USPAP Changes for 2014

February 19, 2014 by Nancy Tomlinson / Posted in What's New in the Industry?.

The 2014-2015 issue of USPAP comes to us with a few changes made by the Appraisal Standards Board (ASB). The following is a run-down of the changes. The two biggest revisions of note are the retirement of two of the ten Standards, and simplified report options.

• Revisions to DEFINITIONS:

♦ “Assignment Results”

This edit has to do with what constitutes assignment results, which has been changed to clearly include both opinions about another appraiser’s work and conclusions of value. This edit makes the term “Assignment Results” somewhat more inclusive and explicitly includes all types of opinions or conclusions expressed in a valuation service, whether appraisal or appraisal review. As the ASB points out, this clarification is important because appraisers are required to adhere to the Ethics Rule when communicating “assignment results,” which includes confidentiality as required by the client and law. Ultimately, this edit seems small, but is intended to give appraisers a better understanding about what is included in the term “assignment results” so that they may comply more easily with the Ethics Rule.

♦ “Scope of Work”

The Scope of Work Rule requires an appraiser to:

1. Identify the problem to be solved

2. Determine and perform the scope of work necessary to develop credible assignment results, and

3. Disclose the scope of work in the report.

In the previous version on USPAP, the Scope of Work Rule applied to all appraisal services, including consulting. With this revision, the Scope of Work rule now excludes consulting and only applies to appraisal and appraisal review assignments. The ASB’s intention here is to make a distinction between adhering to the Scope of Work Rule when doing an appraisal or appraisal review, and the general concept of Scope of Work, which is the operative factor in “all assignments performed under appraisal practice,” including consulting.

• Revisions to the PREAMBLE

♦ The main revision to the Preamble addresses the applicability of USPAP and what constitutes compliance. In the previous version of USPAP, the Preamble contained a paragraph expressing that USPAP itself does not presume to dictate when it applies – the rationale being the ASB is not a governing body and USPAP is not law. The only directive with regard to compliance was: an appraiser should comply when required to do so by law or the client.

The current revision to the Preamble in effect moves this paragraph to its own new section, entitled When Do USPAP Rules & Standards Apply? The ASB then goes on to give bulleted criteria for what constitutes compliance. These bullets include adherence to the Rules (i.e. Ethics, record Keeping, Competency, Scope of Work, and Jurisdictional Exception) when performing an appraisal or appraisal review.

The rationale for this revision is for the sake of clarification for those who perform appraisals as well as other types of related professional services, such as brokering, or investment consulting. This revision makes positive defining statements about what constitutes compliance in the role of appraiser or appraisal reviewer.

♦ An additional revision noted in this section is the retirement of Standards 4 and 5, which pertain to real property appraisal consulting assignments. There are now a total of eight (8) standards. It is unclear whether the individual standards will be renumbered in subsequent iterations of USPAP.

• Revisions to the Conduct Section of the Ethics Rule

♦ This revision pertains to the disclosure of current or prospective interest in, or previous appraisals of, a subject property. The previous version of USPAP acknowledges that appraisers sometimes end up appraising the same property multiple times and that the disclosures necessary under the Ethics Rule should not just happen the once, but each time that a property is subsequently appraised.

This revision then adds a statement which establishes that when there is no report as part of the assignment, only initial disclosure to the client is required. This last directive was added to address the question of whether this disclosure would be required – essentially triggering the Conduct section of the Ethics Rule – when no report (and therefore no certification) is produced as part of the assignment. In other words, this revision makes clear that if no certification is required due to the nature of the assignment, then neither are the disclosure requirements.

• Revisions to the Competency Rule

♦ One added sentence requires appraisers not just to BE competent to appraise a property, but to ACT competently throughout the appraisal process. This sentence effectively crystallizes the original intent of the Rule.

• Revisions to Reporting Requirements

♦ Appraisal Reports, including both their level content and how we describe them, has been simplified over the years. Distinctions between “Complete” and “Limited” appraisals disappeared about six years ago, while leaving in place the Restricted, Summary and Self-Contained report types. The current revision retires the terms “Self-Contained” and “Summary” for the more generic “Appraisal Report,” which, based on the requirements, looks very much like what is traditionally understood as a Summary appraisal, although the extent of detail is largely left up to the discretion of the appraiser and client. According to the ASB, these revisions are aimed at improving consistency among the Standards.

In addition, “Restricted Use Appraisal Report” is also renamed “Restricted Appraisal Report” in order to clarify that the report’s use is restricted only to the client or intended user.

• Revisions to Standards

♦ Language has been added to require a reviewer to explicitly include the [effective] Date of the Appraisal Review, the rationale being that it establishes, at a specific point in time, the perspective and opinions of the reviewer with regard to the appraisal problem. This is one of those revisions, like the one to the Competency Rule above, which may have seemed already to have been established, but was not, in fact, codified in the text of USPAP.

♦ Standards 4 and 5 have been retired, and revisions to Advisory Opinions 11 and 12 were also edited to be consistent with the new reporting options.

-Anne Pulis-Tappouni