USPAP Flashcards
Why was USPAP developed?
to promote and maintain a high level of public trust as well as confidence in professional appraisal practice.
When did the first groups of organized professional appraisers come around?
In the wake of the stock market crash and the resulting economic depression, the first organized groups of professional appraisers were formed within the United States during the early 1930s.
When did the “Ad Hoc committe” that led to todays uspap come around?
In the 1980s, leaders of professional organizations recognized the need for a common set of standards for professional appraisal practice.
Eight organizations based in the United States, together with the Appraisal Institute of Canada, formed what is known as the “Ad-Hoc Committee” to develop professional standards that would eventually become the Uniform Standards of Professional Appraisal Practice (USPAP).
Name the four official appraisal boards
In 1987, eight U.S.-based appraisal organizations formed The Appraisal Foundation (TAF), including three boards:
The Board of Trustees (BOT)
The Appraiser Qualifications Board (AQB)
The Appraisal Standards Board (ASB)
In 2010, TAF added a fourth independent Board to its structure.
The Appraisal Practices Board (APB)
was added to provide timely voluntary guidance to appraisers in the form of Valuation Advisories on recognized valuation methods and techniques.
what is FERREA?
Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), also known as the “S&L Bail-Out Bill,” provided recognition and authorized federal financial institution regulatory agencies to reference USPAP in their regulations
Is TAF and the boards that it is made up of a government agency?
TAF is a private entity and not a government agency.
TAF and its boards have no legal oversight or enforcement authority in any jurisdiction.
USPAP achieves legal authority by adoption, citation, or implementation by government agencies through regulation or administrative actions, or by private enterprise in the form of contract requirements.
What are the general steps in the appraisal process?
Define the problem
Determine scope of work
Gather, record, and verify the data
Determine the highest and best use
Estimate the land value
Estimate value by each of the three approaches (if applicable)
Reconcile the estimated values into the final opinion of value
Report the final opinion of value
Who is the client?
“The party or parties who engage, by employment or contract, an appraiser in a specific assignment.”
Comment: The client may be an individual, group, or entity, and may engage and communicate with the appraiser directly or through an agent.1
In developing a new appraisal what are the USPAP 1-2 general steps:
(a) identify the client and other intended users;
(b) identify the intended use of the appraiser’s opinions and conclusions…
(c) identify the type and definition of value…
(d) identify the effective date of the appraiser’s opinions and conclusions …
(e) identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal:…
(f) identify any extraordinary assumptions necessary in the assignment…
(g) identify any hypothetical conditions necessary in the assignment…
(h) determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE….1
Define Property Rights
the interests, benefits, and rights inherent in the ownership of real estate.
Steps of identifying property rights
Standards Rule 1-2(e) on pages 16 and 17 of the 2018-2019 USPAP says an appraiser must:
“identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, ‘.. including:
(ii) the real property interest to be valued
(iii) any personal property, trade fixtures, or intangible items that are not real property but are included in the appraisal;
(iv) any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; and
(v) whether the subject property is a fractional interest, physical segment, or partial holding;”1
Market Value
Appraisers are cautioned to identify the exact definition of market value, and its authority, applicable in each appraisal completed for the purpose of market value.”1
For example, in an appraisal for a federally-related lending transaction, an appraiser must use the definition of market value found in federal banking regulations. In an appraisal for a highway condemnation case, an appraiser must use the definition of market value that appears in applicable federal or state laws or regulations. These definitions are likely to differ somewhat, even though the underlying conditions should be similar.
Intended User Definition
the client and any other party as identified, by name or type, as users of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.”2
Extraordinary Assumption
an assignment-specific assumption, as of the effective date, which, if found to be false, could alter the appraiser’s opinions or conclusions.
Standard 1 Rules : Real Property Appraisal, Development
1-1: Render good technique/not negligent
1-2: (a): identify client/intended users
(b) : identify intended use
(c) : type of value
(d) : effective date
(e) : particular property details
(f) : extraordinary assumptions
(g) : hypothetical conditions
(h) : scope of work
1-3: (a): land use impact on value
(b): highest and best use
1-4: (a): use credible comps in sales comparison
(b): if using cost approach:
I. determine site value
II. comparable site date for cost if new
III. determine diff. btwn new/present worth
(c): if income used:
I. determine gross rental
II. determine operating cost
III. capitalization rate/discount rate
IV. future income/costs w evidence
1-5: If market value
(a) : look at current agreements of sale/listings for subject
(b) : look 3 years back for subj on sales/transf
1-6: Reconcile
(a) : reconcile quality/quantity of data available
(b) : reconcile relevance to methods used
The highest and best use of a property must be
Legally permissible
Physically possible
Financially feasible
Maximally productive
General Data
Data that relates to the four forces that affect real property values—social, economic, governmental, and environmental forces. This type of data is usually not specific to any particular property
four agents of production
(land, labor, capital, entrepreneurial coordination).
Site
Improved land or a lot in a finished state so that it is ready to be used for a specific purpose.”
Brownfield
“Real property for which the expansion, redevelopment, or reuse of the real estate may be complicated by the presence of environmental contamination that needs to be remediated to appropriate regulatory standards.”
6 valuation methods
SALES COMPARISON - Comparison with recent sales
EXTRACTION - Subtracts estimated improvement value to arrive at land value
ALLOCATION - Uses land-to-value ratios based on improved sale comparables
SUBDIVISION DEVELOPMENT - Subtracts estimated development costs from discounted sale proceeds
LAND RESIDUAL - Divides up and capitalizes the income between land and improvements
GROUND RENT CAPITALIZATION - Capitalizes income from leased land
Price per front foot
The price per front foot has two major applications. It is a primary measure of value for waterfront properties and for commercial properties along a major roadway.
Price per buildable unit
This measure is usually employed with a parcel that is capable of a small subdivision. Most often, it is used with multi-unit properties. Thus, the typical measure of the price of a land parcel used by builders, especially in urban areas, is the price per buildable unit.
Extraction Method
A method of estimating land value in which the depreciated cost of the improvements on an improved property is calculated and deducted from the total sale price to arrive at an estimated sale price for the land.”
Allocation Method
“A method of estimating land value in which sales of improved properties are analyzed to establish a typical ratio of land value to total property value and this ratio is applied to the property being appraised or the comparable sale being analyzed.”
Principle of conformity
real property value is created and sustained when the characteristics of a property conform to the demands of its market.”
Principle of balance
real property value is created and sustained when contrasting, opposing, or interacting elements are in a state of equilibrium.”
Land Residual Method
A method of estimating land value in which the net operating income attributable to the land is isolated and capitalized to produce an indication of the land’s contribution to the total property.”
This method deals with income as the basis for value and only should be used in the appraisal of income producing properties.
Income Capitalization Formula
Remember the basic income capitalization formula that
Value = Income/Rate.
Value = Market value
Income = Net operating income
Rate = Capitalization rate
Ground Rent Capitalization Method
“A method of estimating land value; applied by capitalizing ground rent at a market-derived rate. This method is useful when comparable rents, rates, and factors can be developed from an analysis of sales of leased land or other market sources.”
value equals income divided by a rate.
Ranking Analysis
Ranking analysis is a variant of relative comparison analysis, in which the comparable sales are ranked in ascending or descending order. Then the relative position of the subject is determined within the array.
Modular Home
However, the manufactured home is constructed on a permanent steel chassis and has wheels and axles. It is meant to be hauled down the highway and arrives 100% finished. The sections are joined together at the site and it is complete. Most significantly, it is built to meet the HUD Code.
A modular home is built in sections, called boxes, which are lifted onto a truck and transported to the site. The boxes are lifted off with a crane, or rolled off, onto the foundation. Then the boxes have to be joined and finishing work performed at the site. A modular home is built to meet state and local codes, not the HUD Code.
Gross Living Area
“Total area of finished, above-grade residential space; calculated by measuring the outside perimeter of the structure and includes only finished, habitable, above-grade living space. (Finished basements and attic areas are not generally included in total gross living area. Local practices, however, may differ).”
Below Grade
A level is considered below-grade if any portion of it is below-grade - regardless of the quality of its finish or the window area of any room. A walk-out basement with finished rooms would not be included in the above-grade room count.
The Fannie Mae Selling Guide goes on to state:
“Rooms that are not included in the above-grade room count may add substantially to the value of a property-particularly when the quality of the finish is high.
The appraiser must report the basement or other partially below-grade areas separately and make appropriate adjustments for them on the ‘basement and finished areas below-grade’ line in the ‘sales comparison analysis’ grid.”
End of Page
Gross Building Area
When appraising 2-4 family residential properties, Fannie Mae, Freddie Mac, HUD/FHA and VA require an appraiser to use gross building area.
Fannie Mae says in its Selling Guide, Section B-4-1.4-14,
“Gross building area:
is the total finished area including any interior common areas, such as stairways and hallways of the improvements based on exterior measurements.
is the most common comparison for two- to four-unit properties.
must be consistently developed for the subject property and all comparables used in the appraisal.
must include all finished above-grade and below-grade living areas, counting all interior common areas such as stairways, hallways, storage rooms, etc.
cannot count exterior common areas such as open stairways.
Site prep notable legal info
Obtain a building permit Check applicable codes Building codes Fire codes Check environmental regulations Wetlands Protected areas Hazard areas Check flood plain Curb cut permit or driveway permit (if needed)
