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(1) |
Misconception: “USPAP is enforced by The Appraisal Foundation.” |
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Reality: The Appraisal Foundation is not an enforcement body. (Preamble, Lines 176-
180.) |
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(2) |
Misconception: “The Appraisal Standards Board determines who has to comply with
USPAP.” |
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Reality: Neither the ASB nor USPAP itself decides who must comply. Individuals comply
with USPAP either because they want to or they are required by law, regulation or
agreement with the client to comply. (Preamble, Lines 176-180.) |
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(3) |
Misconception: “You can’t appraise a property if you have an interest in the property
or in the parties involved.” |
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Reality: An interest with respect to the property or parties involved must be disclosed
in the certification. (Lines 939-941, 2244-2246, and 2573-2575.) However, an appraiser
CANNOT have a direct or indirect interest in the property of the transaction if
the assignment is subject to the appraisal requirements of FIRREA. |
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(4) |
Misconception: “It’s unethical to pay a fee in order to get an appraisal assignment.” |
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Reality: It’s okay to pay a fee to procure an assignment as long as it is disclosed.
(Lines 258-259.) |
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(5) |
Misconception: “If you appraised a property before, you can’t appraise it again
because that would be a conflict of interest.” |
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Reality: Just because you appraise a property doesn’t mean you now have an interest
in it. USPAP has no restrictions against appraising the same property more than
once. |
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(6) |
Misconception: “If the borrower is going to get a copy of the report, that means
they are the intended user.” |
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Reality: Intended users are identified by the appraiser as intended users at the
time of the assignment, based on communications with the client. (Lines 101-103)
Just because a person or entity receives a copy of the report does not mean they
are an intended user. (Statement 9, Lines 3031-3035.) |
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(7) |
Misconception: “If Client A hired you to do an appraisal, you can’t reappraise the
same property for Client B unless you get a written release from Client A.” |
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Reality: The only reason you couldn’t reappraise the same property for Client B
would be that if in doing so you would breach the confidentiality of your relationship
with Client A. That is, if Client A gave you information, and told you it was confidential,
and that information is not available from another source (or it’s classified as
confidential by privacy laws or regulations), you could not subsequently reveal
that information to Client B without Client A’s permission. (Advisory Opinion 27.) |
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(8) |
Misconception: “If Bank A hired you to do an appraisal, and now Bank B wants to
use it, you can go ahead and ‘recertify’ or ‘readdress’ it to Bank B.” |
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Reality: Simply “recertifying” or “readdressing” the appraisal report to Bank B
is misleading. The appraiser should treat the request from Bank B as a new assignment,
with a new intended user and possibly a different intended use – and be mindful
of confidentiality issues regarding Bank A. (Advisory Opinion 26.) |
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(9) |
Misconception: “If Bank A hired you to do an appraisal, and now Bank B wants to
use it, there’s nothing you can do to help Bank B.” |
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Reality: There are two ways for the appraiser to help Bank B. First, the appraiser
can remind Bank B that a regulated lender may accept an appraisal prepared by an
appraiser engaged directly by another financial services institution. So even if
the appraisal is addressed to Bank A, per the appraisal regulations of FIRREA, Bank
B can use it. Second, the appraiser can take on an appraisal assignment with Bank
B, as long as there is no breach of confidentiality with the first client (Bank
A). (Advisory Opinion 27) |
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(10) |
Misconception: “If an attorney tells you to do something contrary to USPAP, you
can do it by invoking the Jurisdictional Exception Rule.” |
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Reality: The Jurisdictional Exception Rule can be invoked only when a part of USPAP
is contrary to law or public policy, and the appraiser must identify in the appraisal
report the legal authority (i.e., law or public policy) justifying it. An attorney’s
request to do something contrary to USPAP does not in itself constitute “law or
public policy.” (Lines 459-478.) |
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(11) |
Misconception: “If you do an appraisal for a government agency, USPAP doesn’t apply
because of the Jurisdictional Exception Rule.” |
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Reality: The Jurisdictional Exception Rule can be invoked only when a part of USPAP
is contrary to law or public policy. If no part of USPAP is contrary to the requirements
established by law or public policy, there is no need to apply the Jurisdictional
Exception Rule. Also, when the Jurisdictional Exception Rule applies to one part
of USPAP, the balance of USPAP still applies. (Lines 461-463.) |
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(12) |
Misconception: “If a property is unique and there is no market for it, you have
to provide an opinion of ‘use value’ instead of ‘market value’”. |
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Reality: The type of value to be developed depends on the intended use of the assignment
results. If the intended use of the assignment calls for ‘market value’, it would
be misleading to substitute ‘use value’ for ‘market value’. Just because a property
has a limited market does not mean it has no market value. |
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(13) |
Misconception:“If the client wants you to assume that Highest and Best Use is the
current use, you can go ahead and do that; just make sure you disclose the assumption.” |
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Reality: The use of an extraordinary assumption is okay only if it is needed to
develop credible opinions and conclusions; there is a reasonable basis for it; using
it results in a credible analysis; and it is properly disclosed in the report. Depending
on the intended use of the appraisal, using an extraordinary assumption may be misleading,
or it may be appropriate. (Lines 578-583, 1888-1893, 2345-2350.) However, highest
and best use is a conclusion drawn by the appraiser based on the appraiser’s own
analysis. Highest and best use is critical to the question of market value, so when
the value being developed is market value, as a general rule it is inappropriate
to simply make an assumption about it. |
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(14) |
Misconception: “USPAP says you must inspect the property. If you don’t you’ve limited
the scope of the appraisal.” |
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Reality: USPAP doesn’t have a Standards Rule that says the appraiser must inspect
the property. In real and personal property appraisal, Standards Rules 1-2(e) and
7-2(e) require the appraiser to “identify the characteristics of the property that
are relevant to the purpose and intended use of the appraisal.” (Lines 553-576,
1861-1872.) This means that in some cases an inspection will be needed, and in other
cases it won’t. Whether or not the appraiser inspects the property – and to what
degree (e.g., interior, drive-by) – is part of the “scope of work” decision. |
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(15) |
Misconception: “You can exclude the Cost Approach in a real property appraisal if
a client requests you to.” |
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Reality: You can exclude the Cost Approach if it’s not necessary for credible results.
(Lines 385-386, 425-438, 610-615.) Also, the tests for the appropriateness of the
scope of work decision are (1) the expectations of those who are regularly intended
users for similar assignments and (2) what one’s peers’ actions would be in the
same or similar assignment. (Lines 428-432.) |
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(16) |
Misconception: “It’s okay to provide a ‘letter update’ that states ‘there has been
no change in market conditions since the previous appraisal’ so the previous appraisal
is still current.” |
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Reality: Making so brief a statement without providing the data and analysis that
supports it can be misleading. Saying “no change in market conditions” implies “no
change in value”; and stating a relationship to a previous value opinion is an appraisal.
(Lines 13-15.) An appraisal must be developed in accordance with Standard 1, 7,
or 9. An “update” can be provided in a letter – provided it meets the reporting
requirements for an appraisal. (Advisory Opinion 3.) |
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(17) |
Misconception: “No matter what, you have to follow all the Standards Rules in USPAP,
or the appraisal will be worthless / the appraisal won’t stand up in court / some
reviewer is going to turn you in to the state.” |
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Reality: The scope of work (which includes the type and extent of analyses applied)
for any assignment must be appropriate for the purpose and intended use. The applicability
of Standards Rules in the Development Standards (1, 3, 7, 9) is relative to the
scope of work. If the scope of work is appropriate, the credibility of the appraisal
is not compromised. (Scope of Work Rule.) |
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(18) |
Misconception: “If you were hired to review an appraisal of a property, you can’t
be hired later to do an appraisal of that same property.” |
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Reality: USPAP has no such restriction. Just because you review an appraisal of
a property, it doesn’t mean you now have an interest in that property or the parties
involved, or that you would necessarily be biased in the new appraisal. |
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(19) |
Misconception: “If the appraisal is basically finished, and the report will be finalized
and delivered to the client in a few days, you can go ahead and send the letter
of transmittal today, since the report is to follow.” |
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Reality: A letter of transmission that provides a value opinion is, in and of itself,
an appraisal report – and therefore must comply with USPAP’s reporting requirements.
To provide the value opinion in this manner could be very misleading, especially
if the scope of work, hypothetical conditions or extraordinary assumptions are not
detailed. |
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(20) |
Misconception: “You have to send the original, signed copy of the report to the
client. Then in your workfile, you keep an unsigned copy. That way you can make
additional copies with original signatures from the one in your workfile.” |
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Reality: You are required to keep a “true copy” of the report sent to the client
(line 308), which by definition is what is given to the client (line 139). The “true
copy” would be identical to the one sent – which means it would include a copy of
the signature. How else could you later prove, should the need arise, which copy
you sent to the client? [Note: USPAP doesn’t require a “report” to be signed – it
requires the certification to be signed.] |
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(21) |
Misconception: “A real estate appraisal report has to have a ‘Regional Description’
section.” |
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Reality: Standards Rule 2-2, which outlines the reporting requirements for real
property appraisals, does not require a section with this heading. However, for
a Self-Contained or Summary Appraisal Report, “regional” information is often part
of the “information analyzed” (lines 760 and 841) and therefore should be addressed. |
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(22) |
Misconception: “If the attorney who hired you says to destroy your appraisal workfile,
that’s okay; USPAP has an exception for litigation.” |
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Reality: USPAP requires a workfile to be retained for a minimum of five years. There
is no exception for litigation, unless the Jurisdictional Exception Rule applies
(e.g., a court order – which is NOT the same as a request from an attorney). |
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(23) |
Misconception: “If you do tax appeal work, you can take a contingent fee as long
as you disclose it.” |
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Reality: When one is acting as an appraiser, one cannot structure one’s fees on
a contingent basis, regardless of the nature of the assignment. (Lines 266-273.)
An appraiser may do tax appeal work, but if acting as an appraiser, must arrange
it so the fee isn’t contingent. |
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(24) |
Misconception: “It’s okay to make an appraisal based on a hypothetical condition
as long as the client agrees.” |
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Reality: The use of a hypothetical condition is permitted only if it is clearly
required for legal purposes, for purposes of reasonable analysis, or for purposes
of comparison; using it results in a credible analysis; and it is properly disclosed
in the report. Depending on the intended use of the appraisal, using a hypothetical
condition may be misleading. (Lines 586-590, 1249-1253, 1895-1900, 2352-2357.) |
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(25) |
Misconception: “You can use a hypothetical condition in an appraisal only if there
is a reasonable probability that it will become reality in the near future.” |
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Reality: USPAP does not have this restriction. Hypothetical conditions are not predictions.
In some cases, use of a hypothetical condition may be appropriate even if there’s
no chance it will become reality in the future. |
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(26) |
Misconception: “USPAP requires you to provide an ‘as is’ value.” |
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Reality: USPAP does not use the phrase “as is value” (except in Statement 10, where
it reiterates the appraisal requirements pursuant to FIRREA.) However, USPAP does
require the appraiser to identify and report any hypothetical conditions (which
would make the value opinion other than “as is.”) |
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(27) |
Misconception: “An appraiser can do an Administrative Review.” |
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Reality: “Appraisal review” is defined as the “the act or process of developing
and communicating an opinion about the quality of another appraiser’s work…” (Lines
32-33.) When an appraiser renders such an opinion, Standard 3 applies. If the individual
who renders an opinion about the quality of an appraiser’s work is not acting as
an appraiser, then USPAP does not apply. |
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(28) |
Misconception:“A review report done according to Standard 3 has to be a long, detailed
document.” |
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Reality: The scope of work in the review process can (and should) be varied according
to the purpose and intended use of the review. (Lines 1033-1065.) The review report
will therefore vary accordingly. |
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(29) |
Misconception: “Every appraisal report has to address both exposure time and marketing
time.” |
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Reality: An appraiser must always think about the associated exposure time in the
process of developing an opinion of market value for real property. (Lines 550-551.)
However, there is no longer a requirement in USPAP to report exposure time. Marketing
time is addressed in Advisory Opinion 7, which says “The request to provide a reasonable
marketing time opinion exceeds the normal information required for the appraisal
process, and should be treated separately from that process.” (Advisory Opinion
7.) |
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(30) |
Misconception: “USPAP doesn’t allow you to provide ‘letters of opinion’.” |
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Reality: If a “letter of opinion” (i.e., a value opinion stated in letter format)
meets USPAP’s reporting requirements (Standards 2, 8, or 10), it is permitted. However,
a letter that doesn’t meet USPAP’s reporting requirements is not permitted. |
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(31) |
Misconception: “If you are both a broker and an appraiser, you are in violation
of USPAP if you prepare a broker’s competitive market analysis (CMA).” |
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Reality: USPAP applies to individuals who are acting as appraisers. If an appraiser
“wears another hat” – i.e., is also a broker – USPAP does not apply when that individual
is acting as a broker, not an appraiser. |
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(32) |
Misconception: “Appraisers can never provide price opinions.” |
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Reality: An appraisal, by definition, is an opinion of value. (Line 10.) When asked
for a “price opinion”, an appraiser must be careful to determine whether the client
needs a value opinion (appraisal) or a suggested offering price. An opinion of a
suggested offering price goes beyond valuation, and takes into consideration marketing
strategy, pricing relative to competition, motivation of seller, etc. Such an assignment
may constitute an appraisal consulting assignment under Standards 4 and 5. |
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(33) |
Misconception: “If you prepare a report that says the value is at least a certain
amount (say, “at least $1 million”), that’s a consulting report and you don’t have
to comply with Standards 1 and 2.” |
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Reality: A report that states an opinion that the value “is at least” or “is less
than” a stated amount is an appraisal report. A value opinion (appraisal) can be
stated as a relationship to a given benchmark amount, or a range, or a single point.
(Lines 13-15.) |
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(34) |
Misconception: “You can’t deliver an appraisal report to a client if the report
doesn’t have a pinpointed value opinion.” |
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Reality: See #33 above.
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(35) |
Misconception:“If you have an interest with respect to the parties involved in
the property, that automatically means you have a conflict of interest, and you’re
biased.” |
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Reality: You can have an interest without having a conflict of interest which would
cause you to be biased. An interest with respect to the parties involved must be
disclosed in the certification. (Lines 939-941, 2244-2246, and 2573-2575.) However,
if having the interest causes one to be biased, one cannot take the assignment. |
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(36) |
Misconception: “The client is the one who pays for the appraisal.” |
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Reality: The client is the one who engages the appraiser. In terms of who USPAP
says the client is, it doesn’t matter who pays. (Line 60-61.) |
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(37) |
Misconception: “You have to report any known, current offers on the subject.” |
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Reality: USPAP requires analysis and disclosure of current Agreements of Sale, options
or listings, but not offers. Agreements of Sale and options indicate a “meeting
of the minds” between buyer and seller, while listings provide a fair indication
of what the seller is willing to accept. Offers are one-sided and may even be egregious
(in which case their disclosure could be damaging to the credibility of the appraisal.)
(Lines 653-654.) |
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(38) |
Misconception: An appraisal is an estimate of value. |
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Reality: An appraisal is an opinion of value. (Line 10.) |
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(39) |
Misconception: “USPAP makes it impossible for state licensed or certified appraisers
and designated appraisers to provide services that non-appraisers can provide.” |
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Reality: What differentiates licensed or certified appraisers, or appraisers who
are members of appraisal organizations, from non-appraisers is that appraisers do
comply with USPAP. Appraisers are the ones who are able to sign a Certification
stating that they are impartial and unbiased, and that they have complied with recognized
standards of professional practice. |
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Suggestion: USPAP should be viewed as a selling point, not a boat anchor. |
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