The Professional Appraiser Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 18

STUDENT LEARNING OUTCOMES List the Five Key Elements of becoming a Competent Appraiser Define the Typical State Requirements for Appraiser Licensing and Certification List at least Three Major Organizations of Professional Appraisers Outline the First Two Standards of USPAP Discuss the Common Career Paths for Appraisal Professionals 2 Page 588 © 2015 OnCourse Learning

18.1 THE APPRAISER’S BACKGROUND Five Key Elements to a Competent Appraiser Education Experience Knowledge Judgment Integrity Detailed on the slides that follow 3 Page 589 © 2015 OnCourse Learning

EDUCATION Reasons for Education General Benefits include Learning… Reasoning skills Communication skills Mathematics skills (Algebra & Geometry) Computer skills To Better Understand Factors that Influence Real Estate (Finance, Law, Economics, etc.) Specific knowledge of Appraisal Theories and Techniques – Principles & Procedures 4 Page 589 © 2015 OnCourse Learning

EDUCATION (Con’t.) General Educational Trends College-Level Education and/or College Degrees are necessary for… Professional Designations Licensing & Certification Numerous Colleges and Universities offer Certificate and Degree Programs Some Degrees are endorsed by the Appraisal Institute & American Society of Appraisers 5 Page 590 © 2015 OnCourse Learning

EDUCATION (Con’t.) Real Estate Courses Course Curriculum on Appraisal and Broker- related Real Estate Topics at… Community Colleges (AA & Certificate Programs) Private Educational Providers Appraisal Courses and Seminars offered by the Appraisal Institute, American Society of Appraisers, etc. # of Webinars & Online Courses Growing 6 Page 591 © 2015 OnCourse Learning

EDUCATION (Con’t.) Shared Ideas Meetings between Appraisers and other Real Estate Industry Participants offer… Form of Self-Improvement Shared Experiences & Ideas with Peers Opportunities for Referrals & Career Advancement Online Courses, Blogs and Discussion Boards are growing as a venue for shared ideas 7 Page 592 © 2015 OnCourse Learning

EXPERIENCE Education alone will not create a Competent Appraiser… Key Appraisal Skills are learned through On- the-Job Experience May take Six Months – Under the Supervision of an Experience Appraiser – to Produce a Credible Appraisal on your own Trainee-Produced Appraisals must be signed by a Certified Appraiser More Complicated Appraisals Require More and/or Specialized Experience 8 Page 592 © 2015 OnCourse Learning

KNOWLEDGE General Areas of Knowledge that are Important to Appraisers… Markets Be Aware of how they Function and Affect Prices and Trends Operations Characteristics and Management Procedures Market Data Develop Data Sources of Particular Kinds 9 Page 593 © 2015 OnCourse Learning

JUDGMENT …the operation of the mind, involving comparison and discrimination, by which knowledge and values and relationships are mentally formulated Essential Elements … Compare Distinguish Differences Recognize Relationships Arrive at Opinions Good Judgment comes from a combination of Education, Experience, Learning from one’s own mistakes, and considering opinions of others 10 Page 593 © 2015 OnCourse Learning

INTEGRITY Integrity is a critical characteristic; meaning… …complete, undivided, or unbroken Unimpaired; soundness; purity… Moral soundness; honesty; freedom from corrupting influence or practice… Integrity, along with Impartiality, is essential to Long-Term Success as a Professional Appraiser 11 Page 594 © 2015 OnCourse Learning

18.2 STATE LICENSE AND CERTICIATION REQUIREMENTS State and Federal Laws requiring appraisals to meet certain requirements became effective in 1993, pursuant to Title IX of FIRREA. Key Appraisal Requirements: Federally Related Transactions focus of FIRREA Performed by Licensed or Certified Appraisers Appraisals must Conform to USPAP Qualifications of Appraisers and USPAP itself set by The Appraisal Foundation (AQB and ASB) 12 Page 596 © 2015 OnCourse Learning

LEVELS OF APPRAISAL PRACTICE Trainee License: Appraisal of properties that the supervising appraiser is permitted to appraise, under close supervision. Licensed Residential: Appraisal of non-complex one to four-unit residential properties, up to a transaction value of $1 million; complex properties up to a transaction value of $250,000. Certified Residential: Appraisal of all residential properties, regardless of transaction value or complexity. Federal guidelines limit this practice to property with one to four dwelling units. Appraisal of nonresidential properties with a transaction value up to $250,000 is also authorized. Certified General: Appraisal of all real estate property transactions, without regard to property type, transaction value, or complexity. 13 Page 597 © 2015 OnCourse Learning

BASIC EDUCATION REQUIREMENTS Hours must involve instruction in specific subject modules (e.g. Principles & Procedures, USPAP, etc.) These are minimum requirements; some States may differ (i.e. CA requires 150 Hrs. for Trainee) 14 Page 597 © 2015 OnCourse Learning

COLLEGE EDUCATION REQUIREMENTS Effective January 1, 2015, the AQB requires 30 semester credit hours of College-Level Education, or an Associate’s Degree or higher, for those seeking to be a Licensed Residential appraiser; and has deleted it as an option for those seeking the Certified Residential and Certified General Certifications. The latter now require Bachelor’s Degrees. See page 598 for specifics 15 Page 598 © 2015 OnCourse Learning

BASIC EXPERIENCE REQUIREMENTS All Experience must comply with USPAP Obtaining and Documenting Experience poses a Major Challenge to those Entering the Appraisal Profession As of October 2015 the AQB began exploring alternative tracks for experience (stay informed!) 16 Page 599 © 2015 OnCourse Learning

18.3 APPRAISAL GROUPS Benefits of membership… Professional Designations Major Source of Training (Education) and other Resources & Publications Major Organizations Appraisal Institute (MAI, SRA, AI-GRS & AI-RRS) American Society of Appraisers (ASA, AM & FASA) National Association of REALTORS® (RAA & GAA) Check for Local Chapters 17 Page 600 © 2015 OnCourse Learning

APPRAISAL GROUPS (Con’t.) Specialized Groups International Right of Way Association (IRWA) American Society of Farm Managers and Rural Appraisers International Association of Assessing Officers (IAAO) National Association of Independent Fee Appraisers Institute of Business Appraisers Association of Machinery and Equipment Appraisers 18 Page 605 © 2015 OnCourse Learning

18.4 STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE Uniform Standards of Professional Appraisal Practice (USPAP)… Originally Adopted in ; subsequently the Appraisal Foundation was founded The Appraisal Standards Board (ASB) of the Appraisal Foundation maintains USPAP USPAP is a living document; updated every two years ( Edition of USPAP was adopted but not yet published when this textbook was completed) 19 Page 607 © 2015 OnCourse Learning

THE USPAP RULES Ethics Rule Requires an Appraiser to Comply with USPAP when Obligated by Law or Regulation, or by Agreement Covers Three General Areas of Practice.. Conduct Management Confidentiality 20 Page 607 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Conduct Section of the Ethics Rule Requires that the appraiser perform all assignments ethically and competently, with impartiality, objectivity, and independence, and without accommodation of personal interests. Requires an Appraiser to disclose any current of prospective interests, and the performance (or not) of any services involving the property within the prior three years, in the Certification 21 Page 608 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Management Section of the Ethics Rule Prohibits the payment of any undisclosed fees, commissions, or things of value in connection with the procurement of an assignment Accepting compensation for developing an opinion of value that is contingent upon the value conclusion or result is also forbidden 22 Page 608 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Confidentiality Section of the Ethics Rule Requires that the appraiser not reveal confidential factual data obtained from the client, or the results of an assignment to anyone other than: the client and those he/she has authorized by law; state enforcement agencies and third parties authorized before “by law”; and a duly authorized professional peer review committee, state enforcement agencies and authorized third parties 23 Page 608 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Record Keeping Rule Requires that the appraiser prepare and keep a comprehensive work file for at least five years after each assignment or at least two years after the final disposition of any judicial proceeding where testimony was given Retain True Copies of all Written Reports 24 Page 608 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Competency Rule An Appraiser Must… Be Competent to Perform the Assignment; Acquire the Necessary Competency to Perform the Assignment (individually, or, if needed, in association with others); or Decline or Withdraw from the Assignment 25 Page 609 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Scope of Work Rule For each Appraisal and Appraisal Review Assignment, an Appraiser Must... Identify the Problem to be Solved Determine and Perform the Scope of Work necessary to Develop Credible Assignment Results; and Disclose the Scope of Work in the Report 26 Page 609 © 2015 OnCourse Learning

THE USPAP RULES (Con’t.) Jurisdictional Exception Rule If any part of USPAP is contrary to any applicable Law or Regulation of any Jurisdiction, only that part shall be void and of no force or effect in that Jurisdiction; and disclose the Exception in the Report 27 Page 609 © 2015 OnCourse Learning

STANDARDS OF PRACTICE Standard 1 (Development) In developing a real property appraisal, an appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete the research and analyses necessary to produce a credible appraisal 28 Page 609 © 2015 OnCourse Learning

STANDARDS OF PRACTICE Standard 2 (Reporting) In reporting the results of a real property appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading 29 Page 609 © 2015 OnCourse Learning

PROTECTING THE PUBLIC Impartiality The appraiser should not have an undisclosed interest in the property being appraised The appraisal fee should not be contingent on the amount or direction of value concluded, or on the occurrence of any event The appraiser should not directly pay or receive referral fees, so that referrals will be objectively considered Disclosure and Methodology Support for the Conclusion 30 Page 610 © 2015 OnCourse Learning

PROTECTING THE CLIENT Competency Appraisers should take on only those appraisal assignments that are within their ability Appraisers should only accept assignments that they anticipate they can complete within the agreed-upon time period Once an Appraiser accepts an assignment, he or she should perform it competently and adequately, regardless of the agreed-upon fee (there may be some exceptions) Confidentiality 31 Page 611 © 2015 OnCourse Learning

PROTECTING THE PROFESSION Competitive Activity Competition for business should be done in a professional manner Appraisers should not cast unsupported doubts about other’s capabilities in an attempt to take away or get business Cooperative Activity Promote a “code of behavior” amongst appraisers Share data and ideas with other appraisers (without violating Confidentiality) 32 Page 611 © 2015 OnCourse Learning

18.5 APPRAISING AS AN OCCUPATION Who Do You Work For? Institutional Appraiser Salaried Staff Position Public – Assessor, General Services Dept., IRS, HUD, BLM, Transportation Agencies, etc. Private – Lenders, Life Insurance, REITS, Railroads, Utilities, Large Corporations Fee Appraiser Paid a Fee per Assignment Small or Large Offices; May work out of home 33 Page 612 © 2015 OnCourse Learning

LOAN VS. OTHER ASSIGNMENT TYPES Loan Appraisals Pressures exist on appraisers… To Speed Up the Process & Keep Fees Low To Meet the Number or Make the Deal Volume dependent on level of loan activity Monitoring of Quality and Consistency via the Collateral Underwriter (CU) program Other Intended Uses Varied types, & not dependent on loan activity and related pressures; but volume not as great 34 Page 616 © 2015 OnCourse Learning

CHAPTER SUMMARY Becoming a competent appraiser requires many different skills. Besides pursuing a formal education, you also need to develop your knowledge of markets and real estate operations. This kind of knowledge is more often gained through field experience than in the classroom. 35 Page 618 © 2015 OnCourse Learning

CHAPTER SUMMARY (Con’t.) Having sound judgment is also an important skill for an appraiser. Developing good judgment comes from a combination of experiences: in the field, in education, and as a result of self-review. Integrity is also essential! Licensing and certification requirements, and complying with USPAP, are important to the professional appraiser. 36 Page 618 © 2015 OnCourse Learning

IMPORTANT TERMS & CONCEPTS Competency RuleImpartiality ConductInstitutional Appraiser ConfidentialityIntegrity DesignationsJurisdictional Exception Rule Ethics RuleManagement ExperienceRecord Keeping Rule Federally Related TransactionsScope of Work Rule Fee Appraiser 37 Page 619 © 2015 OnCourse Learning