1. 1 Is USPAP Good for Residential Appraisers? Friday, August 6, 2004

2. 2 Introduction Moderator Dave Snook, ASB Chair 1996 and 1997 Instructor Danny Wiley, ASB Chair 2002 - 2004 Schedule Materials Housekeeping

3. 3 Goals for the Day Survive – After all, it IS USPAP!! Have a little fun Share useful information Take home practical information Answer YOUR Question “This may be a little uncomfortable”

4. 4 The Question Is USPAP Good for Residential Appraisers?

5. 5 My (Expected) Answer USPAP Is Good for ALL Appraisers

6. 6 Public Trust USPAP Promotes Public Trust in the Appraisal Profession It is that trust that makes an appraiser’s opinion valuable

7. 7 Benefits of USPAP Provides common basis for appraisers to follow in an assignment Provides protection for appraisers to defend against unwarranted charges/claims Provides users and courts a source of reference Facilitates uniform enforcement

8. 8 Topics For Today Who/What is the ASB Review of Fundamental Concepts Significant Changes for 2005 Changes for 2004 Scope of Work vs Departure Other Issues

9. 9 Appraisal Standards Board Danny Wiley, Chair (4 years) Carla G. Glass, Vice-Chair (4 years) Lawrence E. Ofner (6 years) Gregory J. Accetta (2 years) Paula K. Konikoff (2 years) Dawn M. Molitor Gennrich (2 years)

10. 10 Duties of the ASB Writes and Interprets the Uniform Standards of Professional Appraisal Practice (USPAP). Promulgates USPAP

11. 11 Primary USPAP Concepts Assignment Elements Problem Identification Scope of Work

12. 12 Assignment Elements Client & Intended Users Intended Use Type and Definition of Value Effective Date Assignment Conditions Subject & Relevant Characteristics

13. 13 Problem Identification Problem Identification Intended Use Type and Definition of Value Assignment Conditions Effective Date Relevant Characteristics Intended Users

14. 14 Client & Intended Users Identified by the appraiser through communication with the client at the time of the assignment. Obligations to intended users impose development and reporting requirements.

15. 15 Intended Use Established by the client Identified by the appraiser through communication with the client at the time of the assignment An appraiser must not allow the intended use or a client’s objectives to cause the assignment results to be biased.

16. 16 Intended Use Development - scope of work Extent of research and analysis Reporting - level of detail in report Benchmark Credibility Due Diligence

17. 17 Type and Definition of Value Provides the objective basis for determining “what kind” of information and analysis to include in these processes.

18. 18 Intended Use & User Provide objective basis for deciding “how much” information and analysis to include in the development and reporting processes

19. 19 Effective Date Effective date Retrospective Current Prospective Date of the report

20. 20 Assignment Conditions Include, among other things, assumptions, extraordinary assumptions, hypothetical conditions, supplemental standards, and jurisdictional exceptions Driven by intended use and intended users

21. 21 Subject Property Relevant characteristics identified by the appraiser Relevant characteristics driven by Type and definition of value Intended use Relevant characteristics drive relevance of Standards Rules

22. 22 Problem Identification Problem Identification Intended Use Type and Definition of Value Assignment Conditions Effective Date Relevant Characteristics Intended Users

23. 23 Scope of Work Public Trust Ethics Competency Problem Identification Scope of Work Performance Standards Credible Assignment Results

24. 24 Significant Changes for 2005 Reporting of Exposure Time Reporting Requirements Related to Extraordinary Assumptions and Hypothetical Conditions When Does USPAP Apply?

25. 25 Reporting of Exposure Time Currently required to report exposure time whenever developing an opinion of market value This requirement is in Statement No. 6

26. 26 Reporting of Exposure Time Confusion about the term Not in the “normal” reporting Standards Is this truly necessary?

27. 27 Reporting of Exposure Time Starting in 2005, this will be required only when significant to the assignment

28. 28 Extraordinary Assumptions/ Hypothetical Conditions EXTRAORDINARY ASSUMPTION: an assumption, directly related to a specific assignment, which, if found to be false, could alter the appraiser’s opinions or conclusions.

29. 29 Extraordinary Assumptions/ Hypothetical Conditions HYPOTHETICAL CONDITION: that which is contrary to what exists but is supposed for the purpose of analysis.

30. 30 Extraordinary Assumptions/ Hypothetical Conditions Currently required to: Analyze Impact on Value Disclose in Conjunction with Each Opinion and Conclusion Affected

31. 31 Extraordinary Assumptions/ Hypothetical Conditions For 2005 USPAP: Clear and Conspicuous Disclosure Warning in Report

32. 32 When Does USPAP Apply? AO-21 Individuals perform numerous roles within the broad realm of property services

33. 33 What does acting “as an appraiser” or performing a service “as an appraiser” mean? “Acting as an appraiser” means representing oneself as an appraiser Appraiser: is one who is expected to perform property services competently and in a manner that is independent, impartial, and objective When Does USPAP Apply?

34. 34 What are the responsibilities of an appraiser regarding intended user expectations? The appraiser has a professional responsibility to recognize the capacity in which he or she is performing. The responsibility includes inquiry about, and recognition of, the client’s expectations. When Does USPAP Apply?

35. 35 What are the USPAP obligations for property services outside of appraisal practice? An appraiser acting in another role must ensure that intended users are not misled as to the individual’s role in providing that property service. When Does USPAP Apply?

36. 36 AO-21 Illustrations Brokerage and Appraisal Appraisal Review Rent Survey Appraisal and Market Information Property Measurement When Does USPAP Apply?

37. 37 2004 Changes - What is it? It’s a new assignment!

38. 38 It’s a New Assignment An appraiser has previously appraised the property, then is asked to: Readdress (or transfer) the report to another party Provide subsequent appraisal involving the property (update) Appraise the property for a new client

39. 39 It’s a New Assignment The common feature of these requests is that the appraiser has previously appraised the property that is the subject of the new request. How does an appraiser deal with these situations?

40. 40 It’s a New Assignment Assignments linked to prior assignments Update of a Prior Assignment (AO-3) Readdressing (Transferring) a Report to Another Party (AO-26) Appraising the Same Property for a New Client (AO-27)

41. 41 Assignments are Specific The characteristics of a given assignment are defined by assignment elements Assignment elements are the basis for: Scope of work Content and level of report Assignment results are specific to assignment elements and the assignment

42. 42 Assignments are Specific Modification of the assignment elements alter the scope of work and report content. When an service is requested on a property that was the subject of a previous assignment, the scope of work in the new assignment may be different from the scope of work in the prior one.

43. 43 Readdressing/Transferring AO-26 Simply put, USPAP does not allow readdressing a report to a new client after the assignment has been completed

44. 44 Readdressing/Transferring Why not? Intended users & intended use are established at the time of the assignment Intended users & intended use are drivers of scope of work and report content. Any change alters assignment. Solution: it’s a new assignment!

45. 45 Update of Prior Assignment AO-3 When a client seeks a more current value or analysis of a property that was the subject of a prior assignment, it is simply a new assignment. Not an extension of a prior assignment-- simply a new assignment.

46. 46 Update of Prior Assignment The same USPAP requirements apply when appraising or analyzing a property that was the subject of a prior assignment. Appraiser may incorporate all or part of the previous analysis and all or part of the previous report In certain circumstances, you may incorporate the previous report by reference

47. 47 Update of Prior Assignment No restrictions on who the appraiser is who the client is what length of time may have elapsed, or whether the characteristics of the subject property are unchanged or significantly different than in the prior assignment

48. 48 Recertification USPAP Myth #147 USPAP Does NOT Prohibit Recertifications of Value It Simply Defines the Term

49. 49 Recertification AO-3 Performed to confirm whether or not the conditions of a prior appraisal have been met Does not change the effective date of the value opinion. Most common “Recertifications of Value” are the final inspection for a new construction appraisal and compliance inspections.

50. 50 Same Property & New Client AO-27 Client and the assignment results are specific to an assignment If you have a new client, then you must have a new assignment New assignment would produce new assignment results

51. 51 Same Property & New Client New assignment to appraise the same property would not be considered revealing the first client’s assignment results to the second client, even if the value conclusions were the same. Value conclusion could easily be different if the scope of work changed in any manner

52. 52 Same Property & New Client If a prior assignment included any confidential information, its disclosure to a different client or intended user would violate the ETHICS RULE if the information were still classified as confidential information

53. 53 It’s a New Assignment Client Expectations The decision to be made is about business practice, not appraisal standards Obtaining a release is a matter of choice, but not required by USPAP Informing a client about the existence of an assignment for another client may not comply with confidentiality obligations

54. 54 Normal Course of Business NORMAL COURSE OF BUSINESS AO-24

55. 55 Scope of Work Acceptable When: Expectations of Market Participants Actions of Appraiser’s Peers Appraiser’s Peers – Other appraisers who have expertise and competency in the same or a similar type of assignment Normal Course of Business

56. 56 Normal Course of Business is NOT - Work habits of an individual appraiser Normal Course of Business

57. 57 SCOPE PROJECT

58. 58 Scope of Work Project Exposure Draft Currently Out for Comments Biggest Change in 10 Years No Real Change

59. 59 Scope of Work Project Departure – a misunderstood concept When can you depart? Purpose of Departure

60. 60 Scope of Work Project Look at SR 1-4(b) When a cost approach is applicable, an appraiser must: (i)develop an opinion of site value by an appropriate appraisal method or technique; (ii)analyze such comparable cost data as are available to estimate the cost new of the improvements (if any); and (iii)analyze such comparable data as are available to estimate the difference between the cost new and the present worth of the improvements (accrued depreciation).

61. 61 Scope of Work Project When it is applicable, you must do it What does applicable mean? But this is a Specific Requirement, not a Binding Requirement Is it necessary for credible results Really, must you do the cost approach whenever it is applicable?

62. 62 Scope of Work Project Pieces of the Puzzle Standards Rules DEFINITIONS DEPARTURE RULE Applicable Necessary

63. 63 Scope of Work Project You MUST do a Cost Approach When it is Necessary for Credible Results

64. 64 Scope of Work Project Proposed New Version of SR 1-4(b) When a cost approach is necessary for credible results, an appraiser must….

65. 65 Scope of Work Project No change to existing requirements for the work you must do More simple statement of the requirement New SCOPE OF WORK RULE to lay out obligations for developing the Scope of Work, and effectively communicating it in the report

66. 66 Fannie Mae Forms ASB has NOT reviewed, approved, endorsed, etc., the new forms We will be submitting comments to Fannie Mae

67. 67 Fannie Mae Forms Forms do NOT comply with USPAP, appraisers do Forms help organize presentation No form could comply for ALL assignments

68. 68 The End Questions Thank You!