The Uniform Standards of Professional Appraisal Practice (USPAP) have promulgated what might be called the “generally accepted standards for professional appraisal practice in North America.” The complete manual for the USPAP can be read at www.uspap.org.
The manual is long, and it can be read at that website, but the basic 10 standards are as follows:
• Standards 1 and 2 set the requirements for the development and reporting of a real property appraisal.
• Standard 3 sets the requirements for development and reporting of an appraisal review assignment for a real or personal property appraisal.
• Standards 4 and 5 set the requirements for real property consulting in line with the USPAP.
• Standard 6 sets the requirements for mass appraising, which in general pertains to assessors (ad valorem assessment).
• Standards 7 and 8 set the requirements for personal property appraisals.
• Standards 9 and 10 set the requirements for the valuations of businesses and intangible assets.
There are also advisory opinions, which may be used as guidelines for appraisers in that they may give scenarios of how the appraisal standards may be applied. However, advisory guidelines do not carry the weight of the actual standards, and they are not binding on the appraiser.
The following are 12 of the basic requirements that should be covered in the appraisal to comply with the USPAP. For a complete list, it is recommended that the reader read the USPAP.
1. Identify the client and intended users. There can be more than one client and/or intended user. Only those listed are legally allowed to use the appraisal.
2. State the intended use of the appraisal. If the appraisal was written for a particular user and the client wants to also use it for another purpose, the appraiser should be contacted to get written permission. For instance, the appraisal may have been performed to list a property for sale, but if owners also wanted to use it for a tax appeal, they would need to secure the permission of the appraiser.
3. Describe the property that is being appraised and the characteristics relevant to the assignment. This might be accomplished by using the legal description, address, survey, maps, and so on.
4. Describe the real property interest that is being appraised. This will normally be fee simple, but it could also be leased fee or some other type of ownership.
5. State the purpose of the appraisal and include the definition of the value being determined. This purpose is normally to establish the fair market value, but it could be something else such as the liquidation value.
6. State the date of the appraisal report and the effective date of the valuation. The effective date notes the time period for which the value was estimated for the subject property. It may be a retrospective date, or it may be a current or prospective date. The date of the report notes when the report was completed.
7. State the scope of work the appraisal entails. This statement should stop confusion over the assignment. The reviewer should be able to understand exactly what was valued and how it was valued from reading the scope of work. It should also state if the appraiser had significant assistance from others in developing the report.
8. State assumptions, limiting conditions, and hypothetical conditions that affect the development of the report and the value conclusion. There are normally limiting conditions that might state, for example, that the property is being appraised as a clean site. In that case, if there is hazardous waste contamination found on the site later, the appraiser will not to be held liable for not detecting it. There may also be extraordinary or special assumptions or limiting conditions. An example would be a hypothetical condition for the property.
9. Summarize the information collected and analyzed and the reasoning behind opinions and conclusions. This summary should also include any current sales contracts, options, listings, prior sales, and the like.
10. Include a highest and best use analysis, a statement concerning the use of the property on the appraisal date, and a rationale for the appraisal’s assumed highest and best use of the subject property. The reasons for the highest and best use conclusion should be understandable to the reviewer or the requirement has not been satisfied.
11. Explain any departures from Standard 1, and provide valid reasons for excluding any of the valuation approaches. When there is a departure, the appraisal becomes a limited appraisal, and it must contain a section explaining the reason for the departure.
12. Include the required signed certification.