2016-17 Live 7-hr USPAP Update Course
San Luis Obispo
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Summary of 2016-17 USPAP Changes
There are some significant changes in 2016-2017 USPAP that will affect Appraisers:
- A revision was made to clarify that appraisers/reviewers “must retain true copies of ALL written reports in the workfile.” Don’t overwrite those pdf’s – save a copy of every generation of the report delivered to the Client.
- Edits were made to clarify that “data and information” (in addition to documentation) may be included in the workfile, by referring to its location elsewhere. This includes items of which the appraiser may not have physical custody.
Note: While the Forward to the 2016-17 USPAP Document and other related material refer to “Revisions to the DEFINITION of “Report” and to the RECORD KEEPING RULE” (bold added for emphasis), changes to the definition of Report were not adopted.
Revisions were made that eliminate the requirement to identify and report the effective date of an appraisal review. Three dates are still required to be reported in an appraisal review in order to identify the perspectives of the original appraiser and the reviewer. The 2016-17 requirements:
- Identify the effective date of the opinions or conclusions in the work under review
- Identify the report date (signature date) of the report under review
- State the date of the appraisal review report
Changes were made to the “Assignment Results” definition in order to make clear that appraisers may share non-confidential information with other appraisers. This is meant to facilitate higher-quality appraisals by allowing the exchange of information.
The language specifically states “Physical characteristics are not ASSIGNMENT RESULTS.”
Additionally, the ASB added two paragraphs to the Confidentiality Section of the ETHICS RULE to help ensure that anyone who may have access to confidential information or assignment results is made aware of the prohibitions on disclosure of such information or results. The new language says this:
“An appraiser must take reasonable steps to safeguard access to confidential information and assignment results by unauthorized individuals, whether such information or results are in physical or electronic form.”
“An appraiser must ensure that employees, co-workers, sub-contractors, or others who may have access to confidential information or assignment results, are aware of the prohibitions on disclosure of such information or results.”
The ASB adopted language similar to what was previously included in Statement #9 requiring that anytime the Client’s identity is withheld from the Report, the Appraiser must retain the Client’s name in the workfile and state in the report that the Client’s name was withheld at the request of the Client. The requirement applies to all Reporting Standards in USPAP, whether or not the report is an Appraisal Report or a Restricted Appraisal Report.
“State the identity of the client, unless the client has specifically requested otherwise; state the identity of any intended users by name or type;”
“Comment: An appraiser must use care when identifying the client to avoid violations of the Confidentiality section of the ETHICS RULE. If a client requests that the client’s identity be withheld from the report, the appraiser may comply with this request. In these instances, the appraiser must document the identity of the client in the workfile and must state in the report that the identity of the client has been withheld at the client’s request.”
Past editions of USPAP required that the Appraiser develop an opinion of “Reasonable Exposure Time” whenever “exposure time” was a component of the value definition being utilized in the assignment. There may be times when exposure time (but not “reasonable” exposure time) may be a component of the value definition, and in those cases it would not be consistent or logical to develop an opinion regarding “reasonable exposure time” as the opinion about exposure time should be consistent with the value definition.
The revised comment is this:
“Comment: When reasonable exposure time is a component of the definition for the value opinion being developed, the appraiser must also develop an opinion of reasonable exposure time linked to that value opinion.”.
Because of their location after STANDARD 10, many appraisers completely forgot about the existence of the STATEMENTS. Also, the ASB felt that much of the material was actually “guidance” and not USPAP “requirements.” For these reasons, and to make the document more user-friendly, any actual “requirements” were move to other (more appropriate) locations within USPAP, and the material considered “guidance” was reissued as new Advisory Opinions (see below).
Material from the retired STATEMENTS, which was considered to be “guidance” was reissued in the form of new or revised Advisory Opinions. Additionally, some of that material was updated to reflect current practices and terminology. The changes consist of…
· Revisions to ADVISORY OPINION 7: Marketing Time Opinions
· Creation of ADVISORY OPINION 33: Discounted Cash Flow Analysis
· Creation of ADVISORY OPINION 34: Retrospective and Prospective Value Opinions
· Creation of ADVISORY OPINION 35: Reasonable Exposure Time in Real and Personal Property Opinions of Value
· Creation of ADVISORY OPINION 36: Identification and Disclosure of Client, Intended Use, and Intended Users
Edits were made to USPAP and all guidance material in including other ADVISORY OPINIONS and FAQ’S, as appropriate, in order for this material to reflect the changes above. The details of all changes can be found on The Appraisal Foundation’s website in a document entitled 2015 Summary of Actions Related to Proposed USPAP Changes.
Brief Review of 2014-2015 USPAP Revisions
The changes that will likely affect appraisers on "day 1" of the new USPAP cycle, are the revisions to the Report Options under STANDARDS 2 and 8. The Self-Contained Report & Summary Appraisal Report options will be eliminated and replaced with the new Appraisal Report option. The new Standard prescribes the minimum level of reporting necessary in an Appraisal Report. It then becomes the appraiser's responsibility to determine whether greater "detail or explanation" is required based on the Intended Use and the Intended User(s) of the report. The minimum standards for an Appraisal Report are generally similar to the requirements for a Summary Appraisal Report, and this option must be used:
The "key date" for these changes is the Report Date (signature date). If the report is signed on or after January 1st, 2014, the new report options must be used. This includes reports revised or corrected after January 1st, as the Certification must be signed on the revision/report date.
Other labels may be used in addition to the USPAP Report Option labels, however, care should be taken to avoid confusion and it may be good practice to refrain from using the pre-2014 labels whenever possible. When utilizing Form Reports (such as the URAR) with the label "built-in" to the form, there may be no way to delete the "Summary Appraisal Report" label from the form, but it should be viewed as an unnecessary [2nd] label and the USPAP "Appraisal Report" label should be prominently displayed somewhere near the beginning of the report. Simple revisions to the forms (by the GSE's and software companies) could easily make this issue irrelevant, but there is no telling if that will get done by January 1, 2014 (or at all).
For form reports that cannot be changed, it is our opinion that relying on the fact that the phrase "Summary Appraisal Report" includes the words "Appraisal Report" is NOT adequate to properly identify the report option used and the term Appraisal Report should be prominently displayed by itself or within a longer identifying sentence. We suggest something to the effect of "Appraisal Report; Prepared in Accordance with USPAP Standards Rule 2-2(a)" or "This report was prepared in accordance with the requirements of the Appraisal Report option of USPAP." Just the sentence "This is an Appraisal Report" may appear odd to the eye of the "untrained" reader, as it might seem to be "stating the obvious."
The Restricted Use Appraisal Report option was renamed Restricted Appraisal Report and clarifications were made that make clear it can only be used when the Client is the only Intended User of the report. Although the minimum level of reporting may be less than that required in an Appraisal Report, the appraiser's opinions and conclusions MUST be understood, even though the rationale for how the appraiser arrived at the opinions and conclusions may not be understood.
Additional edits were made in STANDARDS 2 and 8 for consistency and clarity. Advisory Opinions 11 and 12 were also revised in order to be consistent with the new report option labels.
In all Standards that address reporting requirements, except Standard 3, there is a requirement to indicate the report date (signature date). Standards Rule 3-5(e) was revised to be consistent with other reporting standards and it now states:
"state the effective date of the appraisal review and the date of the appraisal review report;"
Underlined phrase was added for 2014-2015.
The ASB has retired these two STANDARDS out of a concern for "the clarity, understandability, and enforceability of USPAP." Requirements previously associated with these STANDARDS will be covered under other STANDARDS, such as STANDARDS 1 AND 2 (if the consulting assignment includes one or more value conclusions), STANDARD 3 (if there are opinions about the quality of other appraisers work), or may be covered (as Appraisal Practice) by other RULES such as the COMPETENCY RULE or the ETHICS RULE.
Advisory Opinion 21 has been revised for consistency and to better address assignments where appraisers provide services other than Appraisal or Appraisal Review.
The COMPETENCY RULE requires that an appraiser be competent to perform the assignment, or acquire the necessary competency to perform the assignment, or to withdraw from the assignment. However, the COMPETENCY RULE did not expressly require the appraiser to perform competently in the given assignment. This sentence was added to the first paragraph of the COMPETENCY RULE:
"In all cases, the appraiser must perform competently when completing the assignment."
- Assignment Results: The edits adopted clarify that assignment results include opinions or conclusions and the assignment results are not specifically limited to the value conclusion in an appraisal assignment, or to the final opinion of the quality of another appraiser’s work in an appraisal review assignment. The new definition is...
ASSIGNMENT RESULTS: 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; or
- opinions or conclusions developed when performing a valuation service other than an appraisal or appraisal review assignment.
- Scope of Work: The SCOPE OF WORK RULE only applies to appraisal and appraisal review assignments, whereas the term "scope of work" is broadly defined to include all assignments performed under appraisal practice.
SCOPE OF WORK: the type and extent of research and analyses in an appraisal or appraisal review assignment.
The ETHICS RULE, which applies to all assignments within appraisal practice, requires disclosure of any current or prospective interest in the subject property and any services provided (regarding the subject property) that were performed by the appraiser in the three years immediately preceding acceptance of the assignment. This disclosure must be made both prior to accepting the assignment and “in the subsequent report certification.”
The ASB adopted the following revisions (with deletions shown in strikethrough and additions shown in underscore text as follows):
If known prior to accepting an assignment,
and/or if discovered at any time during the
assignment, an appraiser must disclose to the
client, and in
- any current or prospective interest in the subject property or parties involved; and
- any services regarding the subject property performed by the appraiser within the three year period immediately preceding acceptance of the assignment, as an appraiser or in any other capacity.
Comment: Disclosing the fact that the appraiser has previously appraised the property is permitted except in the case when an appraiser has agreed with the client to keep the mere occurrence of a prior assignment confidential. If an appraiser has agreed with a client not to disclose that he or she has appraised a property, the appraiser must decline all subsequent assignments that fall within the three year period.
In assignments in which there is no report, only the initial disclosure to the client is required.
The rest of the Conduct section of the ETHICS RULE will remain as previously published.
An individual who at times works as an appraiser, and at other times works in other roles such as a consultant, broker, or investment advisor, performs an array of services for a variety of clients raising questions of when specific USPAP Rules and Standards apply. The distinction of when one is acting as an appraiser and when one is not is important to understanding the foundational obligations under USPAP. Furthermore, when one is acting as an appraiser, it is important to understand what activities fall under what section of USPAP. If governed by a jurisdiction’s mandatory USPAP adherence, must an individual acting as an appraiser adhere to the ETHICS RULE before being engaged in an assignment? Which Rules (i.e., ETHICS RULE, SCOPE OF WORK RULE, etc.) must an appraiser adhere to for an assignment of an appraisal or appraisal review with additional opinions? The revisions made to the PREAMBLE are intended to address these questions.
Brief review of 2012-2013 USPAP Revisions
There were also changes in 2012 that affected Appraisers:
While USPAP has always required that appraisers develop an opinion of "reasonable exposure time" whenever it was relevant to the value definition (i.e. market value), appraisers were not necessarily required to report the opinion of EXPOSURE TIME.
The new requirement is that appraisers report the EXPOSURE TIME in the appraisal, anytime it is developed (and it MUST be developed when it is relevant to the definition of value).
Bottom line: We are now required to report EXPOSURE TIME when estimating market value.
Remember, EXPOSURE TIME is NOT the same as "Marketing Time." Most appraisers already include an estimate of "marketing time" (especially when completing "form reports" that require a checkbox), so this will require the addition of specific statements to indicate the appraiser's opinion of the reasonable EXPOSURE TIME that was developed in the process of estimating Market Value.
The ASB has added a definition of EXPOSURE TIME to the USPAP document (see new Definitions below).
While Exposure Time and Marketing Time may frequently be a similar number, it is important to clearly understand the difference - there are times when these estimates may be substantially different.
Exposure time is a "retrospective" opinion, looking back (from the effective date) to the beginning of the "hypothetical" process of selling the asset, so that the sale would have beenconsummated on the "effective date" of appraisal.
While marketing time is a "forward looking" estimate (from the effective date), to estimate the amount of time it might take a seller (sometimes the Intended User of the appraisal), to market and sell the asset.
The existing requirement to disclose any prior services, if performed in the preceding 3 years, has been "upgraded" and now requires certification whether you have OR HAVE NOTperformed any services in the preceding 3 years. Some Clients have required this since 2010, but it was not required by USPAP. We recommend the following language be inserted into your report certification.
I have performed no (or the specified) services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.
With regard to residential "form reports" that won't allow changes to the certification, it will be necessary to include a "supplemental certification" page. Some of the software providers have already designed a supplemental certification form that can be added to form reports, in order to help with compliance, or you can create your own, however, be careful to use an addendum page which includes date and signature as both of these items must be included in a "certification."
CLIENT: the party or parties who engage, by employment or contract, an appraiser in a specific assignment.
EXPOSURE TIME: estimated length of time that the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal.
EXTRAORDINARY ASSUMPTION: 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 opinions or conclusions.
Hypothetical conditions are contrary to known
facts about physical, legal, or
Moves most of the requirements, related to Record Keeping, from the ETHICS RULE to the new RECORD KEEPING RULE. This was done so that minor record keeping infractions would not be viewed, by the state regulatory agencies, as "ethical" violations, however, the ETHICS RULE still prohibits "willfully and knowingly" violating the RECORD KEEPING RULE.
Advisory Opinion 21 was significantly updated and edited to include more current examples and to reflect other recent USPAP changes.
STANDARD 7 was significantly changed to reflect current practice in the personal property appraisal discipline. STANDARD 8 was edited to reflect these and other changes in the USPAP document. If you appraise personal property, we recommend a complete review of these revised STANDARDS.
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