception:: “You can use a hypothetical condition in an appraisal only if there is a reasonable probability that it will become reality in the near future.”
Reality:USPAP does not have this restriction. (Lines 637-643.) Hypothetical conditions are not predictions. In some cases, use of a hypothetical condition may be appropriate even if there’s no chance it will become reality in the future.

(26) Misconception:“USPAP requires you to provide an ‘as is’ value.”
Reality:USPAP does not use the phrase “as is value.” However, USPAP does require the appraiser to identify and report any hypothetical conditions (which would make the value opinion other than “as is.”)

(27) Misconception:“An appraiser can do an Administrative Review.”
Reality:An “administrative review” is a review that is NOT done by an appraiser. (AO 6, Lines 23-25.)

(28) Misconception:“A review report done according to Standard 3 has to be a long, detailed document.”
Reality:The scope of work in the review process can (and should) be varied according to the purpose and intended use of the review. (Lines 1300-1315.) The review report will therefore vary accordingly.

(29) Misconception:“Every appraisal report has to address both exposure time and marketing time.”
Reality:Every real property appraisal report must address exposure time if the purpose of the appraisal is to estimate market value. (Lines 574-576.) Marketing time is addressed in Advisory Opinion 7, which says a “request to provide reasonable marketing time opinion exceeds the normal information required for the conduct of the appraisal process, and should be treated separately from that process.” (AO 7, Lines 50-52.)

(30) Misconception:“USPAP doesn’t allow you to provide ‘letters of opinion’.”
Reality:If a “letter of opinion” (i.e., a value opinion stated in letter format) meets USPAP’s reporting requirements (Standards 2, 8, or 10), it is permitted. However, a one-page letter that doesn’t meet USPAP’s reporting requirements is not permitted. (Lines 4064-4069.)

(31) Misconception:“If you are both a broker and an appraiser, you are in violation of USPAP if you prepare a broker’s price opinion (BPO).”
Reality:An appraisal, by definition, is an opinion of value. (Line 338.) An opinion of a suggested list price goes beyond valuation, and takes into consideration marketing strategy, pricing relative to competition, motivation of seller, etc.

(32) Misconception:“Appraisers can never do price opinions.”
Reality:See above.

(33) Misconception:“If you give a report that says the value is at least a certain amount (say, $1 million), that’s a consulting report and you don’t have to comply with Standards 1 and 2.”
Reality:A report that states an opinion that the value “is at least” or “is less than” a stated amount is an appraisal. A value opinion (appraisal) can be stated as a relationship to a given benchmark amount, or a range, or a single point. (Lines 347-349)
(34) Misconception:“You can’t give an appraisal report to a client if the report doesn’t have a pinpointed value estimate.”
Reality:See above.

(35) Misconception:“If you have an interest with respect to the parties involved in the property, that automatically means you have a conflict of interest, and you’re biased.”
Reality:You can have an interest without having a conflict of interest which would cause you to be biased. An interest with respect to the parties involved must be disclosed in the certification. (Lines 1182-1184, 2837-2838, and 3262-3263.)

(36) Misconception:“The client is the one who pays for the appraisal.”
Reality:The client is the one who engages the appraiser. It doesn’t matter who pays. (Line 390.)

(37) Misconception:“You have to report any known, current offers on the subject.”
Reality:USPAP requires analysis and disclosure of current Agreements of Sale, options or listings, but not offers. Agreements of Sale and options indicate a “meeting of the minds” between buyer and seller, while listings provide a fair indication of what the seller is willing to accept. Offers are one-sided and may even be egregious (in which case their disclosure could be damaging to the credibility of the appraisal.) (Lines 755-756.)

(38) Misconception:An appraisal is an estimate of value.
Reality:An appraisal is an opinion of value. (Line 338.)

(39) Misconception:“USPAP makes it impossible for state licensed or certified appraisers and designated appraisers to provide services that non-appraisers can provide.”
Reality:What differentiates licensed or certified appraisers, or appraisers who are members of appraisal organizations, from non-appraisers is that appraisers do comply with USPAP. Appraisers are the ones who are able to sign a Certification stating that they are impartial and unbiased, and that they have complied with recognized standards of professional practice. Suggestion: USPAP should be viewed as a selling point, not a boat anchor.

There you go. Courtesy of AI.

Terry
.
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
Very thoughtful and insightful posts. However...

(26) Although USPAP doesn't require as-is values, doesn't FIRREA require lenders to obtain as-is values (I realize this isn't the appraiser's responsibility)?

(27) I have to question this one. AO 6 does not say administrative reviews are not done by appraisers. It says that technical reviews are done by appraisers. The lines you referenced state "an administrative review is work performed by clients and users of appraisal services as a due diligence function in the context of making a business decision.." That client/user could be a certified appraiser, couldn't they? In fact, AO 6 Line 53 says "the individual performing an administrative review does not have to be an appraiser to consider the information in an appraisal." That sounds like a person doing an admin review can be certified.

If a bank's in-house review appraiser (who is a certified appraiser) does not conclude a separate opinion of value in their review, do you think they still need to do "technical" reviews?
 

Terry Russell

Thread Starter
Senior Member
Joined
Feb 24, 2002
Professional Status
Appraiser Trainee
State
Montana
Paul,

#26 States that USPAP does not USE the PHRASE as-is.

#27 I believe what AO-6 is trying to clarify that the person doing the admin review is not conducting the task as an appraiser, even though they may be certified. An appraiser (IMO) is not required to adhere to a single phase of the industry. If one chooses to broaden his horizons, he is not restricted to do so. But (IMO) in some instances it leaves one open to heavy scrutiny under the ethics rule. Or more simply put, "It just ain't a very good idea."

Terry
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Paul,

The dividing line between the two types of appraisal reviews (technical and administrative) is not whether the individual performing the review is licensed as an appraiser. It is whether the person performing the reivew is acting as an appraiser or acting in some other non-appraisal capacity.

In your example of a certified appraiser performing a review, the big questions revolves around what the reviewer is trying to do. Are they trying to develop an opinion about the quality of another appraiser's work? If so, that would be a technical review and would be subject to SR-3, regardless if the individual was licensed or not. Now if the person is unlicensed, they probably have nothing to lose by violating the USPAP. If the reviewer was acting within their capacity as a loan officer, Asset Manager, or underwriter or some other non-appraisal function (they just also happen to be a licensed appraiser), and their purpose was to develop an opinion on what to do about the property, that would be an administrative review. Again this would be regardless if the individual was licensed or not.

To reiterate, a certified appraiser who is reviewing an appraisal while acting as a loan officer or underwriter for a mortgage could perform an administrative review, presumably without having to comply with anything in USPAP. However, an appraisal reviewer, licensed or not, who is reviewing an appraisal while acting as a review appraiser, chief appraiser, appraiser supervisor or what have you, would be required to perform that review in accordance with the USPAP.

The other main difference between the two is that an appraiser providing a technical review must certify that review in accordance with SR-3, and is free to develop their own opinion of value or otherwise correct errors within the original appraisal report in compliance with the USPAP. An adminstrative review is not subject to these restrictions and the reviewer has no right (under USPAP) to express a different opinion of value or otherwise fix minor errors. There are several reasons non-appraisers are held to no standards while appraisers are held to USPAP. One of them is the presumed lack of technical competence; another is the presumed lack of bias or interest. There are others as well.

Just as I would not express an opinon of value for a property without doing an appraisal, I can only think of one instance where I (as a certified appraiser) would feel comfortable expressing an opinion about another appraiser's work outside the boundaries of an SR-3 compliant appraisal review. That would be if I (or mi familia) was thinking about buying it and wanted to know how the appraiser felt about it.


George Hatch
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
George, I understand exactly what you are saying and agree with your take on USPAP. But the crux of my problem is the ambiguity in "Advisory Opinion 6" regarding the purpose of the review, as you stated (1) TECHNICAL REVIEW = trying to develop an opinion about the quality of another appraiser's work, versus (2) ADMIN REVIEW = develop an opinion on what to do about the property. To me there's a fine line between the two. A person developing an opinion on what to do about the property must first determine if the appraisal is acceptable. If an in-house certified review appraiser recommends rejection of the appraisal for use as collateral support for a loan because the appraised value is not adequately supported, which type of review is that?
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Paul,

I don't find the distinction between technical and adminsitrative reviews to be at all ambiguous; the reviewer is either critiquing the appraisal on a technical basis or they are trying to make a decision about the property itself. Actually, I suppose it might be possible to both at the same time if the reviewer were filling both functions at the same time; that is, they have the power to underwrite and approve the loan (or sell the property, or whatever) as well as technically critique the appraisal. If that were the case, both sets of requirements would have to be included. Kinda like having a review in which the reivewer is also expressing an opinion of value would have to comply with SR-1 as well as SR-3. On the other hand, it might be hard to certify objectivity for a technical review if the reviewer had another interest (like making a loan) in the subject property. Hmmm, that little conflict might take some more thinking...

Anyways, in your example you rejected the appraisal as being insufficient, most likely using technical criteria that a layman would not necessarily catch. You wouldn't have done so wihtout either finding errors in the description of the subject, or more likely, because the appraisal used the wrong comps or analyzed the right ones improperly. You knew these were the wrong comps because you used the data sources to check up on them and found others that were, in your professional and extensive experience, more similar. You knew the adjustments were wrong because you have the expertise from doing similar appraisals with which to judge this one. You're specific and only reason for looking at that appraisal was to critique it; you are not making the decision to loan or not to loan on the property, only whether to accept or reject the appraisal. No matter how you slice it that's a technical review.


I reckon that however the job description is written and how the individual qualifies for it determines the type of review that individual would be expected to produce. An attorney trying to figure out how to negotiate a divorce settlement on a property will be doing an administrative review. A loan officer trying to decide whether to lend the money will be doing an administrative review. A property owner, trying to set up an estate, will be doing an adminsitrative review. A review appraiser, trying to decide whether to accept or reject an appraisal but leaving the decision making on the property to others in the organization, is doing a technical review. A chief appraiser, trying to decide of the appraiser's work is good enough to put them on the bank's accept list, will be doing a technical review. And IMO, a state appraisal board investigator, in looking for violations of state appraisal law in an appraisal, will be doing a technical review.


George Hatch
 

Paul Ness MAI

Member
Joined
Jan 14, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
George, thanks for your views on this topic. I err on the safe side anyway and do compliant technical reviews, but that is inefficient on the smaller deals so I've just stopped reviewing them.
 
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