7-hour residential appraisal review and uniform standards...

7-HOUR RESIDENTIAL APPRAISAL REVIEW AND UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP) COMPLIANCE COURSE

2016-17 EDITION

Residential Appraisal Review and Uniform Standards of Professional Appraisal Practice (USPAP) Compliance Course

Student Manual 7-Hour Course

2016-17

Reviewed and Updated By

The Appraisal Standards Board (ASB)

Approved By

The Appraiser Qualifications Board (AQB)

© 2016 by The Appraisal Foundation. All Rights Reserved. Published in the United States of America.

The Appraisal Standards Board (ASB) of The Appraisal Foundation

develops, interprets, and amends the Uniform Standards of

Professional Appraisal Practice (USPAP) on behalf of appraisers and users

of appraisal services. The 2016-2017 Edition of USPAP (2016-2017 USPAP) is effective January 1, 2016 through December 31, 2017.

It is important that individuals understand and adhere to changes

that are adopted in each edition of USPAP. State and federal regulatory

authorities enforce the content of the current or applicable edition

of USPAP.

In addition, the 2016-17 Edition of USPAP contains guidance in the

form of Advisory Opinions and over 300 USPAP Frequently Asked

Questions (FAQ). These communications illustrate the applicability of

Standards in specific situations and offer advice from the ASB for the

resolution of specific appraisal issues and problems.

To purchase a spiral bound or PDF copy of USPAP, please visit our

website at www.appraisalfoundation.org.

ABOUT THE APPRAISAL FOUNDATIONThe Appraisal Foundation is the nation’s foremost authority on the valuation profession. The organization sets

the Congressionally-authorized standards and qualifications for real estate appraisers, and provides voluntary

guidance on recognized valuation methods and techniques for all valuation professionals. This work advances

the profession by ensuring appraisals are independent, consistent, and objective. More information on The

Appraisal Foundation is available at www.appraisalfoundation.org.

CONNECT WITH US

www.appraisalfoundation.org

APPRAISAL SPONSORS

American Society of Appraisers800-272-8258

www.appraisers.org

American Society of Farm Managers & Rural Appraisers303-758-3513

www.asfmra.org

Appraisers Association of America212-889-5404

www.appraisersassoc.org

Columbia Society of Real Estate Appraisers631-732-6200

www.columbiasociety.org

Instituto de Evaluadores de Puerto Rico787-763-3411www.iepr.net

International Association of Assessing Officers816-701-8100www.iaao.org

International Society of Appraisers312-981-6778

www.isa-appraisers.org

International Right of Way Association310-538-0233

www.irwaonline.org

Massachusetts Board of Real Estate Appraisers617-830-4530www.mbrea.org

National Association of Independent Fee Appraisers312-321-6830www.naifa.com

North Carolina Professional Appraisers Coalition919-710-3927www.ncpac.org

AFFILIATE SPONSORS

INTERNATIONAL SPONSOR

American Bankers Association800-226-5377www.aba.com

The Farm Credit Council

202-626-8710www.fccouncil.com

National Association of REALTORS800-874-6500

www.realtor.org/appraisal

Royal Institution of Chartered Surveyors212-847-7400www.rics.org

The Farm Credit Council

Residential Appraisal Review and USPAP Compliance Course, Student Manual i © 2016 The Appraisal Foundation

Table of Contents

GENERAL COURSE INFORMATION

Welcome

Overview ................................................................................................... ii

Course Schedule ........................................................................................ iv

SECTION ONE

Introduction – From Your Perspective .............................................................. 1

What is an Appraisal Review? ...................................................................... 4

The USPAP Connection ................................................................................ 9

SECTION TWO

Applying USPAP to Review Assignments (Illustrations) .................................... 39

The USPAP Connection (Continued) ............................................................. 40

Reviewer’s Responsibilities ........................................................................ 56

General Reminders for Appraisal Review Assignments ................................... 62

APPENDIX

One-Unit Residential Appraisal Field Review Report ....................................... 63

ii Residential Appraisal Review and USPAP Compliance Course, Student Manual © 2016 The Appraisal Foundation

Overview

Course Description This 7-Hour Residential Appraisal Review and Uniform Standards of Professional Appraisal Practice (USPAP) Compliance Course has been developed by The Appraisal Foundation. The course focuses on appraisal review assignments and the effect USPAP has on these assignments, the reviewers, and the work of appraisers involved in the assignments. With the greater scrutiny that has been placed on appraisers and the appraisal reports they produce in the past several years and, the stricter regulations from all client levels, the demand for appraisal reviews has grown. Any appraiser who is completing assignments for lending institutions is having his or her work reviewed by various individuals who have checklists, and other requirements they are verifying in conjunction with the reports being produced. Some of these individuals are appraisers who are acting in the review capacity, while others are not appraisers. The appraisers whose work is under review may or may not be aware of either the review or the review results.

This course is designed to aid real property appraisers seeking a better understanding of USPAP in conjunction with producing appraisal reviews that are USPAP compliant, as well as providing additional guidance to those appraisers whose work is being reviewed. Ideally, the review process should raise the level of professionalism among appraisers, and encourage them to produce better appraisal reports.

In addition to the student manual, the 2016-17 USPAP Publication (including the USPAP Advisory Opinions, USPAP Frequently Asked Questions, and Index) is the required text for use in this and all other USPAP-related courses.

Course Objectives Identify USPAP obligations when completing an appraisal review assignment.

Recognize the importance of intended use and intended user in developing and reporting the results of an appraisal review assignment.

Recognize the additional USPAP obligations necessary when an appraisal review assignment includes a reviewer’s own opinion of value.

Identify scope of work issues in a variety of appraisal review situations.

Discuss key definitions within USPAP related to appraisal review.

Recognize that the subject of an appraisal review assignment may be all or part of a report, workfile, or a combination of these.

Residential Appraisal Review and USPAP Compliance Course, Student Manual iii © 2016 The Appraisal Foundation

Identify the problem to be solved in the appraisal review assignment.

Recognize appraisal review is a specialized area of appraisal practice.

Recognize appraisal reviews are used in a variety of business, governmental, and legal situations, as well as in the enforcement of professional standards.

In addition to lectures, the course includes discussion illustrations that show how USPAP applies in situations that appraisers encounter when completing residential appraisal review assignments.

Classroom Guidelines To make the classroom environment a positive experience for all attendees, adherence to the following is required:

No smoking in the classroom.

Silence cell phones, laptops, tablets and any other electronic device when class is in session.

Audio/video recording is prohibited.

Refrain from ongoing conversations with those seated near you and other distracting behavior while class is in session.

General Information Breaks. There will be two breaks during the morning session and two breaks during

the afternoon session, unless noted otherwise by the course provider. The lunch break is generally for one hour.

Attendance. Attendance sheets will be distributed during class to verify your attendance during the morning and afternoon sessions. Full attendance is required in order to obtain credit for this course.

Certificates. Certificates of completion will be distributed by the provider after successful completion of the course.

iv Residential Appraisal Review and USPAP Compliance Course, Student Manual © 2016 The Appraisal Foundation

Course Schedule

SECTION 1. Morning

Introduction

10 Minutes Welcome and course announcements

Introduction to the course

Section 1

60 Minutes*

From Your Perspective (Open Ended Questions)

What is an Appraisal Review?

Qualifications of the Review Appraiser

Morning Break

The USPAP Connection

140 Minutes* Morning Break

The USPAP Connection (Continued)

SECTION 2. Afternoon

Section 2

110 Minutes*

The USPAP Connection – Advisory Opinion 20

Afternoon Break

Applying USPAP to Review Assignments (Illustrations)

100 Minutes*

Afternoon Break

Reviewer’s Responsibilities

General Reminders for Review Assignments

Residential Appraisal Review and USPAP Compliance, Student Manual 1 © 2016 The Appraisal Foundation

Section 1, Part 1. Introduction – From Your Perspective

Appraisal Review has gained attention in the past few years and has become the focus of work for many appraisers and others. Why is that? Are government agencies, lending institutions, the secondary market, appraisal management companies (AMC) and the litigation profession requesting more appraisal reviews now than in the past? Has government and public attention been drawn to the appraisal profession in light of the most recent economic downturn in the housing industry, and now the quickening uptick? The government’s task of regulating financial institutions is altering the way users of appraisal services look at both the actual appraisal and the appraisal reviews. Both are under deeper scrutiny and often from more than one source.

Are you getting more requests to complete appraisal reviews? What types of clients are contacting you? Are the requests of a routine nature or are there more twists to the assignments?

Illustration 1 (Review Appraiser Bias?)

An appraiser receives a request to review an appraisal; however, the reviewer has previously appraised the same property. Does the reviewer’s prior experience with the property create a bias that then precludes an objective review?

Take a few minutes to jot down your answer to this question.

2 Residential Appraisal Review and USPAP Compliance, Student Manual © 2016 The Appraisal Foundation

Illustration 2 (Appraisal Review and State Appraiser Boards)

Is a reviewer permitted by USPAP to file a complaint with a state appraiser board without the consent of his or her client?

Take a few minutes to answer to this question.


Do you have any questions relating to appraisal review that you would like to see discussed today? Let’s start a list. We can add to the list as we move though the materials. Make sure your questions are answered during the day.


Section 1, Part 2. What is an Appraisal Review?

Appraisal reviews serve many important purposes. Some appraisal reviews are more time consuming and require research and analysis well beyond the original assignment, as do other types of reviews. At other times, the process is smooth with no problems. Many professions employ some sort of review process to ensure the preparation of thorough, well-documented reports.

One of the difficulties that reviewers face in appraisal practice is recognizing that it is the work product being reviewed, and not the appraiser. Additionally, what the reviewer is being asked to do varies from assignment to assignment.

I. Appraisal Review

A. USPAP defines appraisal review as:

The act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.

1. Do you think that commenting on the quality of another appraiser’s work means addressing:

the entire report with attachments?

only part of a report?

an oral report?

the workfile?

any combination of these?

2. USPAP indicates the reviewer’s opinion about the quality of the work under review may include addressing its completeness, relevance, appropriateness, and reasonableness, all in the context of the requirements applicable to that work.

B. Why Appraisal Reviews are Needed

1. A professional review of an appraiser’s work often makes sense as a prudent business practice for users of appraisal services. It is not unusual for clients in other professions to seek second opinions, so the appraisal profession is no different.


2. An appraisal review serves as a tool in measuring the credibility of the report by determining whether it supports a relevant development process. The review serves as a test of reasonableness to see if the methods and techniques used are appropriate to the assignment.

3. An appraisal review can reinforce a client’s confidence in the appraisal report. The reviewer ascertains whether appropriate data has been gathered and examined, if the data has been analyzed logically, and whether the conclusions are consistent with the information presented in the report.

4. An appraisal review can help a lending institution client manage risk. Because appraisal reports are used in a business decision on the part of the client, an appraisal review lends a degree of due diligence to the process. Descriptive portions of a report can alert the lender to any additional risks associated with the property, while the value conclusions lends credence to the business decision.

5. Appraisal reviews are helpful in supporting litigation and dispute resolution matters. Often more than one appraisal report is prepared in these instances. Appraisal reviews lend credibility to conclusions of each, or show shortcomings.

6. Appraisal reviews are used to assess work products of appraisers for clients who have little knowledge of appraisal and/or have no internal appraisal capabilities.

C. Purpose of Appraisal Reviews and Types of Appraisal Reviews

1. Appraisal reviews are completed for a variety of uses. Let’s look at the ones that are most common:

Quality control

Compliance

Qualifications

Confirmation

Dispute resolution

Litigation

2. Clients request different types of reviews depending upon their needs. Based on the intended use of the review, they may be conducted by appraisers or by others. Some terms often associated with client review requests are not used in USPAP, but are used, often inappropriately, in day-to-day practice. Use of labels such as technical review, administrative review, compliance review, and a “STANDARD 3” review, often cause


confusion or misunderstanding as these terms do not impart the same meaning in every situation. Use of such terms should be avoided. Rather the key to an appropriate review is whether the client is requesting an appraisal review or a review that could be performed by someone other than an appraiser.

Reviewers should accurately define the scope of work necessary to produce credible assignment results. An appraiser performing an appraisal review must consider the elements that are necessary for an appropriate identification of the problem. Communication with the client to develop a clear understanding of the purpose of the assignment and its intended use is of primary importance. A reviewer’s scope of work in an appraisal review assignment is determined primarily by the purpose(s) of the assignment and the intended use of the assignment results. Standards Rule (SR) 3-2(b) requires the reviewer to identify…the intended use of the reviewer’s opinions and conclusions. The reviewer must also identify the purpose of the appraisal review… This identification includes whether the reviewer has developed his or her own opinion of value or appraisal review opinion related to the work under review (See SR 3-2(c)). The scope of work will be discussed in more depth in the USPAP Connection section of the course.

Let’s look at the following review assignment illustrations, based on general purposes and intended uses. These demonstrate why it is important for the reviewer to develop an appropriate scope of work, rather than to interpret labels on review assignments. Which of the assignments are appraisal reviews and which are not? Do any overlap?

a. The assignment is to consider information in an appraisal report as well as other information as part of the basis for a business decision. The review is to be used in the context of a broader business decision.

b. The assignment is to check all calculations and determine if the appraisal report complies with basic content specifications. The reviewer is to note discrepancies or omissions of items outlined in the appraisal contract.

c. This assignment is limited to a review of the data within the appraisal report, which is to be confirmed by the reviewer. The reviewer has not been asked to physically view the subject or comparable properties, but to check public records, MLS, etc. The assignment includes checking the accuracy of the calculations, the reasonableness of the data, and the appropriateness of the methodology. Would your answer be different if the reviewer is not asked to confirm data within the report itself, but the balance of the assignment is the same? The results of each are to be used as part of an internal quality control.


d. This assignment includes an inspection of at least the exterior of the subject property, as well as at least viewing the comparable properties from the street to confirm some of the data presented. This type of review may include research to gather additional data and confirmation of market data included in the report itself.

D. Types of Appraisal Review Reports

USPAP does not dictate the form, format, or style of Appraisal Review Reports. The substantive content of a report determines its compliance. STANDARD 3 addresses the content and level of information required in communicating the results of an appraisal review assignment. The type of appraisal review reports are generally dictated by the client, based on discussion with the appraiser. Most common report types include:

1. Form reports

a. Fannie Mae 2000 (Freddie Mac 1032): One-Unit Residential Appraisal Field Review Report is the most commonly requested type of report for quality control and compliance for single-unit properties.

b. Fannie Mae 2000A (Freddie Mac 1072): Two-to-Four Unit Residential Field Review Form is used for small residential income properties.

c. Forms for other property types are more numerous and less standardized than residential forms. Some client groups have developed their own forms to meet their specific needs.

d. Software providers offer a variety of residential and commercial review forms for various types of appraisal reviews.

e. All forms should be checked for USPAP compliance and supplemented when necessary.

2. Checklists

3. Narrative reports

a. Reviewer generally creates his or her own format, although there are some software providers who offer narrative report formats.

b. Content must comply with appropriate USPAP Standards.

c. Narrative reports must meet the needs of the client and any other intended users.


4. Oral reports

a. Used when client does not require a written report. Often used in court testimony or when a reviewer is being deposed.

b. Reviewer must develop the appraisal review opinion prior to delivering the oral report. A reviewer should not be expected to provide an opinion about another appraiser’s work on the spot.

c. Reviewer must make sure the appraisal review has been properly developed and that a supporting workfile in compliance with USPAP is in place prior to issuing an oral report.


Section 1, Part 3. The USPAP Connection

Your knowledge of how USPAP relates to both appraisal and appraisal review assignments is critical to your livelihood as an appraiser. This brief review of parts of USPAP will serve as a reminder of how USPAP compliance is used on a practical basis. You may want to use your copy of the USPAP publication as we move through the materials. The more appraisal reviews you complete, the more you will use the USPAP publication.

A reviewer must have an in-depth understanding of his or her own obligations when completing appraisal review assignments. A practical, working knowledge is needed on how USPAP is the underlayment for both appraisal and appraisal review assignments. This section highlights certain parts of USPAP that will assist you as you complete appraisal review assignments. They will also prove beneficial if you have had your work reviewed and had questions about the process.

I. Definitions

A. Why does USPAP define certain terms?

1. There are numerous terms critical to value-related services. USPAP defines those terms that are essential to understanding the Uniform Standards.

2. USPAP definitions have distinct meanings in the context of their use within the USPAP document.

a. For example, the term assignment has a specific meaning as applied in USPAP versus its common dictionary meaning.

b. USPAP is the source authority for many unique terms used in the appraisal profession. Examples of such terms are extraordinary assumption and hypothetical condition.

3. USPAP defines the components of the term market value rather than providing an actual definition.

a. There are a variety of market value definitions.

b. USPAP does not endorse any specific definition of market value or source.


c. Source could be a recognized authority, i.e., regulatory agency; a specific legal jurisdiction, i.e., bankruptcy court; a specific body of knowledge, i.e., real property; or customized and specific to the client’s intended use and identified scope of work.

B. What are key terms applicable in appraisal review work?

1. All the terms listed in the DEFINITIONS section are important to understanding USPAP, but we will concentrate on these key terms and definitions.

2. Of these terms, some are simple and similar to everyday use. Others are more complicated and/or USPAP specific.

3. Overview of key terms

Appraisal

Appraisal Practice

Appraisal Review

Appraiser

Assignment

Assignment Results

Bias

Credible

Extraordinary Assumption

Hypothetical Condition

Intended Use

Intended User

Report

Valuation Service

Workfile

C. Definitions and Illustrations (The key terms above are listed in alphabetical order. These terms will be addressed in a different order below.)


1. Valuation Services

a. Defined as: services pertaining to aspects of property value.

Comment: Valuation services pertain to all aspects of property value and include services performed both by appraisers and by others.

b. Valuation services encompass a wide range of activities. It is not necessary for a service to include development of a value opinion for that service to be a valuation service.

c. Examples of valuation services include:

Property management

Brokerage

Appraisal

Construction

Other

2. Appraisal Practice

a. Defined as: valuation services performed by an individual acting as an appraiser, including but not limited to appraisal and appraisal review.

b. USPAP applies only to appraisal practice.

c. When the service is performed by an individual acting in the role of an appraiser, it is appraisal practice. A client has expectation that the individual will act in the role of an appraiser.

3. Appraiser

a. Defined as: one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.

Comment: Such expectation occurs when individuals, either by choice or by requirement placed upon them or upon the service they provide by law, regulation, or agreement with the client or intended users, represent that they comply.

b. What does acting as an appraiser or performing a service as an appraiser mean?

Representing oneself as an appraiser.

An expectation of appraisal competence in the service being performed.


An expectation that the service will be provided in a manner that is unbiased (see definition above).

c. The expectation for an individual to act as an appraiser indicates an obligation to comply with USPAP to:

Maintain public trust.

Adhere to the definition of appraiser.

Meet expectations of clients and other intended users when an appraiser is identified.

d. What are the responsibilities of an appraiser regarding user expectations?

Identify the capacity in which he or she is performing, and inquire about the intended users’ expectations.

When performing services outside appraisal practice, individuals must not misrepresent themselves.

An individual, when given the opportunity, can choose to provide a valuation service as an appraiser or in some other capacity, but must use great care not to violate public trust.

4. Appraisal

a. Defined as: (noun) the act or process of developing an opinion of value; an opinion of value. (adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.

Comment: An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).

b. The definition makes it clear that any opinion of value, regardless of how it is expressed, is an appraisal. It is not uncommon for appraisers to express an opinion of value as a point ($150,000), a range (between $147,000 and $155,000), or as a relationship (the value is at least what it was in the previous appraisal.)

5. Appraisal Review

a. Defined as: the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.


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

b. USPAP does not define or address any service, request, etc. that is simply called a review. USPAP defines and addresses appraisal review. While documents can be reviewed by anyone, an appraisal review can only be performed by an appraiser.

c. A common misconception is that an appraisal review must include the reviewer’s own opinion of value. By definition, an appraisal review does not include the reviewer’s opinion of value. However, USPAP recognizes that very often clients request that the reviewer provide a value opinion. The scope of work for this type of assignment includes both an appraisal review and an appraisal. While it is acceptable to provide both the appraisal review opinion and the value opinion in the same report, the appraiser has additional requirements when performing such an assignment. We will be discussing these requirements in detail later when we discuss STANDARD 3.

6. Assignment

a. Defined as: 1) An agreement between an appraiser and a client to provide a valuation service; 2) the valuation service that is provided as a consequence of such an agreement.

b. The term assignment is used in two different contexts in USPAP:

The appraiser must decide prior to accepting the assignment that he or she is competent to perform the assignment.

In completing the assignment, the appraiser must take the steps necessary or appropriate to complete the assignment competently.

7. Assignment Results

a. Defined as: 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;

opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment.

b. Assignment results are treated as confidential under the ETHICS RULE.


From Your Perspective:

Illustration 3

I am an appraiser and my practice includes requests to comment on a wide range of valuation work performed by others. At various times this work is presented as an appraisal report, appraisal review report, market data summary, or even as a broker’s price opinion. When does STANDARD 3 apply?

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8. Bias

a. Defined as: A preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment.

b. Bias is specifically addressed in USPAP, including the Conduct section of the ETHICS RULE and in the SCOPE OF WORK RULE, as well as in the certification of STANDARDS 2, 3, 6, 8, and 10.

c. Acting with bias contradicts the requirements defined for an appraiser.

9. Credible

a. Defined as: worthy of belief.


Comment: Credible assignment results require support, by relevant evidence and logic, to the degree necessary for the intended use.

b. Understanding the meaning of credible within USPAP is critical to the overall understanding of USPAP. One of the objectives in the development of USPAP Standards is that the appraiser must complete work necessary to achieve credible results.

c. The Comment further qualifies worthiness by indicating that assignment results require support, by relevant evidence and logic, and that credibility is measured in terms of what is necessary for the intended use.

d. The linking to intended use clarifies that what is credible based on the intended use in one assignment might not be in another assignment with a different intended use.

10. Extraordinary Assumption

a. Defined as: 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 opinion 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.

b. An extraordinary assumption is used when the actual condition is uncertain, but there is a reasonable basis for such an assumption. For example, in an appraisal review, if the reviewer does not inspect the interior of the subject property, the reviewer might use an extraordinary assumption that the property improvements are as the report indicates. The use of the extraordinary assumption alerts the client and intended users to the uncertainty of the assignment result.

11. Hypothetical Condition

a. Defined as: 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.


b. A hypothetical condition is sometimes used in the work under review and a reviewer must look to the validity of that use under USPAP. (Reference the Comment to SR 1-2(g)).


Illustrations 4 and 5

4) What’s important to know about measuring credible assignment results?

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5) Must a hypothetical condition or extraordinary assumption be labeled?

__________________________________________________________

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__________________________________________________________

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11. Intended Use

a. Defined as: The use or uses of an appraiser’s reported appraisal or appraisal review assignment opinions and conclusions, as identified by the appraiser based on communication with the client at the time of the assignment.

b. Intended use is the basis in establishing what is credible in an assignment. The appraiser must identify the intended use in order to properly define the appraisal problem to be solved.

c. Intended use is a key factor in identifying other assignment elements, all of which are considered in determining the scope of work necessary in an assignment.

12. Intended User

a. Defined as: the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser on the basis of communication with the client at the time of the assignment.

b. A report must contain sufficient information to allow the intended users to understand it properly. It is, therefore, necessary for an appraiser to know who the intended users are in an assignment.



Illustration 6

In an appraisal review assignment that includes the reviewer’s own opinion of value, is the reviewer required to use the same scope of work as the original appraiser?

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__________________________________________________________

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13. Report

a. Defined as: Any communication, written or oral, of an appraisal or appraisal review that is transmitted to the client upon completion of an assignment.

Comment: Most reports are written and most clients mandate written reports. Oral report requirements (see RECORD KEEPING RULE) are included to cover court testimony and other oral communications of an appraisal or appraisal review.

b. The report is the communication that conveys the assignment results to the client. Reports are often, mistakenly, referred to as appraisals. The client receives either an appraisal report or an appraisal review report.


14. Workfile

a. Defined as: documentation necessary to support an appraiser’s analyses, opinions, and conclusions.


Illustration 7

I am a manager for an Appraisal Management Company that performs commercial and residential appraisals in various parts of the country. Our company acts as the agent for our clients who consist of numerous regional and national lenders. In that capacity, we take in appraisal orders from our clients and order those appraisals from fee appraisers on our approved list of appraisers. We also perform STANDARD 3 compliant reviews on those appraisals. We forward the appraisal and appraisal review reports to our clients. Are we required to keep a file of the appraisal reviews?

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II. The PREAMBLE

A. Why should I be concerned about the PREAMBLE of USPAP? The PREAMBLE presents an overview of USPAP. The PREAMBLE:

1. establishes the purpose of USPAP – to promote and maintain a high level of public trust in appraisal practice;

2. explains why standards exist, as well as who benefits from those standards;

3. provides an overview of the content of USPAP; and

4. addresses:

a. who must comply with USPAP and

b. what parts of USPAP apply to various assignments.

B. The PREAMBLE states that USPAP addresses the ethical and performance obligations of appraisers through DEFINITIONS, Rules, Standards, Standards Rules, and Statements.

C. A section on When Do USPAP Rules and Standards Apply is presented in the PREAMBLE, and serves as a checklist for appraisers and users of appraisal services.

USPAP does not establish who or which assignments must comply. Neither The Appraisal Foundation nor its Appraisal Standards Board (ASB) is a government entity with the power to make, judge, or enforce law. An appraiser must comply with USPAP when either the service or the appraiser is required by law, regulation, or agreement with the client or intended user. Individuals may also choose to comply with USPAP any time that individual is performing the service as an appraiser. In order to comply with USPAP, an appraiser must meet the following obligations:

An appraiser must act competently and in a manner that is independent, impartial, and objective.

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

An appraiser must maintain the data, information and analysis necessary to support his or her opinions for appraisal and appraisal review assignments in accordance with the RECORD KEEPING RULE.

An appraiser must comply with the COMPETENCY RULE and the JURISDICTIONAL EXCEPTION RULE for all assignments.

When an appraiser provides an opinion of value in an assignment, the appraiser must also comply with the SCOPE OF WORK RULE, the RECORD


KEEPING RULE, the applicable development and reporting Standards and applicable Statements.

When an appraiser provides an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment, the appraiser must also comply with the SCOPE OF WORK RULE, the RECORD KEEPING RULE, applicable portions of STANDARD 3 and applicable Statements.

When preparing an appraisal or appraisal review that is a component of a larger assignment with additional opinions, conclusions, or recommendations, the appraisal or appraisal review component must comply with the applicable development and reporting Standards and applicable Statements, and the remaining component of the assignment must comply with the ETHICS RULE, the COMPETENCY RULE, and the JURISDICTIONAL EXCEPTION RULE.

III. The Rules

A. How the Rules connect to Appraisal Review Assignments

1. USPAP contains five Rules. These rules apply to all disciplines and to various types of assignments within appraisal practice. In this section, we will review the key points of these rules and will provide some illustrations relevant to appraisal review assignments. You may want to reference your USPAP publication for specific sections and wording of the Rules.

2. The Rules are:

ETHICS RULE

RECORD KEEPING RULE

COMPETENCY RULE

SCOPE OF WORK RULE

JURISDICTIONAL EXCEPTION RULE

B. The ETHICS RULE

1. The ETHICS RULE addresses the behavior of appraisers in general, reinforcing our responsibilities as appraisers. An appraiser must always perform in a manner that is independent, impartial, and objective. This is a fundamental concept in USPAP.


2. Key points of the ETHICS RULE include:

a. Although appraisers must often apply judgment in their analysis, the judgment and resulting opinions and conclusions must be based on fact (objective), not subjective (based on feeling or perception.)

b. Advocacy is NOT allowed in appraisal practice. In appraisal review assignments, the reviewer’s role is to form an opinion of the work under review, including a value opinion if it is part of the scope of work. The appraiser must not be an advocate for either the client or the appraiser whose work is under review. The reviewer’s conclusions should be the same regardless of who was responsible for engaging his or her service.

c. The appraiser must disclose any present or prospective interest in the property or in the parties to any transaction prior to accepting an assignment. In addition to the initial disclosure, the certification (required in every appraisal or appraisal review report) must state whether there is such an interest. If there is, that interest must also be stated in the certification.

d. Prior to accepting an assignment, the appraiser must disclose any services regarding the subject property that he or she performed in the three years prior to accepting the assignment. In addition to the initial disclosure, the appraiser’s certification must state whether the appraiser provided any such services, and if so, what those services were. The appraiser is not required or allowed (without authorization from prior client) to disclose the results of any prior service. Remember, the prior services regarding the subject property are not limited to appraisal practice.

e. Disclosure is required if an appraiser pays a fee, commission, or gives anything of value in connection with the procurement of an assignment.

f. USPAP lists several unacceptable compensation arrangements. The Management section of the ETHICS RULE states:

An appraiser must not accept an assignment, or have a compensation arrangement for an assignment, that is contingent on any of the following:

The reporting of a predetermined result (e.g., opinion of value);

A direction in assignment results that favors the cause of the client;

The amount of a value opinion;

The attainment of a stipulated result (e.g., that the loan closes, or taxes are reduced); or


The occurrence of a subsequent event directly related to the appraiser’s opinions and specific to the assignment’s purpose.

The commonality in these arrangements is that any of them could effectively reward bad behavior.

g. The Confidentiality section of the ETHICS RULE states:

An appraiser must not disclose: (1) confidential information; or (2) assignment results to anyone other than:

the client;

parties specifically authorized by the client;

state appraiser regulatory agencies;

third parties as may be authorized by due process of law; or

a duly authorized professional peer review committee except when such disclosure to a committee would violate applicable law or regulation.



Illustration 8

A few weeks ago I performed an appraisal for a lender client. I was recently contacted by an individual who claims that she is a review appraiser that has been hired by the lender, and wanted to ask me some questions about my appraisal. Can I discuss my appraisal with her?

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C. The COMPETENCY RULE

1. The COMPETENCY RULE states in part:

An appraiser must (1) be competent to perform the assignment; (2) acquire the necessary competency to perform the assignment; or (3) decline or withdraw from the assignment. In all cases, the appraiser must perform competently when completing the assignment.

2. Competency may apply to any of several factors such as (but not limited to):

property type

a property’s submarket

geographic area

intended use

applicable laws and regulations

analytical methods

3. If an appraiser lacks the knowledge or experience to complete an assignment competently, he or she may still accept the assignment under certain conditions. In order to accept the assignment the appraiser must:

disclose the lack of knowledge and/or experience before accepting the assignment;

take the steps necessary to become competent; and

disclose in the report the initial lack of knowledge and/or experience and the steps taken to perform competently.

An appraiser may become competent by working with another appraiser who has the necessary knowledge and experience, taking a course, reading articles, or performing appropriate market research.

4. If factors or conditions come up during an assignment that lead an appraiser to realize that he or she lacks the necessary knowledge or experience, he or she must contact the client and comply with the same requirements listed above.



Illustration 9

I have a client who has asked me to perform a desk review on an appraisal report for a property located in a different state. I have no knowledge of the real estate market in that state and have never even stepped foot there. Can I perform a USPAP-compliant appraisal review on this report?

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D. The SCOPE OF WORK RULE

1. Problem Identification section:

The appraiser must identify the problem to be solved in each appraisal or appraisal review assignment. Problem identification actually consists of the identification of several of the various assignment elements. The elements are:

Client and any other intended users;

Intended use of the appraiser’s opinions and conclusions;

Type and definition of value;

Effective date of the appraiser’s opinions and conclusions;

Subject of the assignment and its relevant characteristics; and

Assignment conditions.

a. Most of these assignment elements are established based on communication with the client (communication may sometimes occur through an agent of the client). The identification of the relevant characteristics, however, is a judgment made by the appraiser.

b. Assignment conditions include assumptions, extraordinary assumptions, hypothetical conditions, applicable laws and regulations, jurisdictional exceptions, and other conditions that affect the scope of work.

c. The appraiser must disclose any present or prospective interest in the property or in the parties to any transaction prior to accepting an assignment. In addition to the initial disclosure, the certification (required in every appraisal or appraisal review report) must state whether there is such an interest. If there is, that interest must also be stated in the certification.

2. Scope of Work Acceptability section:

a. The Scope of Work Acceptability section says that in order to be deemed acceptable, the scope of work in an assignment must meet or exceed two thresholds. These are:

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

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


b. It is the appraiser’s responsibility to determine an acceptable scope of work. If client instructions or other conditions limit the scope of work to a point the assignment results will not be credible, the appraiser must either modify the assignment conditions to expand the scope of work or use an extraordinary assumption. Use of an extraordinary assumption is only an option if credible assignment results can be developed. The appraiser must withdraw from the assignment if he or she is unable to modify the assignment conditions or use an extraordinary assumption.

3. Disclosure Obligations section:

a. The Disclosure Obligations state:

The report must contain sufficient information to allow intended users to understand the scope of work performed.

Comment: Proper disclosure is required because clients and other intended users rely on the assignment results. Sufficient information includes disclosure of research and analyses performed and might also include disclosure of research and analysis not performed.

b. USPAP requires that the appraiser disclose sufficient information so the client and any other intended users understand what research and analysis the appraiser performed in the assignment. If necessary for intended users’ understanding, the appraiser may also need to disclose research and analysis not performed.



Illustration 10

If a reviewer concludes that an appraisal report is unacceptable, does the reviewer need to cite specific requirements in USPAP that were not fulfilled appropriately?

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We will revisit scope of work issues during our discussion of STANDARD 3.

E. The RECORD KEEPING RULE

1. A workfile must be prepared for each appraisal or appraisal review assignment.

2. A workfile must exist prior to the issuance of any report.

3. A written summary of an oral report must be added to the workfile within a reasonable time after the issuance of an oral report.

4. The workfile must include:

Name of the client and identity (by name or type) of any intended users;

True copy of all written reports;

All other data, information, and documentation (or references to their location) required to support the appraiser’s opinions and conclusions, and to show compliance with USPAP; and

If a Restricted Appraisal Report is transmitted, the workfile must contain sufficient information for an appraiser to produce an Appraisal Report.


5. The workfile for an oral report must also include a summary of the oral report and a signed and dated certification.

6. Workfile must be retained for at least five years, or if the appraiser provides testimony related to an assignment the workfile must also be retained for at least two years beyond the final disposition, whichever period expires last.


Illustration 11

If two appraisers sign an appraisal report, what are the obligations related to record keeping? Specifically, must both appraisers keep a copy of the workfile?

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F. The JURISDICTIONAL EXCEPTION RULE

1. The JURISDICTIONAL EXCEPTION RULE is essentially a severance clause for USPAP. It states that in those instances when a law or regulation precludes an appraiser from complying with a part or parts of USPAP, the rest of USPAP is still in effect.

2. In an assignment involving a jurisdictional exception, an appraiser must:


identify the law or regulation that precludes compliance with USPAP;

comply with that law or regulation;

clearly and conspicuously disclose in the report the part of USPAP that is voided by that law or regulation; and

cite in the report the law or regulation requiring this exception to USPAP compliance.

IV. STANDARD 3, Appraisal Review, Development and Reporting

A. USPAP states:

1. In developing an appraisal review assignment, an appraiser acting as a reviewer must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal review. In reporting the results of an appraisal review assignment, an appraiser acting as a reviewer must communicate each analysis, opinion, and conclusion in a manner that is not misleading.

2. STANDARD 3 applies to both the development and reporting in appraisal review assignments. Standards Rules 3-1 through 3-3 address development requirements and Standards Rules 3-4 through 3-7 address reporting. Many of the requirements generally mirror those of STANDARDS 1 and 2. Review of these standards in addition to STANDARD 3 is helpful when conducting appraisal review assignments.

3. The term reviewer in this Standard is used to refer to an appraiser performing an appraisal review.

B. Standards Rule 3-1 (closely mirrors Standards Rule 1-1 except it applies to appraisal review rather than real property appraisal.)

1. Elaborates on the requirements in the COMPETENCY RULE.

2. Addresses the obligations of the reviewer:

a. Be aware of, understand and correctly employ recognized methods and techniques.

b. Do not commit substantial errors of omission or commission.

c. Do not provide services in a careless or negligent manner.

C. SR 3-2 identifies the assignment elements necessary to define the problem and ends with determining the scope of work necessary to produce credible assignment results.


D. SR 3-3 goes through the requirements that relate to carrying out the scope of work.

1. The scope of work in appraisal review assignments may vary significantly depending on the needs of the intended users. One area of difference in scope of work could be in an appraisal review assignment that includes both an appraisal review and an appraisal.

2. By definition, an appraisal review does not include the reviewer’s opinion of value. SR 3-3(c) addresses these assignments. This standards rule requires, among other things, that the reviewer also comply with STANDARD 1 when the appraisal review assignment includes the reviewer’s real property value opinion. This is true even if the reviewer concurs with the opinions and conclusions in the work under review.

E. SR 3-4 reminds reviewers of their reporting obligations. STANDARD 3 has one written report option, the Appraisal Review Report, and an oral Appraisal Review Report. Reporting obligations under SR 3-4:

Each written or oral Appraisal Review Report must be separate from the work under review and must:

clearly and accurately set forth the appraisal review in a manner that will not be misleading;

contain sufficient information to enable the intended users of the appraisal review to understand the report properly; and

clearly and accurately disclose all assumptions, extraordinary assumptions, and hypothetical conditions used in the assignment.

Comment: An Appraisal Review Report communicates the results of an appraisal review, which can have as its subject another appraiser’s work in an appraisal or appraisal review assignment.

The report content and level of information in the Appraisal Review Report is specific to the needs of the client, other intended users, the intended use, and requirements applicable to the assignment. The reporting requirements set forth in this Standard are the minimum for an Appraisal Review Report. An appraiser must supplement a report form, when necessary, to ensure that any intended user of the appraisal review is not misled and that the report complies with the applicable content requirements set forth in this Standards Rule.

F. SR 3-5 lists the minimum content acceptable in an Appraisal Review Report.

As is the case in appraisal review development, there are additional reporting requirements when an appraisal review includes the reviewer’s own opinion of value. SR 3-5(i) addresses this as follows:

When the scope of work includes the reviewer’s development of an opinion of value or


review opinion related to the work under review, the reviewer must:

state which information, analyses, opinions, and conclusions in the work under review that the reviewer accepted as credible and used in developing the reviewer’s opinion and conclusions;

at a minimum, summarize any additional information relied on and the reasoning for the reviewer’s opinion of value or review opinion related to the work under review;

clearly and conspicuously:

state all extraordinary assumptions and hypothetical conditions connected with the reviewer’s opinion of value or review opinion related to the work under review; and

state their use might have affected the assignment results.

Comment: The reviewer may include his or her own opinion of value or review opinion related to the work under review within the appraisal review report itself without preparing a separate report. However, data and analyses provided by the reviewer to support a different opinion or conclusion must match, at a minimum, except for the certification requirements, the reporting requirements for an:

Appraisal Report for a real property appraisal (Standards Rule 2-2(a);

Appraisal Report for a personal property appraisal (Standards Rule 8-2(a);

Appraisal Review Report for an appraisal review (Standards Rule 3-5);

Mass Appraisal Report for mass appraisal (Standards Rule 6-8); and

Appraisal Report for business appraisal (Standards Rule 10-2(a).

G. SR 3-7 addresses the oral Appraisal Review Report.



Illustration 12

I am performing a review of a real property appraisal and my client has asked me to give my opinion of value even if I agree with the value in the appraisal. Does my concurrence constitute an appraisal? If so, what do I need to do to comply with USPAP?

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V. STANDARDS 1 and 2, Real Property Appraisal, Development and Reporting

A. STANDARDS 1 and 2 and the appraisal review

1. STANDARD 1 applies to real property appraisal development, and STANDARD 2 applies to the reporting of the real property appraisal. USPAP makes a distinction between development and reporting, and these are addressed in the separate Standards for several reasons:

Although the problem identification process is largely based on communication with the client, for the most part the development process consists of research and analysis. The report is a means by which the appraiser transmits the assignment results to the client.

The objective of the development process is credible assignment results.

The objective of the report is to convey those results in a manner that is not misleading.

Development is a process; a report is a work product.

2. The Standards, to a great degree, are extensions of the COMPETENCY RULE.

3. If the subject of the appraisal review includes only all or part of an appraisal report (no workfile), the reviewer must be careful in making any conclusions regarding the appraiser’s compliance with STANDARD 1.

4. The reviewer may communicate with the original appraiser to try to draw conclusions necessary concerning the appraiser’s thought process, depending upon the intended use and scope of work of the assignment.

B. STANDARD 1

1. Key Points (STANDARD 1 should be reviewed in total as necessary during the review process):

a. STANDARD 1 addresses only the development of real property appraisals. It does not directly address reporting requirements.

b. STANDARD 1 parallels the appraisal process as it was taught even prior to the existence of USPAP.

c. STANDARD 1 and the SCOPE OF WORK RULE are closely linked.


d. The primary objective of the development process as stated in STANDARD 1 is credible assignment results.

2. The other development standards within USPAP mirror those of STANDARD 1 in corresponding areas (You saw evidence of the mirroring as we discussed in STANDARD 3.)

3. STANDARD 1 is relevant to a reviewer in those cases where he or she is asked to form an opinion of value as part of an appraisal review assignment.

C. STANDARD 2, Key Reminders

1. This Standard applies to written reports. The reviewer spends time reviewing STANDARD 2 as part of the appraisal review process.

2. There are two report options in USPAP: Appraisal Report and Restricted Appraisal Report; each report must prominently state which option was used.

3. The difference between the two options is the content and level of information. The Appraisal Report provides a more detailed presentation, although the content area requirements are similar for the Restricted Appraisal Report. The report simply requires less information. The development of the opinions and conclusions is not affected by the report type.

4. If there are any intended users in addition to the client, an Appraisal Report must be used.

5. The Comment to SR 2-2 includes the following paragraph:

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

No blank report form is compliant by itself. Some forms, if properly completed, might more effectively lead an appraiser to USPAP compliance, but every assignment is unique and it is the appraiser’s responsibility to prepare a compliant report. The same is true for an appraisal review report (under SR 3-5) so the reviewer has the responsibility to check the work under review as well as his or her own work for report compliance.

6. Most of the requirements in SR 2-2 simply state that the report must disclose what was done in the development process under STANDARD 1.


7. Following is a reference chart (from Advisory Opinion (AO)-11, Content of the Appraisal Report Options of Standards Rule 2-2, 8-2, and 10-2). A reviewer should not rely solely on the chart when reviewing an appraiser’s work product. The chart does not include USPAP Comments. The chart includes SRs 2-2 and 8-2; SR 10-2 has its own chart (not presented here):

(a) Appraisal Report (b) Restricted Appraisal Report

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

i. state the identity of the client by name or type; and state a prominent use restriction that limits use of the report to the client and warns that the rationale for how the appraiser arrived at the opinions and conclusions set forth in the report may not be understood properly without additional information in the appraiser’s workfile;

ii. state the intended use of the appraisal; ii. state the intended use of the appraisal;

iii. summarize information sufficient to identify the real estate or personal property involved in the appraisal, including the property characteristics relevant to the assignment;

iii. state information sufficient to identify the real estate or personal property involved in the appraisal;

iv. state the property interest appraised; iv. state the property interest appraised;

v. state the type and definition of value and cite the source of the definition;

v. state the type of value and cite the source of its definition;

vi. state the effective date of the appraisal and the date of the report;

vi. state the effective date of the appraisal and the date of the report;

vii. summarize the scope of work used to develop the appraisal;

vii. state the scope of work used to develop the appraisal;

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

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

ix. state the use of the property existing as of the date of value and the use of the real estate or personal property reflected in the appraisal;

ix. state the use of the property existing as of the date of value and the use of the real estate or personal property reflected in the appraisal;

x. when an opinion of highest and best use or the appropriate market or market level was developed by the appraiser, summarize the support and rationale for that opinion;

x. when an opinion of highest and best use or the appropriate market or market level was developed by the appraiser, state that opinion;

xi. clearly and conspicuously state all extraordinary assumptions and hypothetical conditions; and that their use might have affected the assignment results; and

xi. clearly and conspicuously state all extraordinary assumptions and hypothetical conditions; and that their use might have affected the assignment results; and

xii. include a signed certification in accordance with Standards Rule 2-3 or 8-3.

xii. include a signed certification in accordance with Standards Rule 2-3 or 8-3.

Comments have not been included in this chart


8. Standards Rule 2-3 addresses the certification requirements. Reviewers read the certification closely for USPAP compliance, depending upon the intended use of the appraisal review. A signed certification evidences an appraiser’s recognition of his or her ethical obligations.

From Your Perspective

Illustration 13

If an appraiser is bound by USPAP for a particular assignment, when must the appraiser comply with the USPAP appraisal reporting requirements?

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Section 2. USPAP Connection – Applying USPAP to Appraisal Review Assignments

Overview This section begins with the final part of The USPAP Connection, Advisory Opinion 20 (AO-20), An Appraisal Review Assignment That Includes the Reviewer’s Own Opinion of Value. Advisory Opinions are not part of USPAP and do not establish new standards or interpret existing standards. Advisory Opinions are a form of guidance issued by the ASB to illustrate the applicability of USPAP in specific situations and to offer advice from the ASB for the resolution of appraisal issues and problems. The discussion of this AO is relevant as the majority of residential appraisal reviews that are completed also include a request for an opinion of value.

Think about the typical appraisal review form you complete – the Fannie Mae Form 2000 (One-Unit Residential Field Review Report) probably comes to your mind. Most lending institution clients want some sort of confirmation that the value conclusion expressed in the original appraisal report is credible. Therefore, the appraiser who is acting in a review capacity must also complete an appraisal as part of the assignment. The same holds true for some litigation assignments in which the reviewer is asked to form a value conclusion as part of the appraisal review assignment. AO-20 offers guidance and illustrations, and is a great source for the reviewer when completing these types of assignments. It is recommended that you also have the USPAP publication open as we move through this discussion as parts of the Advisory Opinion are paraphrased here, and other sections have been moved around for discussion purposes.

The afternoon session also includes illustrations that are indicative of situations that residential appraisers face in completing appraisal review assignments, as well as some potential problem areas caused when appraisal reviews are not appropriately completed. You will exercise your judgment and reasoning in examining some issues, and deciding if there were USPAP compliance issues in the various illustrations. The course concludes with a brief discussion of reviewer responsibilities and a few tips for you.


Section 2, Part 4. The USPAP Connection

Before we begin the discussion of AO-20, let’s take a quick look at some examples of assignment requests clients make to a reviewer.

A client may want the reviewer to develop and report an opinion as to the quality of another appraiser’s work, and:

1. only state the corrective action to be taken by the appraiser with regard to curing any deficiency, leaving the client to decide whether to interact with the appraiser to accomplish the correction; or

2. act on behalf of the client to interact with the appraiser that prepared the original work to ensure any deficiency is appropriately corrected by that appraiser; or

3. make corrections to cure an error, such as a mathematical miscalculation, by showing what the calculation would have been if correct, but without expressing the result as the reviewer’s own opinion of value; or

4. make corrections to cure a deficiency, expressing the result as the reviewer’s own opinion of value, which is to be developed within the same scope of work as was applicable in the assignment that generated the original work; or

5. make corrections to cure a deficiency, expressing the result as the reviewer’s opinion of value, which is to be developed using a different scope of work than was applicable in the assignment that generated the original work; or

6. regardless of the appraisal review result, develop his or her own opinion of value using the same scope of work as was applicable in the assignment that generated the original work; or

7. regardless of the appraisal review result, develop his or her own opinion of value using a different scope of work than was applicable in the assignment that generated the original work.

Now consider these questions:

Should the scope of work for each of these assignments be the same?

Which of these requests contain both an appraisal review plus a value opinion by the reviewer?


Do any of them lend themselves to two completely separate assignments (an appraisal review assignment and then a separate assignment to perform an appraisal outside the context of the appraisal review assignment?)

Does each of the remaining examples contain only an appraisal review assignment with no steps by the reviewer to form his or her own opinion of value?

We will discuss these questions, and will address related issues in AO-20.

I. ADVISORY OPINION 20, An Appraisal Review Assignment That Includes the Reviewer’s Own Opinion of Value

A. The Issue and Background

1. A client may want an appraiser, who is functioning as a reviewer, to develop and report his or her own opinion of value (an appraisal) within an appraisal review assignment. This Standard applies to written reports. Therefore:

a. How does the assignment change when the scope of work includes the development of the reviewer’s own opinion of value?

b. What language in appraisal review reports indicates when the reviewer did or did not develop his or her own opinion of value?

2. An appraisal review actually becomes a two-stage assignment when the client wants the reviewer to develop and report his or her own opinion of value (an appraisal) within an appraisal review assignment: an appraisal review plus a value opinion by the reviewer.

3. The reviewer must clearly identify the purpose and intended use of the appraisal review and establish a well-defined scope of work with his or her client to ensure a clear understanding of the appropriate steps in an assignment.

B. Terminology

1. USPAP uses the term Appraisal Review to identify the activity of a reviewer in an appraisal review assignment. We discussed other terms that are often used, such as desk review, field review, and technical review. While such terms may be convenient labels, they do not necessarily impart the same meaning in every circumstance and can result in misunderstanding the function being performed by a reviewer.

2. Reviewers should accurately define the scope of work rather than just using labels. The Comment to SR 3-2(g) requires the reviewer to:


…determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE.

Also SR 3-5(g) requires the reviewer to state the scope of work used to develop the appraisal review… The requirements are to ensure that an intended user of appraisal review results is not misled as to the reviewer’s scope of work and the basis for his or her opinions and conclusions.

The terms review appraisal and review appraiser are sometimes used in practice, primarily to refer to the marketing of services or to an appraiser’s functional status in employment. These phrases are not used in STANDARD 3 to avoid, in part, giving confusing implications that, for example only, perhaps an appraisal is always part of a review.

C. How Purpose and Intended Use Affect Scope of Work

1. A reviewer’s scope of work in an appraisal review assignment is determined primarily by the purpose(s) of the assignment and the intended use of the assignment results. Standards Rule 3-2(b) states, in part, that the reviewer must identify… the intended use of the reviewer’s opinions and conclusions. In addition, SR 3-2(c) states the reviewer must identify the purpose of the appraisal review, including whether the assignment includes the development of the reviewer’s own opinion of value or review opinion related to the work under review.

2. We addressed some questions in the first part of this section and discussed differences based on the scope of work involved. The reviewer must carefully develop the scope of work as required by SR 3-2(g), and state the scope of work in the report as required by SR 3-5(g). The concluding language used should be consistent with the scope of work decision.

D. Scope of Work and the Reviewer’s Opinion of Value

1. A reviewer has an additional scope of work requirement when an appraisal review assignment requires a reviewer to develop his or her own opinion of value. This additional scope of work requirement is set forth in the Comment to SR 3-2(g), which states:

Determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE.

Comment: Reviewers have broad flexibility and significant responsibility in determining the appropriate scope of work in an appraisal review assignment.

Information that should have been considered by the original appraiser can be used by the reviewer in developing an opinion as to the quality of the work under review.


Information that was not available to the original appraiser in the normal course of business may also be used by the reviewer; however, the reviewer must not use such information in the reviewer’s development of an opinion as to the quality of the work under review.

2. A reviewer, when expressing an opinion of value, must comply with STANDARD 1, 6, 7, or 9 as applicable. The reviewer employs an extraordinary assumption when he or she uses items from the work under review that he or she concludes are credible and in compliance with the applicable development standard. This is because, unless the reviewer actually replicates the steps necessary to develop those items, the reviewer is assuming the integrity of that work without personal verification. Items not deemed credible or in compliance must be replaced with information or analysis by the reviewer, developed in conformance with the appropriate development standard as applicable, to produce a credible value opinion.

3. The client, in some appraisal review assignments, needs a reviewer’s opinion to be developed under a different scope of work than in the original appraisal. In such cases, a different scope of work from the original appraisal, and use of any different information or information that was either not used by or available to the original appraiser, could result in a different appraisal results. This does not mean that either set of results is “wrong” per se. In any event, the reviewer should not use information unavailable to the original appraiser as the basis to discredit the original appraiser’s opinion of value. The reviewer might, however, use data not available to the original appraiser when developing his or her own opinion of value.

E. Appraisal Review Report Content

1. The reviewer’s opinions and conclusions can vary significantly depending on the purpose and intended use of the appraisal review.

a. A reviewer must use care in choosing the language stating his or her opinions and conclusions so that the intended user of the appraisal review report will not be misled as to the scope of work completed and the meaning of the reviewer’s stated opinions and conclusions in the report.

b. 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 the report that must only be stated.

c. Changes to the report content by the reviewer to support a different value conclusion must match, at a minimum, the reporting requirements for an Appraisal Report.


2. If the assignment is only to develop an opinion as to the quality of another appraiser’s work, the reviewer must use extreme care to ensure the appraisal review report does not include language that implies the reviewer developed an opinion of value concerning the subject property of the original work.

a. The appraisal review report content in this instance must include:

the information set forth in Standards Rules 3-5(a) – (h); and

the reviewer’s certification similar in content to Standards Rule 3-6.

b. Language in an appraisal review report without an opinion of value relates to the quality of the work under review, including the opinion of value stated in that work, but does not suggest either concurrence or a different opinion of value by the reviewer. It is important that this language be consistent with the scope of work described in the appraisal review report.

c. Below are examples of language that might be used in an appraisal review report that does not express an opinion of value and does not constitute evidence of an appraisal by the reviewer (Examples taken from a more comprehensive list in AO-20 under Item D):

the value opinion stated in the appraisal report is(or is not) adequately supported.

the value conclusion is (or is not) appropriate and reasonable given the data and analyses presented.

I reject the value conclusion as lacking credibility due to the errors and/or inconsistencies found.

3. When the reviewer develops an opinion as to the quality of another appraiser’s work PLUS the reviewer’s own opinion of value, the appraisal review report content must include:

the information set forth in Standards Rules 3-5(a) – (i); and

the reviewer’s certification similar in content to Standards Rule 3-6.

a. The appraisal-related content of the appraisal review report, in combination with the content of the original work under review that the reviewer concludes is in compliance with the Standards applicable to that work, must at least match the report content required for an Appraisal Report.

b. The reviewer does not have to replicate or duplicate materials in the work under review that he or she concludes is in compliance with the Standards applicable to that work. The portions of the work under review that the reviewer concludes are


in compliance with the applicable Standards can be incorporated by reference using an extraordinary assumption.

c. Examples of language that might be used in an appraisal review report that signifies a value opinion (i.e., either by concurrence or by indication of a numeric point, a range, or a relationship to a numeric benchmark) includes:

I agree (or disagree) with the value.

In my opinion, the value is the same (is too high or is too low.)

d. Such language, or language that conveys similar meanings to intended users of the report, indicates the reviewer has completed the steps required to develop his or her own value opinion. Such language shows that the reviewer has either agreed with the appraiser’s value opinion in the underlying work, and has adopted that value opinion as his or her own, or has developed a different opinion of value of his or her own. It is important that this language be consistent with the scope of work described in the appraisal review report.

e. If the reviewer rejects the value, he or she should use care in how that result is presented. If the language of the rejection is based on errors or inconsistencies in the original work and does not include any qualifiers that would relate to a direction in value, it does not imply an appraisal by the reviewer.

f. If such a rejection, however, is stated relative to a value or value range, such as indicating a direction in value (i.e., more than, less than) or to an established benchmark, that language indicates the appraisal review has taken on the opinion of value characteristic of an appraisal. This distinction is important and it must be kept in mind when the reviewer is composing language regarding the original appraiser’s opinions or conclusions.

g. The language, regardless of the category under which such language may fall, must also be consistent with the purpose, scope of work, and intended use of the appraisal review assignment results.

h. The requirements in a real property appraisal review assignment with the reviewer’s opinion of value are summarized as follows (the sequence of steps to be completed is presented in order, See AO-20):

The reviewer develops opinions and conclusions about the quality of the work under review.

The reviewer develops an opinion of value for the subject property of the work under review.

The reviewer then communicates the opinions and conclusions developed in the first two steps in the report.


II. Applying USPAP to the Review Report – Illustrations

Instructions. Read through the following illustrations and provide a brief response. You may work alone or with two or three people seated near you.

Illustration 14

In performing an appraisal review, a reviewer disagrees with the value conclusion in the original appraisal. What is the correct action the reviewer should take according to USPAP?

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Illustration 15

An appraiser was recently asked to review another appraiser’s appraisal review report. Must the appraiser comply with STANDARD 3 in completing this assignment?

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Illustration 16

I recently completed an appraisal and forwarded the report to the client. After receiving the report, the client called and stated that they have another appraisal that was recently completed and the values differ significantly. They asked if I would look over the other report and point out the primary differences. Does this assignment constitute an appraisal review?

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Illustration 17

My client, a government agency, has obtained two appraisals of the same real property, and has asked me to review both and reconcile them to a single value. Can I perform this assignment under USPAP?

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Illustration 18

I am a real property appraiser. I want to submit a complaint regarding an appraisal report to my state appraiser regulatory agency. I would like to express my opinions and comments about the quality of the appraisal report in a cover letter. Am I obligated to comply with STANDARD 3 regarding my opinions and comments regarding the appraisal? If so, who is my client?

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Illustration 19

In an appraisal review assignment for which the reviewer develops his or her own opinion of value, is it permissible for the reviewer to use an effective date that differs from the work under review?

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Illustration 20

Is it ethical for an appraiser, acting as a reviewer, to change the reported value opinion in the original appraiser’s work without the knowledge or consent of the original appraiser?

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Illustration 21

I am a state certified appraiser and recently performed an appraisal assignment for a client. The client subsequently had an appraisal review performed on my appraisal and the reviewer brought up some issues that I do not agree with. My client has asked me to provide a written “rebuttal” explaining why I believe I’m correct.

In “defending” my appraisal, I am concerned that I would be, at least indirectly, offering an opinion on the quality of another appraiser’s work that was performed as part of an…appraisal review, which would mean that I would be required to comply with STANDARD 3. Furthermore, I am concerned that in this “rebuttal” I may not be able to be objective and unbiased, since I have an interest in defending my original appraisal. How can I perform this “rebuttal” without violating USPAP?

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Illustration 22 – Class Discussion Question

An appraiser has accepted a retrospective appraisal review order on a property that has gone through foreclosure. The reviewer notes the name of the original appraiser in the report to be reviewed, and realizes that the appraiser has a reputation for being “flexible” in reaching target values. The appraiser is also reputed to be able to overlook adverse property conditions. In fact, the reviewer has previously filed complaints with the state appraiser board based on previous reviews of this same appraiser’s work. The board imposed minor sanctions, but as far as the reviewer is concerned, the sanctions were much too lenient. How should the reviewer proceed in this assignment?

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Illustration 23 – Class Discussion Question

An appraiser performs a retrospective appraisal review and determines that the comparable sales used in the work under review are in a location where values are higher than in the subject neighborhood. More similar sales, including two in the same subdivision as the subject, were available, but not used. In addition, the gross living areas of the comparable sales are understated and the subject’s gross living area appears to be overstated. The market value conclusion in the original appraisal report is significantly higher than the reviewer’s opinion. The reviewer believes that the original appraiser was pushing value.

How should the reviewer report the results of this assignment?

Does the reviewer have any additional responsibility in this case which involves suspected fraud?

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Section 2, Part 5. Reviewer’s Responsibilities

An appraiser performing as a reviewer has responsibilities to the client and other intended users, to the appraiser whose work is under review, and to the assignment conditions of each appraisal review assignment. Some of the responsibilities overlap, while others do not. The following discussion is not all-inclusive, but it presents a good start. Maybe you can think of additional responsibilities that should be here.

I. Reviewer’s Responsibilities in Developing and Reporting the Results of an Appraisal Review Assignment

A. Why a client wants an appraisal review

1. It is a given that clients who use appraisal reviews want to ascertain if the work to be reviewed is credible so they rely on the reviews to assess the work completed by the original appraiser.

2. Many times clients have specific reasons for obtaining appraisal reviews that go beyond the general credibility issue. Examples include:

The reviewer may be asked to either accept or reject an appraisal report based upon a criteria set by the client.

The reviewer may be asked to provide verification of data used in the assignment and make a determination as to its accuracy; the verifications could be based on general data or specific characteristics, both physical and legal, relating to the subject property involved.

The reviewer may be asked to form his or her own opinion as to the value of the property involved in the work under review.

3. Some clients are not specific about why they need an appraisal review. In all instances, the reviewer must communicate with the client as to the reason(s) a review is needed, as that need translates to the intended use of the appraisal review. The reviewer, in conjunction with the client, is responsible for identifying the problem to be solved.

4. The reviewer must then determine the scope of work necessary to address the needs of the intended users in the assignment. Some key scope of work questions include:


a. What is to be reviewed? Will it be an entire report, only a portion of a report, a workfile, or something else?

b. Will the reviewer develop and report his or her own value opinion?

c. Will an inspection of the property, market area, and comparable data be required of the reviewer?

5. The reviewer should establish whether communication with the appraiser whose work is under review is expected. Depending upon the client, the reviewer may be asked to communicate directly with the appraiser, while in other instances, the reviewer is not privy to the identity of the appraiser at all. There are legitimate reasons for both scenarios.

6. The reviewer should clarify with the client that the scope of work decision must be extensive enough to produce credible assignment results.

B. Report Format

1. The reviewer may have to discuss with the client how the results of the appraisal review are to be communicated. The format of the appraisal review is not a USPAP requirement, but is a function of the client’s needs. If a form report is requested (as is common in the majority of residential appraisal review assignments for the lending clients), the reviewer may have to supplement the form as necessary to comply with USPAP.

2. If a reviewer is writing a narrative report or using a format he or she created, the reviewer is responsible for ensuring that the appraisal review report complies with USPAP, as well as meeting the needs of the client and any other intended users.

C. Reviewers’ Development Responsibilities

1. Judgments about the quantity and quality of the data and analysis in the work under review include knowledge of when issues are important or are immaterial to the assignment (this addresses the reviewer’s competency throughout the process.)

2. The reviewer must decide if the judgments made as part of the work under review are acceptable, or whether additional support and/or analysis is needed based on the intended use.

3. Reviewers must conduct the appraisal review of the appraisal in light of the market conditions as of the effective date of the appraisal. The reviewer considers data that was available to the appraiser at the time the appraisal was performed.


4. Reviewers are responsible, as necessary, to address client and regulatory guidelines in addition to USPAP compliance. Some of the entities who have such additional guidelines are Fannie Mae, Freddie Mac, FHA/HUD, and VA, as well as Interagency Group Members.

D. Reviewers’ Reporting Responsibilities

1. Clear disclosure of any extraordinary assumptions or hypothetical conditions used is required by USPAP, and is needed so the client and users of the appraisal review report can make decisions. A client may decide to change the appraisal review assignment based on these assumptions and conditions.

2. Reviewers are responsible for addressing all appropriate assignment conditions related to an assignment to ensure credible results.

3. Reviewers are responsible, as necessary, to address client and regulatory guidelines in addition to USPAP compliance. Some of the entities who have such additional guidelines are Fannie Mae, Freddie Mac, FHA/HUD, and VA, as well as Interagency Group Members.

4. When using pre-printed appraisal review forms (as well as self-generated forms), reviewers should review the language in the form in relation to USPAP. For example, the term “accurate” used on the One-Unit Residential Appraisal Field Review Report (Fannie Mae Form 2000/Freddie Mac Form 1032) is not typically used in connection with an appraisal. The Comment under the definition of Value in USPAP states:

Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value. In appraisal practice, value must always be qualified – for example, market value, liquidation value, or investment value.

Accurate implies a degree of precision that is not expected in such an opinion. Without some qualification, an appraiser performing an appraisal review does not understand the context in which accurate is to be measured. Is it accurate to the nearest $1,000 increment, within a 3% margin of error, or some other measure?

The form uses the language “effective date of the appraisal report”, which is confusing as it mixes two different dates. USPAP requires that each appraisal report state the effective date of the appraisal and the date of the report. The effective date of the appraisal is the date that establishes the context for the value opinion. The date of the report indicates when the appraisal report was completed and establishes the perspective from which the appraiser developed the opinion.


5. Appraisal Review as reviewed earlier in the course is defined as:

the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.

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

Given this definition, an appraisal review assignment may lead to the conclusion that a report is filled with errors, that the analysis is flawed, or that the data used was not appropriate. Some appraisal reports may include all of those deficiencies, yet have a value opinion that is close to the opinion the reviewer performing the appraisal review might conclude.

If the intent is to determine whether the reviewing appraiser agrees with the value conclusion in the work under review, or has an opinion that is reasonably close to that stated in the work under review, the answer should be rephrased in such a way to answer the question (and other such questions) on the form carefully. If the review appraiser states that he or she agrees with the value opinion stated in the work under review, the review appraiser has expressed a value opinion (an appraisal). We have covered that in our discussion of AO-20.

II. Reviewer’s Responsibilities to the Appraiser Whose Work is Under Review and to the Assignment Conditions

A. What, if any, obligations does the reviewer have to the appraiser whose work is under review?

1. Reviewers may or may not know the appraiser’s name when reviewing his or her work product. Thoughts on whether the reviewer should know vary from a strong yes to it is not necessary as it does not change the results review. Both extremes have validity, including:

The reviewer may be asked to communicate directly with the original appraiser to work through a problem within the work under review to assist the client and/or expedite the process.

The reviewer may ask the client for permission to contact the appraiser in an effort to address an issue that could assist in the review.

Identification of the original appraiser is necessary to address any conflict of interest or bias possibilities in some adversarial situations.


In quality control situations, the name of the original appraiser seems to be less important, and is usually eliminated.

Regardless of whether the reviewer knows the identity, he or she still has responsibilities to the appraiser whose work is under review.

2. The reviewer should not assume that because an appraisal review has been ordered, there must be something wrong with the report. The review should follow a logical progression, based on the scope of work to be completed. Some criteria to keep in mind include:

a. Read the report (or work) carefully, trying to follow the thought process and rationale leading to the conclusions. The reviewer should be able to conclude, ideally, that the appraiser’s conclusion is reasonable, based on the work.

b. Recognize that portions of reports are subject to interpretation and judgment, and try to make decisions objectively. Eliminate any preconceived preferences (rules of thumb, such as: “I would do it this way,” etc.)

c. Remember a report can be acceptable even with some minor errors, provided the report contains a reasonable value conclusion and that the errors do not continue throughout the document. The reviewer should not become too critical of insignificant items, but should be aware of errors that affect the credibility of the results. Such errors must be addressed.

d. Recognize the review should address the strengths as well as the deficiencies within the work under review.

e. Recognize that checklists are simply tools to help reviewers move through a process systematically. These lists are beneficial as they prevent sections of reports from being inadvertently omitted, confirm that the report conforms to the client’s requirements, and help verify consistency.

3. A reviewer has an obligation to report the results of an appraisal review as objectively as possible, with support provided for differences. STANDARD 3 should be reviewed in tandem with developing and reporting an appraisal review, as well as any supplemental client guidelines. The reviewer’s report generally discusses, for example:

a. If conclusions, including any value conclusions, are consistent with the analysis, and if the analysis is consistent with the data presented in the report.

b. What effect deficiencies noted in the appraisal review had on the concluded value.

c. If a problem had no material effect, then that point should simply be mentioned in the report.


d. Conclusions drawn from the appraisal review generally range from the report being reasonable and well supported to being rejected because of serious issues and no validity for any conclusions reached in the report. In any instance, the reviewer’s responsibility is to keep the appraisal review objective and to include supporting information for any differences between the reports.

B. Assignment conditions vary from assignment to assignment, and are relevant to the scope of work. A reviewer communicates with the client regarding assignment conditions as part of the identification of the problem.

1. Assignment conditions include items that affect the scope of work. Some assignment conditions are not a matter of choice, while others are. A reviewer is responsible for knowing and/or researching the assignment conditions related to a given assignment to ensure credible review assignment results. For example:

In completing an appraisal review for a lending client, the reviewer may be asked to review the report for compliance with USPAP and regulatory requirements.

The reviewer is asked to form his or her own value conclusion as part of the appraisal review assignment.

The reviewer may rely on information from the appraisal under review, and use an extraordinary assumption that the information is correct as expressed. For example, the reviewer who is completing an appraisal review does not inspect the subject of the work under review. In this case, the reviewer could use an extraordinary assumption.)

2. The reviewer may accept an assignment with these types of assignment conditions provided that the assignment results are credible in the context of the intended use. The SCOPE OF WORK RULE addresses this issue in the Scope of Work Acceptability section:

An appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignment results are not credible in the context of the intended use.

An appraiser must not allow the intended use of an assignment or the client’s objectives to cause the assignment results to be biased.


Section 2, Part 6. General Reminders for Appraisal Review Assignments

An appraisal review can be more time consuming and difficult than the original assignment, based on the scope of work involved. The following are some thoughts to keep in mind when reviewing all or a part of another appraiser’s work:

The work product, not the appraiser, is being reviewed.

The reviewer should not assume that simply because an appraisal report is being reviewed, something must be wrong.

Reviewers must always remain independent, impartial, and objective. They must not advocate the cause of interest of any party or issue. Reviewers must never perform an assignment with bias.

The work under review should always be examined in the context of the assignment elements applicable to the appraiser who performed the work under review.

The reviewer should provide rationale and support for any disagreement.

The reviewer should always begin the process with an open mind.

The reviewer should keep current with continuing education, professional standards, and appropriate regulatory standards.


APPENDIX

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