User:KTrimble/Sandbox/USPAP Sandbox

I am currently using my sandbox as a work area for a proposed rewrite of the article on USPAP

Please make any comments or proposed changes in the discussion page of this sandbox--thanks KTrimble (talk) 02:29, 3 April 2008 (UTC)

Structure of the USPAP Document

Since its original form, there have been five sections to the USPAP document:

• The Definitions Section
• The Preamble
• The Rules
• The Standards and Standards Rules
• The Statements on Appraisal Standards

Definitions Section

The definitions section enumerates specific textural definitions of various technical terms related to the practice of appraisal. These definitions are applicable within the context of the USPAP document itself, such as client, appraiser, assignment, intended user hypothetical condition and other terms. The definitions section does not contain definitions of any of the technical terms used in the course of the formulation of an appraisal such as replacement cost, depreciation, unit of comparison, capitalization rate, etc.

The Preamble to USPAP

The preamble of USPAP is less than one page long and states the actual purpose of the USPAP document. The first sentence states the purpose of USPAP is

to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers.

The second sentence sets the theme of the rest of the document with the statement that

. . . appraisers develop and communicate their analyses, opinions, and conclusions to intended users of their services in a manner that is meaningful and not misleading.

All ten of the Standards of USPAP require the appraiser to perform appraisal services in a manner that produces credible results or to communicate those results to the client and third parties in a manner that is not misleading.

The Rules of USPAP

USPAP contains four rules:

• The Ethics Rule, which deals primarily with the conduct of an appraiser's appraisal practice. The ethics rule has four sections:
  • 'Conduct', which essentially prohibits or requires certain practices in the engaging of appraisal assignments and the formulation and communicaton of assignment results,
  • 'Management', which essentially prohibits certain practices in the procurement of appraisal assignments,
  • 'Confidentiality',
  • 'Record Keeping', which requires the creation of a workfile for any appraisal assignment, specifies the contents of the workfile, and specifies the timeframes through which the workfiles are to be maintained.

• The Competency Rule, which requires the appraiser to recognize whether he is competent to perform a particular assignment and if he is not competent at the time he takes the assignment, requires that he disclose the lack of competency, both to the client at the time he is engaged and to intended users in the course of a report, and take the appropriate steps to perform the assignment competently.

• The Scope of Work Rule, which requires the appraiser to perform three steps in any appraisal assignment:
  • Identify the Appraisal Problem of the assignment
  • determine and perform the Scope of Work necessary to develop credible assignment results, and
  • communicate the scope of work used as part of the report of assignment results.

Scope of Work has become a subject of its own in the appraisal industry.

• The Juisdictional Exception Rule, which essentially nullifies the requirements of USPAP where they are contrary to law or public policy.

The Standards and Standards Rules

There are ten standards in the USPAP document. The use of the term appraisal defined in the definitions section is essential to the application of these standards. In colloquial use, the physical written document that the appraiser compiles and delivers to a client at the culmination of the assignment is often referred to as an appraisal. USPAP defines an appraisal as the opinion of value or the act or process of developing an opinion of value. This term is distinguished from the term report which is the communication of assignment results to the client, whether written or oral.

USPAP deals with the entire appraisal or valuation industry, though it is often misinterpreted as being intended only for real estate appraisal practice. The ten standards are broken up to deal with each of the various broad disciplines.

• Standard One deals with the appraisal of real property
• Standard Two deals with the reporting of real property appraisal results
• Standard Three deals with the review and reporting of appraisal review assignments
• Standard Four deals wtih real property appraisal consulting
• standard Five deals with the reporting of real property appraisal consulting assignment results
• Standard Six deals with mass appraisal development and reporting
• Standard Seven deals with personal property appraisal development
• Standard Eight deals with the reporting of personal property appraisal assignment results
• Standard Nine deals with the appraisal of business enterprises and intangibile assets
• Standard Ten deals with the reporting of business or intangible asset appraisal assignment results.

A set of Standard Rules associated with each Standard specify the requirements placed on the appraiser by each standard.

Generally, the standards dealing with appraisal development do not specify methodology or procedures, except in very broad terms. The appraiser is instead required to be aware of and correctly employ methods recognized in the appraisal industry to be necessary to produce credible assignment results within the context of identifying the appraisal problem, considering the necessary scope of work, and conducting the work of the assignment.

The standards dealing with appraisal reporting generally require that appraisals be reported in a manner that is not misleading, but the associated standards rules enumerate certain specific reporting requirements associated with different levels of reporting specific to each discipline.

The Statements on Appraisal Standards

The Statements are numbered sequentially from the initial version of USPAP. Statements are explainations of the Rules, Standards, and Standards Rules and the applications of the definitions which the Appraisal Standards Committee has found necessary to the proper application of the USPAP document. Statements are part of the USPAP document, and the appraiser is required to meet the requirements of the discussion of each statement in USPAP. Some statements have been found to be no longer applicable and have been 'retired' and new statements are occassionally added in each new version of USPAP.

Prior to the 2006 edition of USPAP, the standards included a very lengthy statement on the applicability of USPAP in federally related transactions, essentially any FIRREA-related assignment where state certification would be required. The latest edition of USPAP has retired this statement since FIRREA requirements are considered a supplemental standard the the appraiser is bound by in addition to USPAP. The inclusion of FIRREA as a Statement was eventually considered redundant.

The Advisory Opinions and Frequently Asked Questions

Previously a separate document, the Advisory Opinions are a set of expository writings through which the Appraisal Standards Board could illustrate the application of USPAP to common situations. The ASB is very specific that the Advisory Opinions do not constitute new pronouncements of standards and are not part of USPAP. However, the Advisory Opinions are published concurrently with USPAP and USPAP is usually printed and bound together with the Advisory Opinions.

A set of Frequently Asked Questions and the answers provided by the Appraisal Standards Board further illustrate the applicability of USPAP in specific situations, but in a different format. Like the Advisory Opinions, they are printed and bound in the same document with the USPAP document, but are not an official part of USPAP.