Good Appraisal Reports Stephen L. Ott, Ph.D. Appraisal, Compensation and Indemnity Specialist

Good Appraisal Reports Characteristics of a good appraisal reports for APHIS  By private professional appraisals  APHIS employees Critique of past appraisal reports

Good Appraisal Reports A good appraisal report for APHIS leads you to the value  Not only will you be in agreement with valuation, but will have enough information so you could explain / defend valuation to others A poor appraisal report for APHIS simply tells you the value  You may not have enough information to judge the reasonableness of values presented Private appraisers follow USPAP guidelines

USPAP Standards Standard Rule 8-2  Each written personal property appraisal report must be prepared under one the following three types of appraisal report writing options, and it must state which of the following report options is being used: the Self-Contained Appraisal Report, the Summary Appraisal Report, or the Restricted Use Appraisal Report  APHIS desires Self-Contained Appraisal Reports as they are the most complete

USPAP: Self-Contained Appraisal Reports Items included in a self-contained appraisal report (Standard Rule 8-2)  Generally on Title Page  State the identity of the client and any intended users, by name or type  State the effective date of the appraisal  It is the date which appraisal was based  The effective date may be retrospective, current, or prospective relative to the date when the work was done  Also  What is being appraised  Who is doing the appraisal  What type of appraisal: self-contained or summary

SELF-CONTAINED APPRAISAL OF Holstein-Jersey Crossbred Cow IN POSSESSION OF John Goodhands ADDRESS 123 ABC Rd Dairyland, USA PREPARED FOR I.M. Boss, AVIC USDA:APHIS:VS EFFECTIVE DATE 12/2/2008 PREPARED BY Jane Best, AIC USDA:APHIS:VS

USPAP: Self-Contained Appraisal Reports State the intended use of the appraisal Describe the subject property sufficiently enough so that it can be identified, including its physical and economic characteristics, as may be relevant to the assignment State the property interest (% owned)  Especially if not 100% State all assumptions, hypothetical conditions, and limiting conditions that affected the analysis, opinions, and conclusions of the appraisals  Hypothetical conditions: that which is contrary to what exists, but is supposed for the purpose of analysis  APHIS assumes disease free status for valuation purposes

USPAP: Self-Contained Appraisal Reports Describe (in detail) the information analyzed, the appraisal procedures followed, and the reasoning that supports the analysis, opinions, and conclusion of the appraisal  The heart of an appraisal report  It is the detail and completeness that differs from a summary report Include a signed statement that one is in compliance with Standard Rule 8-3

USPAP: Self-Contained Appraisal Reports Standard Rule 8-3  Reporting of facts and analyses  The statements of fact in this report are true and correct  The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, impartial, unbiased professional analyses, opinions, and conclusions  My analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice

USPAP: Self-Contained Appraisal Reports Standard Rule 8-3 (continued)  Work is unbiased, i.e. don’t have a stake in the out come  I have no present or prospective interest in the property that is the subject of this report, and I have personal interest with respect to the parties involved  I have no bias with respect to the property that is the subject of this report or to the parties involved with this assignment  My engagement in this assignment was not contingent up developing or reporting predetermined results

USPAP: Self-Contained Appraisal Reports Standard Rule 8-3 (continued)  Results are independent of compensation  My compensation is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value that favors the cause of the client, the amount of the value estimate, attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal

USPAP: Self-Contained Appraisal Reports Standard Rule 8-3 (continued)  Property inspection and assistance from others  I have (or have not) made a personal inspection of the property that is the subject of this report. (If more than one person signs the report, then need to specify which individuals did and which individuals do not make a personal inspection.)  No one provided significant professional assistance to the person signing this report. (If someone did provide significant professional assistance, that person’s name must be stated).

Parts of a Good Appraisal Report

USPAP Boiler Plate Appraisal Process Purpose Assumptions and Limitations Conflict of Interest Appraiser’s Qualification

Appraisal Process Discusses Which Method Used  Generally sales comparison approach  Other Methods  Income, Cost-of-Replacement Sales Comparison  Based upon actual sales data  Self-contain report will include sales data used  Expert opinion (auctioneers) is not a sales comparison

Purpose of Appraisal  Estimate net value if sold in appropriate market  on-farm value, i.e. subtract trucking and other marketing charges from market price is appropriate  Often isn’t done, which increase valuation Assumptions & Limitations  Can be a clue if key information wasn’t included  APHIS Assume animals are free of disease of interest

Conflict of Interest Comes from relationships  Need to judge on your own, not what is stated Obvious  Partial ownership  Relative Not so obvious  Have direct business dealings, e.g. banker, auctioneer  Desire to have direct business dealings  Fellow producer  Membership in same professional – personal organizations Better to use someone out-of-state than someone local with potential conflict of interest

Qualification / Experience Have they received training from the American Society of Agricultural Appraisers (ASAA) or similar organization  If yes, then you should expect a high quality report  Should know what is a self-contained appraisal report

Heart of a Good Appraisal Description of Subject Property Description & Justification of Sales Comparables Adjustments to Comparables Takes into consideration various characteristics that influence value

Description of Subject Property General herd background Individual characteristics if individual animal appraisal Documentation of above average quality if so claimed  Registration papers are not sufficient to support above average quality  Need documentation of above average productivity or above average selling price

Description & Justification of Sales Comparables Sales Comparables are listed with their prices Should be of similar quality to subject property  Documented: productivity, pedigrees, selling prices of offspring / herd mates Very Important: adjustments made to bring sales comparables into alignment with subject property  Often not included  If not included, then don’t have a self-contained appraisal report

Use of Appropriate Characteristics that Influence Value Potential Characteristics  Age, sex, breed, productivity measures (milk production) Excluding important characteristics can caste doubt on the validity of the appraisal  Depreciation (impact of age) in breeding (milk) animals should be incorporated in value  If not, must state why and have supporting evidence

Summary A Good Appraisal Report Has good description of animal / herd so others can judge relative quality Discusses comparables used and why they are appropriate comparables Includes key parameters that influence value  Age, sex, breed, productivity, etc. Has detailed discussion on how value was determined so others can pass judgment reasonableness of value Finally it leads you value, not simply tells you value