Course 8 Appraisal Principles and Procedures Flashcards
What are the guidelines to which appraisers must adhere?
USPAP,
HUD Map Guide
What is USPAP?
USPAP stands for Uniform Standards of Professional Appraisal Practice and is the universal standard for the requirements of appraisal conduct and reporting; accepted by all including HUD.
What are the mandates of USPAP?
- State licensing,
- Requires continuing education (7 hours - every 2 years);
- Narrative requires appraiser license number and date it expires.
- HUD MAP Guide states that the rules of USPAP must be followed.
What are the key concepts of USPAP?
The contents of USPAP are subject to ongoing review and modification annually. USPAP is revised and upgraded every two years and the current version is dated January 2024.
The key concepts behind the ethics and standards include the following:
1) Know the rules and apply them
2) Don’t make things up; be honest
3) Understand the power of what is being prepared and communicated
4) Think about the information being presented and how it can be used to make right or wrong decisions.
What are the MAP comments regarding Ethics and Standards?
- The lender is required to choose the appraiser, section 7.3 of the Map Guide lists the requirements.
- Section 7.6A calls for a report that is prepared in conjunction with USPAP Standards Rule 1, Scope of Work and Standard Rule 2, and calls for the analysis to be prepared in conjunction with other aspects of USPAP. These standards can be found the USPAP Flipbook online.
- Lenders should be familiar with the basic core components of the MAP Guide as it relates to the appraisal requirements in Chapter 7.
What are the rules of USPAP?
USPAP Ethics Rule #1 - The ethics rule is important for public trust and has three sections: conduct, management, and confidentiality.
- Conduct - identifies aspects of both business and social characteristics that an appraiser must follow in their day to day practice
a) Cannot be biased
b) Do not be an advocate
c) Must not be misleading
d) Cannot rely on unsupported conclusions related to social characteristics - Management – the appraiser must disclose that he or she has been paid a fee or a commission or given something of value in connection with the appraisal assignment.
- Confidentiality – appraiser must protect the confidential nature of the appraiser-client relationship.
What are some other USPAP rules?
There are five ethic rules that need to be followed. These include rules regarding record keeping, competency, scope of work and jurisdictional exceptions.
1. USPAP Scope of Work Rule - 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.
2. USPAP Record Keeping Rule - the appraiser must prepare work file for each appraisal or appraisal review assignment. The rule also requires that the file must be retained for 5 years after appraisal
3. USPAP Competency Rule - appraiser must be competent to perform assignment.
4. USPAP Jurisdictional Exception Rule - There can be exceptions when conforming to USPAP. The only allowance is if any applicable law or regulation precludes compliance with any part of USPAP, only that part of USPAP becomes void for that assignment.
What are the USPAP standards?
There are ten standards originally established in USPAP. Standards 4 and 5 have been retired by the ASB. These standards establish the requirements for appraisal, appraisal review and appraisal consulting service and the way it is communicated. Standards 1 and 2 are applicable to most assignments related to HUD financing.
What is USPAP Standard 1?
Standard 1 - Real Property Appraisal, Development:
Appraiser must identify problem to be solved and determine scope of work necessary to solve problem and correctly complete research and analysis necessary to produce a credible appraisal.
What is USPAP Standard 2?
Standard 2 – Real Property Appraisal, Reporting
In reporting results of appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading.
What is USPAP Standard 3?
Standard 3 – Appraisal Review, Development and Reporting
Developing an appraisal review assignment, an appraiser acting as a reviewer must identify the problem to be solved, determine the scope of work necessary to solve the problem and correctly complete research and analysis necessary to produce credible appraisal review.
What are the types of ownership?
- Fee simple estate – highest interest in real estate; includes the right to use the land now and for an indefinite period of time in the future. There are no restrictions on the ownership right.
- Partial interests – Owning something less than fee interest in real estate or less than the full bundle of rights possibly due to easement or other restrictions.
- Leased fee estate – Interest retained by all who convey a leasehold estate to a tenant.
- Leasehold estate – Interest of the lessee (tenant) who acquires the right to use the property by an agreement called a lease with the fee simple owner (landlord). The lease confers the right to use the real estate per the terms specified; but does not convey ownership.
- Life estate – present, possessory interest that lasts only as long as the life of a stated person or persons.
- Easement – a real property interest that conveys a limited right of use or enjoyment, examples include a shared driveway or underground utilities
What is market value and its components?
Market value is defined as the most probable price, as of a specified, date, in terms of cash for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller, each acting prudently, knowledgeably and for self-interest and assuming that neither is under undue distress.
What are the Economic Priciples of an Appraisal?
- Anticipation – perception that value is created by the expectation of benefits to be derived in the future. Another definition is the present worth of future benefits.
- Change – principle that is the result of cause and effect relationship among forces that influence real property value; market is dynamic and subject to constant and immediate change.
- Supply and Demand – in economic theory is the principle that states price of a commodity, good or service varies directly, but not necessarily proportionately with demand and inversely, but not necessarily proportionately with supply.
- Substitution – when several similar or commensurate commodities, goods or services are available, the one with the lowest price will attract the greatest demand and widest distribution.
What are the Economic Factors or an appraisal?
- Wage rates
- Unemployment rates
- Balance of basic and service industries
- Cost of utilities
- Tax rates – real estate, school, personal income, corporate
- Attitude of public officials – future growth; offer economic incentives
- Infrastructure suitable for growth –roads, utilities, airports
- Interest rates – impact cap rates
- Occupancy rates
- Rent levels
- Affordability – component with other areas
- General State of Economy – recession or boom?
