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UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE
As promulgated by the Appraisal Standards Board of The Appraisal Foundation
PREAMBLE
It is
essential that a professional appraiser arrive at and communicate
his or her analyses, opinions, and advice in a manner that will
be meaningful to the client and will not be misleading in the
marketplace. These Uniform Standards of Professional Appraisal
Practice reflect the current standards of the appraisal profession.
The importance of the role of the appraiser places ethical obligations on those who serve
in this capacity. These standards include explanatory comments
and begin with an Ethics Provision setting forth the requirements
for integrity, objectivity, independent judgment, and ethical
conduct. In addition, these standards include a Competency Provision
which places an immediate responsibility on the appraiser prior
to acceptance of an assignment. The standards contain
binding requirements, as well as specific guidelines to which
a Departure Provision may apply under certain limited conditions.
Definitions applicable to these standards are also included.
These standards deal with the procedures to be followed in performing
an appraisal, review, or consulting service and the manner in
which an appraisal, review, or consulting service is communicated.
Standards 1 and 2 relate to the development and communication
of a
real property appraisal. Standard 3 establishes guidelines for
reviewing an appraisal and reporting on that review. Standards
4 and 5 address the development and communication of various real
estate or real property consulting functions by an appraiser.
Standard 6 sets forth criteria for the development and reporting
of mass appraisals for ad valorem tax purposes. Standards 7 and
8 establish guidelines for developing and communicating personal
property appraisals. Standards 9 and 10 establish guidelines for
developing and communicating business appraisals.
These standards are for appraisers and the users of appraisal services. To maintain the
highest level of professional practice, appraisers must observe
these standards. The users of appraisal services should demand work
performed in conformance with these standards.
Comment: Explanatory comments are an integral part of the
Uniform Standards and should be viewed as extensions of the provisions,
definitions, and standards rules. Comments provide interpretation
from the Appraisal Standards Board concerning the background or
application of certain provisions, definitions, or standards rules.
There are no comments for provisions, definitions, and standards
rules that are axiomatic or have not yet required further explanation;
however, additional comments will be developed and others supplemented
or revised as the need arises
December 1990
ETHICS PROVISION
Because of the fiduciary responsibilities inherent in professional
appraisal practice, the appraiser must observe the highest standards of
professional ethics. This Ethics Provision is divided into four sections:
conduct, management, confidentiality, and record keeping.
Comment: This provision emphasizes the personal obligations
and responsibilities of the individual appraiser. However, it
should also be emphasized that groups and organizations engaged
in appraisal practice share the same ethical obligations.
Conduct
An
appraiser must perform ethically and competently in accordance
with these standards and not engage in conduct that is unlawful,
unethical, or improper. An appraiser who could reasonably be perceived
to act as a disinterested third party in rendering an unbiased
appraisal, review, or consulting service must perform assignments
with impartiality, objectivity, and independence and without accommodation
of personal interests.
Comment: An appraiser is required to avoid any
action that could be considered misleading or fraudulent. In particular,
it is unethical for an appraiser to use or communicate a misleading or
fraudulent report or to knowing permit an employee or other person to
communicate a misleading or fraudulent report.
The development of an appraisal, review, or consulting service based on
a hypothetical condition is unethical unless: 1) the use of the hypothesis
is clearly disclosed; 2) the assumption of the hypothetical condition
is clearly required for legal purposes, for purposes of reasonable analysis,
or for purposes of comparison and would not be misleading; and 3) the
report clearly describes the rationale for this assumption, the nature
of the hypothetical condition, and its effect on the result of the appraisal,
review, or consulting service.
An individual appraiser employed by a group or organization which
conducts itself in a manner that does not conform to these standards
should take steps that are appropriate under the circumstances
to ensure compliance with the standards.
Management
The acceptance of compensation that is contingent upon the reporting
of a predetermined value or a direction in value that favors the cause
of the client, the amount of the value estimate, the attainment of a stipulated
result, or the occurrence of a subsequent event is unethical.
The payment of undisclosed fees, commissions, or things of value in connection with the procurement
of appraisal, review, or consulting assignments is unethical.
Comment:
Disclosure
of fees, commissions, or things of value connected to the procurement
of an assignment should appear in the certification of a written
report and in any transmittal letter in which conclusions are
stated. In groups or organizations engaged in appraisal practice
intra-company payments to employees for business development are
not considered to be unethical. Competency, rather than financial
incentives, should be the primary basis for awarding an assignment.
December 1990
B-2
ETHICS PROVISION (continued)
Management (continued)
Advertising for or soliciting appraisal assignments in a manner which
is false, misleading, or exaggerated is unethical.
Comment: In groups or organizations engaged in
appraisal practice, decisions concerning finder or referral fees, contingent
compensation, and advertising may not be the responsibility of an individual
appraiser, but for a particular assignment, it is the responsibility of
the individual appraiser to ascertain that there has been no breach of
ethics, that the appraisal is prepared in accordance with these standards,
and that the report can be properly certified as required by Standards
Rules 2-3, 3-2, 5-3, 8-3, or 10-3.
The restriction on contingent compensation in the first paragraph of this
section does not apply to consulting assignments where the appraiser is
not acting in a disinterested manner and would not reasonably be perceived
as performing a service that requires impartiality. This permitted contingent
compensation must be properly disclosed in the report.
Comment: Assignments where the appraiser is not
acting in a disinterested manner are further discussed in the General
Comment to Standard 4. The preparer of the written report of such an assignment
must certify that the compensation is contingent and must explain the
basis for the contingency in the report (See Standards Rule 5-3) and in
any transmittal letter in which conclusions are stated.
Confidentiality
An appraiser must protect the confidential nature of the appraiser-client
relationship.
Comment: An appraiser must not disclose confidential
factual data obtained from a client or the results of an assignment prepared
for a client to anyone other than: 1) the client and persons specifically
authorized by the client; 2) such third parties as may be authorized by
due process of law; and 3) a duly authorized professional peer review
committee. As a corollary, it is unethical for a member of a duly authorized
professional peer review committee to disclose confidential information
or factual data presented to the committee
Record Keeping
An appraiser must prepare written records of appraisal, review,
and consulting assignments-4ncluding oral testimony and reports--and retain
such records for a period of at least rive (5) years after preparation
or at least two (2) years after final disposition of any judicial proceeding
in which testimony was given, whichever period expires last.
December 1990
Comment: Written records of assignments include
true copies of written reports, written summaries of oral testimony and
reports (or a transcript of testimony), all data and statements required
by these standards, and other information as may be required to support
the findings and conclusions of the appraiser. The term written records
also includes information stored on electronic, magnetic, or other
media. Such records must be made available by the appraiser when required
by due process of law or by a duly authorized professional peer review
committee.
B-3
COMPETENCY PROVISION
Prior to accepting an assignment or entering into an agreement
to perform any assignment, an appraiser must properly identify
the problem to be addressed and have the knowledge and experience
to complete the assignment competently; or alternatively:
1. disclose the lack of knowledge and/or experience to the client
before accepting the assignment; and
2. take all steps necessary or appropriate to complete the assignment
competently; and
3. describe the lack of knowledge and/or experience and the steps taken to complete the assignment competently in the report.
Comment: The background and experience of appraisers
varies widely and a lack of knowledge or experience can lead to inaccurate
or inappropriate appraisal practice. The competency provision requires
an appraiser to have both the knowledge and the experience required to
perform a specific appraisal service competently. If an appraiser is offered
the opportunity to perform an appraisal service but lacks the necessary
knowledge or experience to complete it competently, the appraiser must
disclose his or her lack of knowledge or experience to the client before
accepting the assignment and then take the necessary or appropriate steps
to complete the appraisal service competently. This may be accomplished
in various ways including, but not limited to, personal study by the appraiser;
association with an appraiser reasonably believed to have the necessary
knowledge or experience; or retention of others who possess the required
knowledge or experience.
Although this provision requires an appraiser to identify the
problem and disclose any deficiency in competence prior to accepting
an assignment, facts or conditions uncovered during the course
of an assignment could cause an appraiser to discover that he
or she lacks the required knowledge or experience to complete
the assignment competently. At the point of such discovery, the
appraiser is obligated to notify the client and comply with items
2 and 3 of the provision.
The concept of competency also extends to appraisers who are requested
or required to travel to geographic areas wherein they have no
recent appraisal experience. An appraiser preparing an appraisal
in an unfamiliar location must spend sufficient time to understand
the nuances of the local market and the supply and demand factors
relating to the specific property type and the location involved.
Such understanding will not be imparted solely from a consideration
of specific data such as demographics, costs, sales, and rentals.
The necessary understanding of local market conditions provides
the bridge between a sale and a comparable sale or a rental and
a comparable rental. If an appraiser is not in a position to spend
the necessary amount of time in a market area to obtain this understanding,
affiliation with a qualified local appraiser may be the appropriate
response to ensure the development of a competent appraisal.
With regard to mass appraisal as defined herein, an appraiser
must immediately take all necessary steps to ensure the mass appraisal
is developed under the supervision of an appraiser who has the
qualifications referred to in Standard 6.
December 1990
DEPARTURE
PROVISION
This provision permits limited exceptions to sections of the Uniform Standards that are classified as specific guidelines rather than binding requirements. The burden of proof is on the appraiser to decide before accepting
*limited assignment that the result will not confuse or mislead. The burden of disclosure is also on the appraiser to
*report any limitations.
An appraiser
may enter into an agreement to perform an assignment that calls
for something less than, or different from, the work that would
otherwise be required by the specific guidelines, provided that
prior to entering into such an agreement:
1. the appraiser has determined that the assignment to be performed is not so limited in scope that the resulting appraisal, review, or consulting service would tend to mislead or confuse the client, the users of the report, or the public; and
2. the appraiser has advised the client that the assignment calls for something less than, or different from, the work required by the specific guidelines and that the report will state the limited or differing scope of the appraisal, review, or consulting service.
Exceptions to the following requirements are not permitted: Standards
Rules 1-1, 1-5,2-1,2-2,2-3,2-5,3-1,3- 2, 4-1, 5-1, 5-3, 6-1, 6-5,
6-6, 7-1, 8-1, 8-3, 9-1, 9-3, 9-5, 10-1, 10-3, and 10- 5. This
restriction on departure is reiterated throughout the document with the
reminder comment: Departure from this Winding requirement is not permitted.
Comment: Before making a decision to enter
into an agreement for appraisal services calling for a departure from
a specific appraisal guideline, an appraiser must use extreme care to
determine whether the scope of the appraisal service to be performed is
so limited that the resulting analysis, opinion, or conclusion would tend
to mislead or confuse the client, the users of the report, or the public.
For the purpose of this provision, users of the report might include parties
such as lenders, employees of government agencies, limited partners of
a client, and a client's attorney and accountant. In this context the
purpose of the appraisal and the anticipated or possible use of the report
are critical.
If an appraiser enters into an agreement to perform an appraisal service
that calls for something less than, or different from, the work that would
otherwise be required by the specific appraisal guidelines, Standards
Rules 2-2(k), 5-2(i), 8-2(h), and 10-2(h) require that this fact be clearly
and accurately set forth in the report.
The requirements of the departure provision may be satisfied by
the technique of incorporating by reference.
For example, if an appraiser's complete file was introduced into
evidence at a public hearing or public trial and the appraiser
subsequently prepared a one-page report that 1) identified the
property, 2) stated the value, and 3) stated that the value conclusion
could not be properly understood without reference to his or her
complete file and directed the reader to the complete file, the
requirements of the departure provision would be satisfied if
the appraiser's complete file contained, in coherent form, all
the data and statements that are required by the Uniform Standards.
Another example would be an update report that expressly incorporated
by reference all the background data, market conditions, assumptions,
and limiting conditions that were contained in the original report
prepared for the same client.
JURISDICTIONAL
EXCEPTION
If any part of these standards is contrary to the law or public policy of any jurisdiction, only that part shall be void and of no force or effect in that jurisdiction.
SUPPLEMENTAL
STANDARDS
These Uniform Standards provide the common basis for all appraisal practice. Supplemental standards applicable to appraisals prepared for specific purposes or property types may be issued by public agencies and certain client groups, e.g., regulatory agencies, eminent domain authorities, asset managers, and financial institutions. Appraisers and clients must ascertain whether any supplemental standards in addition to these Uniform Standards apply to the assignment being considered.
DEFINITIONS
For the purpose of these standards, the following definitions apply:
APPRAISAL: (noun) the act or process of
estimating value; an estimate of value.
(adjective) of or pertaining to appraising and related functions,
e.g., appraisal practice, appraisal services.
APPRAISAL PRACTICE:
the work or services performed by appraisers, defined by three
terms in these standards: appraisal, review, and consulting.
Comment: These three terms are intentionally generic, and
not mutually exclusive. For example, an estimate of value may
be required as part of a review or consulting service. The use
of other nomenclature by an appraiser (e.g., analysis, counseling,
evaluation, study, submission, valuation) does not exempt an appraiser
from adherence to these standards.
CASH FLOW ANALYSIS:
a study of the anticipated movement of cash into or out of
an investment.
CLIENT: any party for whom an appraiser performs
a service.
CONSULTING:
the act or process of providing information, analysis of
real estate data, and recommendations or conclusions on diversified
problems in real estate, other than estimating value.
FEASIBILITY
ANALYSIS: a study of the cost-benefit relationship of an economic endeavor.
INVESTMENT
ANALYSIS: a study that reflects the relationship between acquisition
price and anticipated future benefits of a real estate investment.
MARKET ANALYSIS:
a study of real estate market conditions for a specific type of
property.
MARKET VALUE:
Market value is the major focus of
most
real property appraisal assignments. Both economic and legal definitions
of market
value have been developed and refined. A current economic definition
agreed upon by federal financial institutions in the United States
of America
is:
The most probable price which a property should bring in a competitive
and open market under all conditions requisite to a fair sale,
the buyer and seller each acting prudently and knowledgeably,
and assuming the price is not affected by undue stimulus. Implicit
in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby:
1. buyer and seller are typically motivated.
2.both parties are well informed or well advised, and acting in
what they consider their best interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment
is made in terms of cash in United States dollars or in terms
of financial arrangements comparable
thereto; and the price represents the normal consideration for
the property sold unaffected by special or creative financing
or sales concessions granted by anyone associated with the sale.
Substitution of another currency for United States dollars
in the fourth condition is appropriate in other countries
or in reports addressed to clients from other countries. Persons
performing appraisal services that may be subject to litigation
are cautioned to seek the exact legal definition of market value
in the jurisdiction in which the services are being performed.
DEFINITIONS (continued)
MASS APPRAISAL: the process of valuing a universe of properties as of a given
date utilizing standard methodology, employing common data, and
allowing for statistical testing.
MASS APPRAISAL
MODEL: a
mathematical expression of how supply and demand factors interact
in 1 market.
PERSONAL PROPERTY: identifiable portable and tangible objects which are
considered by the general public as being "personal," e.g.,
furnishings, artwork, antiques, gems and jewelry, collectibles, machine
and equipment; all property that is not classified as real estate.
REAL ESTATE:
an identified parcel or tract of land,
including improvements, if any.
REAL PROPERTY:
the interests,
benefits, and rights inherent in the ownership of real estate.
Comment: In some jurisdictions, the terms real estate and
real propertyhave the same legal meaning. The separate definitions
recognize the traditional distinction between the two concepts in appraisal
theory.
REPORT: any communication, written or oral,
of an appraisal, review, or analysis; the document that is transmitted
to the client upon completion of an assignment.
Comment: Most reports are written and most clients mandate written
reports. Oral report guidelines (See Standards Rule 2-4) and restrictions
(See Ethics Provision: Record Keeping) are included to cover court testimony
and other oral communications of an appraisal, review, or consulting service.
REVIEW: the act or process of critically studying
a report prepared by another.
STANDARD I
In developing
a real property appraisal, an appraiser must be aware of, understand,
and correctly employ those recognized methods and techniques
that are necessary to produce a credible appraisal.
Comment: Standard I is directed toward the substantive
aspects of developing a competent appraisal. The requirements set forth
in Standards Rule 1-1, the appraisal. guidelines set forth in Standards
Rules 1-2, 1-3, 1-4, and the requirements set forth in Standards Rule
1-5 mirror the appraisal process in the order of topics addressed and
can be used by appraisers and the users of appraisal services as a convenient
checklist.
Standards
Rule 1-1
In developing a real property appraisal, an appraiser must:
(a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;
Comment: Departure from this binding requirement
is not permitted. This rule recognizes that the principle of change
continues to affect the manner in which appraisers perform appraisal services.
Changes and developments in the real estate field have a substantial impact
on the appraisal profession. Important changes in the cost and manner
of constructing and marketing commercial, industrial, and residential
real estate and changes in the legal framework in which real property
rights and interests are created, conveyed, and mortgaged have resulted
in corresponding changes in appraisal theory and practice. Social change
has also had an effect on appraisal theory and practice. To keep abreast
of these changes and developments, the appraisal profession is constantly
reviewing and revising appraisal methods and techniques and devising new
methods and techniques to meet new circumstances. For this reason it is
not sufficient for appraisers to simply maintain the skills and the knowledge
they possess when they become appraisers. Each appraiser must continuously
improve his or her skills to remain proficient in real property appraisal.
(b) not commit a substantial error of omission or commission that
significantly affects an appraisal;
Comment: Departure from this binding requirement
is not permitted. In performing appraisal services an appraiser must
be certain that the gathering of factual information is conducted in a
manner that is sufficiently diligent to ensure that the data that would
have a material or significant effect on the resulting opinions or conclusions
are considered. Further, an appraiser must use sufficient care in analyzing
such data to avoid errors that would significantly affect his or her opinions
and conclusions.
(c) not render appraisal services in a careless or negligent manner, such as a series of errors that, considered individually, may not significantly affect the results of an appraisal, but which, when considered in the aggregate, would be misleading.
Comment: Departure from this binding requirement is not permitted. Perfection is impossible to attain and competence does not require perfection. However, an appraiser must not render appraisal services in a careless or negligent manner. This rule requires an appraiser to use due diligence and due care. The fact that the carelessness or negligence of an appraiser has not caused an error that significantly affects his or her opinions or conclusions and thereby seriously harms a client or a third party does not excuse such carelessness or negligence
STANDARD I (continued)
Standards Rule 1-2.
In developing a real property appraisal, an appraiser must observe the following specific appraisal guidelines:
(a) adequately identify the real estate, identify the real property interest, consider the purpose and intended use of the appraisal, consider the extent of the data collection process, identify any special limiting conditions, and identify the effective date of the appraisal;
(b) define the value being considered; if the value to be estimated is
market value, the appraiser must clearly indicate whether the estimate
is the most probable price in terms of cash; or
(ii) in terms of financial arrangements equivalent to cash; or
(iii) in such other terms as may be precisely defined; if an estimate
of value is based on submarket financing or financing with unusual conditions
or incentives, the terms of such financing must clearly set forth, their
contributions to or negative influence on value must be described and
estimated, and the market data supporting the valuation estimate must
be described and explained;
Comment: For certain counties of appraisal assignments in which legal definition of market value has been established and takes precedence, the Jurisdictional Exception may apply to this guideline.
If the concept of reasonable exposure in the open market is involved, the appraiser should be specific as to the estimate of marketing time linked to the value estimate.
(c) consider easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature;
(d) consider whether an appraised fractional interest, physical segment, or partial holding contributes pro rata to the value of the whole;
Comment: This guideline does not require an appraiser to value the whole when the subject of the appraisal i; fractional interest, a physical segment, or a partial holding. However, if the value of the whole is not consider the appraisal must clearly reflect that the value of the property being appraised cannot be used to estimate the value of the whole by mathematical extension.
(e) identify and consider the effect on value of any personal property, trade fixtures, or intangible item, that are not real property but are included in the appraisal.
Comment: This guideline requires the appraiser to
recognize the inclusion of items that arc not real property i an overall
value estimate. Additional expertise in personal property (See Standard
7) or business (See Standard appraisal may be required to allocate the
overall value to its various components. Separate valuation of such items
is required when they are significant to the overall value.
STANDARD I (continued)
Standards Rule 1-3
In developing a real property appraisal, an appraiser must observe the
following appraisal guidelines:
(a) consider the effect on use and value of the following factors: existing land use regulations, reasonably probable modifications of such land use regulations, economic demand, the physical adaptability of the real estate, neighborhood trends, and the highest and best use of the real estate;
Comment: This guideline sets forth a list of factors that affect use and value. In considering neighborhood trends, an appraiser must avoid stereotyped or biased assumptions relating to race, age, color, religion, gender, or national origin or an assumption that racial, ethnic, or religious homogeneity is necessary to maximize value in a neighborhood. Further, an appraiser must avoid making an unsupported assumption or premise about neighborhood decline, effective age, and remaining life. In considering highest and best use, an appraiser should develop the concept to the extent that is required for a proper solution of the appraisal problem being considered.
(b) recognize that land is appraised as though vacant and available for development to its highest and best use and that the appraisal of improvements is based on their actual contribution to the site.
Comment: This guideline may be modified to reflect the fact that,
in various legal and practical situations, a site may have a contributory
value that differs from the value as if vacant.
Standards Rule 1-4
In developing a real property appraisal, an appraiser must observe
the following specific appraisal guidelines, when applicable:
(a) value the site by an appropriate appraisal method or technique;
(b) collect, verify, analyze, and reconcile:
(i) such comparable cost data as are available to estimate the cost new
of the improvements (if any);
ii) such comparable data as are available to estimate the difference between cost new and the present worth of the improvements (accrued depreciation);
(iii) such comparable sales data, adequately identified and described, as are available to indicate a value conclusion;
(iv) such comparable rental data as are available to estimate the market rental of the property being appraised;
(v) such comparable operating expense data as are available to estimate the operating expenses of the property being appraised;
(vi) such comparable data as are available to estimate rates of capitalization
and/or rates of discount.
Comment: This rule covers the three approaches to value. See Standards
Rule 2-20) for corresponding reporting requirements.
STANDARD 1 (continued)
Standards Rule 1-4 (continued)
(c) base projections of future rent and expenses on reasonably clear and
appropriate evidence;
Comment: This guideline requires an appraiser, in developing income and expense statements and cash flow projections, to weigh historical information and trends, current market factors affecting such trends, and antic pated events such as competition from developments under construction.
(d) when estimating the value of a leased fee estate or a leasehold estate, consider and analyze the effect on value, if any, of the terms and conditions of the lease(s);
(e) consider and analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from estimating the value of the whole solely by adding together the individual values of the various estates or component parts;
Comment: Although the value of the whole may be equal to the sum of the separate estates or parts, it also ~ be greater than or less than the sum or such estates or parts. Therefore, the value of the whole must be tested b reference to appropriate market data and supported by an appropriate analysis of such data.
A similar procedure must be followed when the value of the whole has been established and the appraiser seek to estimate the value of a part. The value of any such part must be tested by reference to appropriate market da and supported by an appropriate analysis of such data.
(f) consider and analyze the effect on value, if any, of anticipated public or private improvements, location on or off the site, to the extent that market actions reflect such anticipated improvements as of the effective appraisal date;
Comment: In condemnation valuation assignments in certain jurisdictions, the Jurisdictional Exception may apply to this guideline.
(g) identify and consider the appropriate procedures and market information required to perform the appraisal, including all physical, functional, and external market factors as they may affect the appraisal;
Comment: The appraisal may require a complete market analysis
(See Standards Rule 4-4).
(h) appraise proposed improvements only after examining and having available
for future examination:
(i) plans, specifications, or other documentation sufficient to identify
the scope and character of the
proposed improvements;
(ii) evidence indicating the probable time of completion of the proposed
improvements; and
(iii) reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy projections, and anticipated competition at the time of completion.
Comment: The evidence required to be examined and maintained under this guideline may include such items with contractor's estimates relating to cost and the time required to complete construction, market and feasibility studies; operating cost data; and the history of recently completed similar developments. The appraisal may require a complete feasibility analysis (See Standards Rule 4-6).
(i) All pertinent information in items (a) through (h) above shall be used in the development of an appraisal.
Comment: See Standards Rule 2-2(k) for corresponding reporting
requirements.
Standards Rule 1-5
In developing a real property appraisal, an appraiser must:
(a) consider and analyze any current Agreement of Sale, option, or listing
of the property being appraised, if such information is available to the
appraiser in the normal course of business;
(b) consider and analyze any prior sales of the property being appraised that occurred within the f6flowing time periods:
(C) one year for one- to four- family residential property; and (ii)
three years for all other property types;
Comment: The intent of this requirement is to encourage the research
and analysis of prior sales of the subject; the time frames cited are
minimums.
(c) consider and reconcile the quality and quantity of data available
and analyzed within the approaches used and the applicability or suitability
of the approaches used.
Comment: Departure from this binding requirement is not permitted.
See Standards Rule 2-2(k) Comment for corresponding reporting requirements.
STANDARD 2
In reporting the results of a real property appraisal an appraiser
must communicate each analysis, opinion, conclusion in a manner that is
not misleading.
Comment: Standard 2 governs the form and content of the report
that communicates the results of an app a client and third parties
Standards Rule 2-1
Each written or oral real property appraisal report must:
(a) clearly and accurately set forth the appraisal in a manner that will
not be misleading;
Comment: Departure from this binding requirement
is not permitted. Since most reports are used and relied on by third
parties, communications considered adequate by the appraiser's client
may not be sufficient. An appraiser must take extreme care to make certain
that his or her reports will not be misleading in the mark or to the public.
(b) contain sufficient information to enable the person(s) who receive
or rely on the report to under it properly;
Comment: Departure from this binding requirement is not permitted. A failure to observe this rule could client or other users of the report to make a serious error even though each analysis, opinion, and conclusion the report is clearly and accurately stated. To avoid this problem and the dangers it represents to clients an users of reports, this rule requires an appraiser to include in each report sufficient information to enable the to understand it properly. All reports, both written and oral, must clearly and accurately present the analysis opinions, and conclusions of the appraiser in sufficient depth and detail to address adequately the significant specific appraisal problem.
(c) clearly and accurately disclose any extraordinary assumption or limiting condition that directly affects the appraisal and indicate its impact on value.
Comment: Departure from this binding requirement
is not permitted Examples of extraordinary assumptive conditions might
include items such as the execution of a pending lease agreement, atypical
financing, or completion of onsite or off site improvements. In a written
report the disclosure would be required in conj with statements of each
opinion or conclusion that is affected.
Standards Rule 2-2
Each written real property appraisal report must:
(a) identify and describe the real estate being appraised;
(b) identify the real property interest being appraised;
Comment on (a) and (b): These two requirements are essential
elements in any report. Identifying the re can be accomplished by any
combination of a legal description, address, map reference, copy of a
survey property sketch, and/or photographs. A property sketch and photographs
also provide some description of estate in addition to written comments
about the physical attributes of the real estate. Identifying the real
rights being appraised requires a direct statement substantiated as needed
by copies or summaries of legal descriptions or other documents setting
forth any encumbrances.
(c) state the purpose of the appraisal;
(d) define the value to be estimated;
(e) set forth the effective date of the appraisal and the date of the
report;
Comment on (c). (d) and (e): These three
requirements call for clear disclosure to the reader of a report the "why,
what, and when" surrounding the appraisal. The purpose of the appraisal
is used generically to include both the task involved and the rationale
for the appraisal. Defining the value to be estimated requires both an
appropriately referenced definition and any comments needed to clearly
indicate to the reader how the definition is being applied [See Standards
Rule 1-2(b)]. The effective date of the appraisal establishes the context
for the value estimate, while the date of the report indicates whether
the perspective of the appraiser on the market conditions as of the effective
date of the appraisal was prospective, current, or retrospective. Reiteration
of the date of the report and the effective date of the appraisal at various
stages of the report in tandem is important for the clear understanding
of the reader whenever market conditions on the date of the report are
different from market conditions on the effective date of the appraisal.
(f) describe the extent of the process of collecting, confirming, and
reporting data;
Comment: This requirement is designed to protect third parties
whose reliance on an appraisal report may be affected by the extent of
the appraiser's investigation; i.e., the process of collecting, confirming,
and reporting data.
(g) set forth all assumptions and limiting conditions that affect the
analyses, opinions, and conclusions;
Comment: It is suggested that assumptions and
limiting conditions be grouped together in an identified section of the
report.
(h) set forth the information considered, the appraisal procedures followed,
and the reasoning that supports the analyses, opinions, and conclusions;
Comment: This requirement calls for the appraiser to summarize
the data considered and the procedures that were followed. Each item must
be addressed in the depth and detail required by its significance to the
appraisal. The appraiser must be certain that sufficient information is
provided so that the client, the users of the report, and the public will
understand it and will not be misled or confused The substantive content
of the report, not its size, determines its compliance with this specific
reporting guideline.
(i) set forth the appraiser's opinion of the highest and best use of the
real estate, when such an opinion is necessary and appropriate;
Comment: This requirement calls for a written report to contain
a statement of the appraiser's opinion as to the highest and best use
of the real estate, unless an opinion as to highest and best use is unnecessary,
e.g., insurance valuation or value in use appraisals. If an opinion as
to highest and best use is required, the reasoning in support of the opinion
must also be included.
(j) explain and support the exclusion of any of the usual valuation approaches;
(k) set forth any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from, the requirements of Standard 1;
STANDARD 2 (continued)
Standards Rule 2-2 (continued)
Comment: This requirement calls for a written appraisal report
or other written communication concerning the results of an appraisal
to contain sufficient information to indicate that the appraiser complied
with the requirements( of Standard 1, including the requirements governing
any permitted departures from the appraisal guide. lines. The amount of
detail required will vary with the significance of the information to
the appraisal.
Information considered and analyzed in compliance with Standards Rule
1-5 is significant information that deserves comment in any report. If
such information is unobtainable, comment on the efforts undertaken by
d appraiser to obtain the information is required.
(1) include a signed certification in accordance with Standards Rule 2-3.
Comment: Departure from binding requirements (a) through (1)
above is not permitted
Standards Rule 2-3
Each written real property appraisal report must contain a certification
that is similar in content to the following form:
I certify that, to the best of my knowledge and belief that the statements
of fact contained in this report are true and correct the reported analyses,
opinions, and conclusions are limited only by the reported assumptions
and limiting conditions, and are my personal, unbiased professional analyses,
opinions, and conclusions I have no (or the specified) present or prospective
interest in the property that is the subject of the report, and I have
no (or the specified) personal interest or bias with respect to the parties
involve my compensation is not contingent upon the reporting of a predetermined
value or direction in va that favors the cause of the client, the amount
of the value estimate, the attainment of a stipulated result, or the occurrence
of a subsequent event. my analyses, opinions, and conclusions were developed,
and this report has been prepared, in conformity with the Uniform Standards
of Professional Appraisal Practice. I have (or have not) made a personal
inspection of the property that is the subject of this report. more than
one person signs the report, this certification must clearly specify which
individuals in which individuals did not make a personal inspection of
the appraised property.) no one provided significant professional assistance
to the person signing this report (If there are exceptions, the name of
each individual providing significant professional assistance must be
stat
Comment: Departure from this binding requirement is not permitted
Standards Rule 2-4
To the extent that it is both possible and appropriate, each oral
real property appraisal report (including expert testimony) must address
the substantive matters set forth in Standards Rule 2-2.
Comment: In addition to complying with the requirements of Standards
Rule 2-1, an appraiser making an 4 report must use his or her best efforts
to address each of the substantive matters in Standards Rule 2-2.
Testimony of an appraiser concerning his or her analyses, opinions, and
conclusions is an oral report in which appraiser must comply with the
requirements of this Standards Rule.
December 1990
See Record Keeping under the ETHICS PROVISION for corresponding
requirements.
An appraiser who signs a real property appraisal report prepared by another,
even under the label of '6review appraiser," must accept full responsibility
for the contents of the report.
Comment: Departure from this binding requirement is not permitted
This requirement is directed to the employer or supervisor signing
the report of an employee or subcontractor. The employer or supervisor
signing the report is as responsible as the individual preparing the appraisal
for the content and conclusions of the appraisal and the report. Using
a conditional label next to the signature of the employer or supervisor
or signing a form report on the fine over the words "review appraiser"
does not exempt that individual from adherence to these standards.
This requirement does not address the responsibilities of a review appraiser,
the subject of Standard 3.
In reviewing an appraisal and reporting the results of that review, an appraiser must form an opinion as to t adequacy and appropriateness of the report being reviewed and must clearly disclose the nature of the revised, process undertaken.
Comment: The function of reviewing an appraisal requires the preparation of a separate report or a file mi memorandum by the appraiser performing the review setting forth the results of the review process. Review app go beyond checking for a level of completeness and consistency in the report under review by providing c comment on the content and conclusions of the report. They may or may not have first-hand knowledge of the property or of data in the report. The COMPETENCY PROVISION applies to the appraiser performing the review as well as the appraiser who prepared the report under review.
Reviewing is a distinctly different function from that addressed in Standards Rule 2-5. To avoid confusion marketplace between these two functions, review appraisers should not sign the report under review unless intend to take the responsibility of a cosigner.
Review appraisers must take appropriate steps to indicate to third parties the precise extent of the review A separate report or letter is one method. Another appropriate method is a form or checklist prepared and by the appraiser conducting the review and attached to the report under review. It is also possible that a single impression on the appraisal report under review, signed or initialed by the reviewing appraiser, may be ai appropriate method for separating the review function from the actual signing of the report- To be effective, however, the stamp must briefly indicate the extent of the review process and refer to a file memorandum clearly outlines the review process conducted.
The review appraiser must exercise extreme care in clearly distinguishing between the review process an appraisal or consulting processes. Original work by the review appraiser may be governed by STANDAI STANDARD 4 rather than this standard. A misleading or fraudulent review and/or report violates the El PROVISION
Standards Rule 3-1
In reviewing an appraisal, an appraiser must:
(a) identify the report under review, the real estate and real property interest being appraised, the effective date or the opinion in the report under review, and the date of the review;
(b) identify the extent of the review process to be conducted;
(c) form an opinion as to the completeness of the report under review in light of the requirement standards;
Comment: The review should be conducted in the context of market conditions as of the effective date opinion in the report being reviewed.
(d) form an opinion as to the apparent adequacy and relevance of the data and the propriety of g adjustments to the data;
(e) form an opinion as to the appropriateness of the appraisal methods and techniques used and the reasons for any disagreement;
(f) form an opinion as to whether the analyses, opinions, and conclusions in the report under re. appropriate and reasonable, and develop the reasons for any disagreement.
Comment: Departure from binding requirements (a) through (f) above is not permitted
An opinion of a different estimate of value from that in the report under review may be expressed, provided the review appraiser
1. satisfies the requirements of STANDARD 1;
2. identifies and sets forth any additional data relied upon and the reasoning and basis for the different estimate of value; and,
3. clearly identifies and discloses all assumptions and limitations connected with the different estimate of value to avoid confusion in the marketplace.
In reporting the results of an appraisal review, an appraiser must:
(a) disclose the nature, extent, and detail of the review process undertaken;
(b) disclose the information that must be considered in Standards Rule
3-1 (a) and (b);
(c) set forth the opinions, reasons, and conclusions required in Standards
Rule 3-1 (c), (d), (e) and (f);
(d) include all known pertinent information;
(e) include a signed certification similar in content to the following:
I certify that, to the best of my knowledge and belief
- the facts and data reported by the review appraiser and used in the review process are true and correct.
- the analyses, opinions, and conclusions in this review report are limited
only by the assumptions and limiting conditions stated in this review
report, and are my personal, unbiased professional analyses, opinions,
and conclusions. I have no (or the specified) present or prospective interest
in the property that is the subject of this report and I have no (or the
specified) personal interest or bias with respect to the parties
involved.
My compensation is not contingent on an action or event resulting from
the analyses, opinions, or conclusions in, or the use of, this review
report. my analyses, opinions, and conclusions were developed and this
review report was prepared in conformity with the Uniform Standards of
Professional Appraisal Practice. I did not personally inspect the subject
property of the report under review. no one provided significant professional
assistance to the person signing this review report. (If there are exceptions,
the name of each individual providing significant professional assistance
must be stated.)
Comment: Departure from binding requirements (a) through (e) above
is not permitted
December 1990
B-19
STANDARD 4
In performing real estate or real property consulting services, an
appraiser must be aware of, understand, correctly employ those recognized
methods and techniques that are necessary to produce a credible result.
Comment: Standard 4 is directed toward the same
substantive aspects of professional practice set forth Standard 1, but
addresses the performance of consulting services by an appraiser. Consulting
is a broad is applied to studies of real estate other than estimating
value. Land utilization studies; highest and best analyses; marketability,
feasibility, or investment studies; and other research-related studies
are example consulting assignments. An appraiser must have the ability
to develop an analysis/research program that responsive to the client's
objective; to perform primary research; to gather and present secondary
and data; and to prepare a documented written report.
Standard 4 addresses the concept of identifying the client's objective.
There is an important difference performing an impartial consulting service
as a disinterested third party that responds to the client's s objective
and performing a consulting service that is intended to facilitate the
achievement of the client five. While both are legitimate business activities
within the realm of professional appraisal practice, the appraiser must
recognize the distinction and the consequent obligations.
An appraiser retained to act as a disinterested third party (or reasonably
perceived by the public as acting disinterested third party) in performing
an unbiased consulting service cannot be compensated in a man contingent
on the results. However, an appraiser retained to perform a legitimate
service such as broker mortgage banking, tax counseling, or zoning advice
may be compensated by a fee contingent on the services achieved, but only
when a proper disclosure of the role being performed by the appraiser
is made.
Standards Rule 4-1
In performing real estate or real property consulting services,
an appraiser must:
(a) be aware of, understand, and correctly employ those recognized consulting methods and tech that are necessary to produce credible results;
(b) not commit a substantial error of omission or commission that significantly affects the results consulting service;
(c) not render consulting services in a careless or negligent manner, such as a series of efforts that considered individually, may not significantly affect the results, but which, when considered i aggregate, would be misleading.
Comment: Standards Rule 4-1 is identical in scope and purpose
to Standards Rule 1-1. Departure fro requirements (a). (b). and (c)
is not permitted
Standards Rule 4-2
In performing real estate or real property consulting services, an
appraiser must observe the following sp guidelines:
(a) clearly identify the client's objective;
(b) define the problem to be considered, define the purpose and intended use of the consulting service, consider the extent of the data collection process, adequately identify the real estate and/or property under consideration (if any), describe any special limiting conditions, and identify the effective date of the consulting service;
(c) collect, verify, and reconcile such data as may be required to complete the consulting service;
(i) if the market value of a specific property is pertinent to the consulting assignment, an appraisal in conformance with Standard 1 must be included in the data collection;
All pertinent information Shall be included;
Comment: If an appraisal is pertinent, the appraiser performing
the consulting service should carefully review the ETFUCS PROVISION and
the explanatory comment at the beginning of STANDARD 4 to ensure that
any personal interest of the appraiser or contingent compensation for
the consulting service do not conflict with the independence required
of the appraisal function.
The appraiser performing the consulting service may find it necessary
to retain (or suggest that the client retain) another appraiser to perform
the appraisal.
(d) apply the appropriate consulting tools and techniques to the data
collected;
(e) base all projections on reasonably clear and appropriate evidence.
Comment A consulting service must begin with a clear identification
of the client's objective, which may not be explicit in the client's statement
of the assignment. The appraiser should precisely define the nature of
the problem the client faces and the purpose of the consulting service.
If the consulting service involves specific real estate or property, the
appraiser must obtain a legal description, street address, or other means
of specifically and adequately identifying the real estate or property.
The appraiser must assess the overall range of work for solving the problem,
the methodologies to be used and the specific research data directly relevant
to the consulting service.
Standards Rule 4-3
In performing real estate or real property consulting services, an
appraiser must observe the following specific guidelines when a conclusion
or recommendation is required by the nature of the assignment:
(a) identify alternative courses of action to achieve the client's objective and analyze their implications;
(b) identify both known and anticipated constraints to each alternative and measure their probable impact;
(c) identify the resources actually or expected to be available to each alternative and measure their probable impact;
(d) identify the optimum course of action to achieve the client's objective.
Comment: After proper consideration of all alternative courses of action, the appraiser should identify optimum course of action in terms of the client's objective and forecast the likelihood it can be achieve conclusions must be logically related to the resources available and the constraints that may limit any alternatives.
Standards Rule 4-4
In performing a market analysis, an appraiser must observe the following specific guidelines when applied
(a) define and delineate the market area;
(b) identify and analyze the current supply and demand conditions that make up the specific re market;
(c) identify, measure, and forecast the effect of anticipated development or other changes and in supply;
(d) identify, measure, and forecast the effect of anticipated economic or other changes and future demand.
Comment: The appraiser should carefully define and delineate the pertinent market area for the analysis Supportive reasoning for the selection of the boundaries must be stated. The appraiser should identify i class(es) of real estate under consideration and analyze the forces that are likely to affect supply/demand ships.
The appraiser is expected to provide a comprehensive physical and economic description of the existing space for the specific use within the defined market area, an explanation of the competitive position of subject, and a forecast of how anticipated changes in future supply (additions to or deletions from the ii may affect the subject property.
The appraiser is expected to project the quantity and price or rent level of space that will be demanded, particular sub-market. The capture or penetration rates of competitive projects should be examined in detail to lead to a reasoned conclusion as to the forecasted price or rent levels at which the market is likely to accept the subject space and the estimated absorption or rent-up period.
The analysis of economic changes in the market in which the property is located may include the following determinants of demand: population, employment, and income characteristics; interest rates; zoning an( regulations; rents and/or sales; new construction planned or underway; vacant sites as potential competitive subject; transportation; taxes; and the cost and adequacy of sewer, water, power, and other utilities. For techniques should be relevant, reasonable, practical, and supportable. Regardless of the forecasting in& employed, the appraiser is expected to provide a clear and concise explanation and description of the mi methodologies.
Standards Rule 4-5
In developing a cash flow and/or investment analysis, an appraiser
must observe the following specific guidelines when applicable:
(a) consider and analyze the quantity and quality or the income stream.
(b) consider and analyze the history of expense and reserves;
(c) consider and analyze financing availability and terms;
(d) select and support the appropriate method of processing the income
stream;
(e) consider and analyze the cash flow return(s) and reversion(s) to the
specified investment position over a projected time period(s).
Comment: Since real estate investment decisions
are predicated on financial implications, the consulting service should
define the client's investment criteria, consider major variables in the
real estate and financial markets, and forecast the anticipated results.
Definitions of the financial indices used (such as internal rate of return)
and explanations of the financial analysis techniques and computer programs
employed should be included. The ETHICS PROVISION and COMPETENCY PROVISION
are especially important to Standards Rule 4-5 with regard to hypothetical
conditions and technical proficiency.
Standards Rule 4-6
In developing a feasibility analysis, an appraiser must observe the
following specific guidelines when applicable:
(a) prepare a complete market analysis;
(b) apply the results of the market analysis to alternative courses of action to achieve the client's objective;
(i) consider and analyze the probable costs of each alternative;
(ii)consider and analyze the probability of altering any constraints to each alternative;
(iii) consider and analyze the probable outcome of each alternative.
Comment: An important step in feasibility analysis is to complete
a market analysis.
The appraiser should compare the following criteria from the client's
project to the results of the market analysis: the project budget (all
construction costs, fees, carrying costs, and ongoing property operating
expenses); the time sequence of activities (planning, construction and
marketing); the type and cost of financing obtainable; cash flow forecasts
over the development and/or holding period; and yield expectations. The
appraiser should have enough data to estimate whether the project will
develop according to the expectations of the client and is economically
feasible in accordance with the client's explicitly defined financial
objectives.
STANDARD 5
In reporting the results of a real estate or real property consulting
service, an appraiser must communicate analysis, opinion, and conclusion
in a manner that is not misleading.
Comment: Standard 5 is identical in intent and purpose to the appraisal reporting requirements in that the appraiser must explain logically and convincingly the reasoning that leads to his or her conclusions. The information should be orderly and progressive, leading from the broadest to the most specific level of anal possible. Those topics most critical to the consulting conclusions should receive the most detailed emphasis
In many business situations involving consulting services, the role of the appraiser carries with it an implicit impartiality. For this reason, an appraiser must exercise extreme caution in undertaking assignments that the achievement of the specific goals of a client. A clear and complete disclosure of the role being performed the appraiser must be part of any written report that results from the acceptance of such an assignment. The disclosure must be stated in any letter of transmittal, statement of assumptions and limiting conditions, an executive summary. In this connection, the appropriate use of the Certification in Standards Rule 5-3 is al required, but it is not sufficient in and of itself. A timely and complete disclosure is required in any oral
Standard s Rule 5-1
Each written or oral consulting report must:
(a) clearly and accurately set forth the consulting service in a manner that will not be misleading;
(b) contain sufficient information to enable the person(s) who receive or rely on the report to under it properly;
(c) clearly and accurately disclose any extraordinary assumption or limiting condition that directly the consulting service and indicate its impact on the final conclusion or recommendation (if an
Comment: Departure from binding requirements (a). (b). and (c) is not permitted consulting report in sufficiently comprehensive so the client can visualize the problem and follow the reasoning through each the analytical process. It is essential that throughout the report the data, analyses, assumptions, and conclusions are logical and adequately supported. Basic analytical and statistical principles, logical reasoning, and so professional judgment are essential ingredients of the report.
Standards Rule 5-2
Each written consulting report must comply with the following
specific reporting guidelines:
(a) define the problem to be considered;
(b) state the purpose of the consulting service;
(c) identify and describe the real estate and/or property under consideration (if any)
(d) set forth the effective date of the consulting service and the date of the report;
(e) describe the overall range of work and the extent of the data collection process;
(f) set forth all assumptions and limiting conditions that affect the analyses, opinions, and conclusions;
(g) set forth the information considered, the consulting procedures followed, and the reasoning that supports the analyses, opinions, and conclusions;
(h) set forth the appraiser's final conclusions or recommendations (if any);
(i) set forth any additional information that may be appropriate to show compliance with, or clearly identify and explain permitted departures from, the requirements to Standard 4;
(j) include a signed certification in accordance with Standards Rule
5-3,
Comment: The appraiser must set forth all of the assumptions and
limiting conditions under which the consulting service is made, and support
their validity. Specific assumptions or conditions imposed by the client
must be clearly set forth as part of the identification of the objective
of the consulting service. The appraiser must investigate the validity
of such assumptions or conditions and give reasons for finding them realistic.
It is improper to omit any of the requirements from a consulting report
transmitted to the client without good cause. Any departure from normal
procedures and the effect of any unusual factors or conditions in connection
with the problem must be explained. A misleading or fraudulent report
violates the ETHICS PROVISION as well as this Standard.
A written consulting report must contain a certification that is similar
in content to the following form:
I certify that, to the best of knowledge and belief the statements of
fact contained in this report are true and correct. the reported analyses,
opinions, and conclusions are limited only by the reported assumptions
and limiting conditions, and are my personal, unbiased professional analyses,
opinions, and conclusions. I have no (or the specified) present or prospective
interest in the property (if any) that is the subject of
this report, and I have no (or the specified) personal interest or bias
with respect to the parties involved. my compensation is not (or is) contingent
on an action or event resulting from the analyses, opinions, or conclusions
in, or the use of, this report. (If the compensation is contingent, the
basis of such contingency must be disclosed in this certification and
in any letter of transmittal and executive summary.)
my analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of Professional
Appraisal Practice. I have (or have not) made a personal inspection of
the property (if any) that is the subject of this report. (If more than
one person signs the report, this certification must clearly specify which
individuals did and which individuals did not make a personal inspection
of the property.) No one provided significant professional assistance
to the person signing this report (If there are exceptions, the name of
each individual providing significant professional assistance must be
stated.)
Comment: Departure from this binding requirement is not permitted,
To the extent that it is both possible and appropriate, each oral consulting report (including expert testimony address the substantive matters set forth in Standards Rule 5-2.
STANDARD 6
In developing and reporting a mass appraisal for ad valorem tax purposes,
an appraiser must be aware of, understand, and correctly employ those
recognized methods and techniques that are necessary to produce and communicate
credible appraisals within the context of the property tax laws.
Comment: Standard 6 is directed toward the substantive aspects
of developing and communicating competent analyses, opinions, and conclusions
for ad valorem tax purposes. Two types of appraisals are made for ad valorem
tax purposes: individual property appraisals and mass appraisals. Individual
property appraisals usually are made when a mass appraisal is being contested.
Generally, individual property appraisals should conform to Standard I
and/or 7. Mass appraisals, which often are developed by teams of people,
some of whom may not be appraisers, are the subject of this Standard.
Although appraisal is an important aspect of ad valorem tax administration,
other important aspects, including locating and describing property, identifying
ownership, determining taxability, making assessments, maintaining cadastral
record systems, and satisfying a variety of information needs, result
in appraiser-client relationships that are distinctly different from the
usual relationships between appraisers and clients.
Standards Rule 6-1
(a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;
Comment: S.R. 6- 1 (a) is identical in scope and purpose to S.R.
I - I (a). Changes in regional economies, development patterns, and property
tax legislation have a substantial impact on property assessment.
(b) not commit a substantial error of omission or commission that significantly
affects an appraisal;
Comment: S.R. 6- 1 (b) is identical in scope and purpose to S.R.
I - I (b) when making an individual property appraisal S.R. 6-1(d) applies
in mass appraisal.
(c) not render an appraisal in a careless or negligent manner;
Comment: S.R. 6- 1 (c) is identical in scope and purpose to S.R.
I - I (c)
(d) employ those recognized mass appraisal procedures and techniques that are necessary to minimize errors in the data and analyses;
Comment: This rule requires appraisers for ad valorem tax purposes
engaged in mass appraisal to take reasonable steps to ensure that the
quantity and quality of the factual data that are collected are sufficient
to produce credible appraisals. The requirements for real and personal
property differ.
For real property, systems for routinely collecting and maintaining ownership,
geographic, sales income and expense, cost, and property characteristics
data should be established. Geographic data should be contained in a complete
set of cadastral maps compiled according to current standards of detail
and accuracy. Sales data should be collected, confirmed, screened, adjusted,
and filed according to current standards of practice. The sales file should
be separate from the property record file and should contain, for each
sale, property characteristics data that are contemporaneous with the
date of sale. Property characteristics data should be appropriate to the
mass appraisal models being used, the requirements of classification and
property tax policy, the requirements of other government and private
users, and the marginal benefits and costs of collecting and maintaining
each particular property characteristic. The property characteristics
data file should contain data contemporaneous with d appraisal as well
as current data. It may contain historical data on sales. The property
characteristics data system should provide for periodic reinspection of
all properties and special inspections of properties for building permits
have been issued. Data collectors should be trained, and they should use
data. The data collection program should incorporate checks and audits
to ensure that data are recorded correctly an consistently.
For personal property, systems for routinely collecting and maintaining
stasis and ownership data, market cost, price, sales and income and expense),
and property characteristics data should be established. Person property
data collection systems usually rely heavily on reports of taxable property
holdings filed by own agents, but appraisers should have systems for verifying
and auditing those reports and for discovering un taxable property.
(e) employ those recognized techniques for formulating and calibrating
mass appraisal models; and
Comment: Appraisers for ad valorem tax purposes engaged in mass
appraisal must develop mass appraisal that with reasonable accuracy represent
the mathematical relationship between property value and supply demand
factors, as represented by quantitative and qualitative property characteristics.
Models should be c using generally recognized mass appraisal techniques,
including multiple regression analysis and the adapt estimation procedure,
for applying the sales comparison, income, and cost approaches to value.
Whenever or appropriate, more than one method should be used in appraising
a group of properties.
Since personal property items generally are more homogeneous than real
property parcels, personal property valuation models generally are simpler
than real property valuation models.
(f) employ those recognized mass appraisal testing procedures and techniques
that are necessary to ensure that standards of accuracy are maintained.
Comments It is implicit in mass appraisal that, even when well-formulated
and well-calibrated mass appraisal models are used, some individual value
estimates will not meet standards of reasonableness, consistency, accuracy.
However, appraisers for ad valorem tax purposes engaged in mass appraisal
have a professional sibility to ensure that, on an overall basis, models
produce value estimates that meet attainable standards o accuracy. This
responsibility requires appraisers to evaluate the performance of models,
using, as appropriate goodness of fit statistics, hold-out samples, analysis
of residuals, and assessment-ratio data. They also should review individual
value estimates before the decision to use those estimates as the basis
for assessment is
Standards Rule 6-2
In developing a mass appraisal for ad valorem tax purposes, an appraiser
must:
(a) adequately identify the real estate, identify the real property interest under consideration, define purpose and intended use of the appraisal, consider the scope of the appraisal, describe any special( limiting conditions, and identify the effective date of the appraisal;
Comment: Analogous considerations to those set forth
in S.R. 6-2(a) apply to personal property. S.R. 6-3 and S.R. 64(a), 6-4(f),
and 6-4(h) do not apply to personal property.
In mass appraisal, fee simple interests in property are assumed and appraisers
need only identify the real property interest under consideration explicitly
when that assumption is not met.
Similarly, the purpose, intended use, and scope of appraisals are assumed
to be for ad valorem taxation, which facts do not need to be explicitly
defined unless there is an intent to use an appraisal for ad valorem tax
purposes for another function. With respect to special limiting conditions,
appraisers for ad valorem tax purposes generally operate under pronounced
cost constraints. Politically acceptable expenditure levels for assessment
administration are a function of a number of factors, including the value
of the property being taxed and the relative reliance of the client governmental
bodies on the property tax. As a result, expenditure levels may be considerably
lower than the suggested levels in many areas. Sacrifices in data completeness
and accuracy, valuation methods, and valuation accuracy are an inevitable
consequence of such fiscal constraints. Appraisers should not be held
accountable for constraints that are beyond their control.
M define the value being considered; if the value to be estimated is market
value, the appraiser must clearly indicate whether the estimate is
the most probable price:
(i) in terms of cash; or (ii) in terms of financial arrangements equivalent
to cash; or (iii) in such other terms as may be precisely defined;
Comment: The definition of value for ad valorem tax purposes usually
is stated in legislation, regulations, or court decisions and may vary
with property use. Appraisers for ad valorem tax purposes must determine
whether a stated legal definition differs materially from the general
requirements of this rule and govern themselves accordingly. However,
in mass appraisal it is not necessary for appraisers to define the value
being considered explicitly in writing.
(c) when applicable and when the information is available to the appraiser
in the normal course of business, consider easements, restrictions, encumbrances,
leases, reservations, covenants, contracts, declarations, special assessments,
ordinances, or other items of similar nature;
(d) consider whether an appraised fractional interest, physical segment, or partial holding contributes proportionatly to the value of the whole, if applicable;
(e) identify and consider any personal property, fixtures or intangible items that are not real property but are included in the appraisal.
Standards Rule 6-3
In developing a mass appraisal for ad valorem tax purposes, an
appraiser must:
(a) consider the effect on use and value of the following factors: existing land use regulations, reasonably probable modifications of such land use regulations, economic demand, the physical adapt ability of the property, neighborhood trends, and the highest and best use of the property;
Comment: S.R. 6-3(a) is identical in scope and purpose to S.R.
1-3(a).
(b) recognize that land is appraised as though vacant and available for
development to its highest use and that the appraisal of improvements
is based on their actual contribution to the site.
Standards Rule 6-4
In developing a mass appraisal for ad valorem tax purposes, an appraiser
must:
(a) value the site by an appropriate method or technique;
(b) collect, verify, analyze, and reconcile:
(i) such comparable cost data as are available to estimate the cost new
of the improvement (if
(ii) such comparable data as are available to estimate the difference
between cost new and the worth of the improvements (accrued depreciation);
(iii) such comparable sales data, adequately identified and described, as are available to individual value conclusion;
(iv) such comparable rental data as are available to estimate the market rental of the property appraised;
(v) such comparable operating expense data as are available to estimate the operating expense property being appraised;
(vi) such comparable data as are available to estimate rates of capitalization and/or rates of it
No pertinent information shall be withheld.
(c) base projections of future rent and expenses on reasonably clear and
appropriate evidence;
(d) when estimating the value of a leased fee estate or a leasehold estate,
consider and analyze the effect on value, if any, of the terms and conditions
of the lease;
(e) consider and analyze the effect on value, if any, of the assemblage of the various estates parts of a property and refrain from estimating the value of the whole solely by adding together individual values of the various estates or component parts;
Comment: This rule should not be construed to invalidate properly formulated mass appraisal models c by use of the cost approach.
(f) consider and analyze the effect on value, if any, of anticipated public or private improvement on or off the site, to the extent that market actions reflect such anticipated improvements as o effective appraisal date;
(g) identify and consider the appropriate procedures and market information to perform the app including all physical, functional, and external market factors as they may affect the appraisal
(h) appraise proposed improvements only after examining and having available for future examination
(i) plans, specifications, or other documentation sufficient to identify the scope and character proposed improvements;
(ii) evidence indicating the probable time of completion of the proposed improvements; and
(iii) reasonably clear and appropriate evidence supporting development
costs, anticipated earnings, occupancy projections, and the anticipated
competition at the time of completion.
Comment: Ordinarily proposed improvements are not formally appraised
for ad valorem tax purposes. Appraisers, however, are sometimes asked
to provide informal estimates of assessed values of proposed improvements
so that developers can estimate future property tax burdens. Sometimes
condominiums and units in planned unit developments are sold with an interest
in unbuilt community property, the proportionatly value of which, if any,
should be considered in the analysis of sales data.
Standards Rule 6-5
In developing a mass appraisal for ad valorem tax purposes, an appraiser
must:
(a) consider and analyze any current agreement of sale, option, or listing
of the property being appraised, if such information is available to the
appraiser in the normal course of business;
(b) consider and analyze any prior sales of the property being appraised;
(c) consider and reconcile the quality and quantity of data available and analyzed within the approaches used, and the adaptability or suitability of the approaches used.
Mass appraisals for ad valorem tax purposes must be supported by documentation
that is reasonably accessible to the public and communicated in ways that
are not misleading. Documentation may be in the form of (1) records and
riles in electromagnetic, micrographic, paper, or other storage media,
(2) reports, (3) manuals, (4) regulations, (5) statutes, or other acceptable
forms. The documentation should substantially conform to the factual requirements
of Standards Rule 2-2. Appraisals for ad valorem tax purposes should be
certified in a manner consistent with law and with generally accepted
assessment practices.
Comment: For reasons of efficiency, the documentation supporting
mass appraisals for ad valorem tax purposes virtually never would be found
in a single report. Such matters as the purpose of an appraisal, the date
of appraisal, the definition of value, the treatment of divided interests,
and the like generally are matters of law and are found in constitutions,
statutes, ordinances, regulations, or opinions. The rationale for choosing
a particular valuation model and calibration method rarely would be stated
in writing, except when specified in regulations or contested in court.
The mathematical form of the model should, however, be accessible to qualified
interested parties. Property owners and their agents should have access
to the property characteristics data on their properties upon request.
Value conclusions on all properties should be made accessible to all interested
parties.
STANDARD 7
In developing a personal property appraisal, an appraiser must be aware
of, understand, and correctly employ those recognized methods and techniques
that are necessary to produce a credible appraisal.
Comment: Standard 7 is directed toward the same substantive aspects set forth in Standard 1, but address personal property appraisal.
Standards Rule 7-1
In developing a personal property appraisal, an appraiser must:
(a) be aware of, understand, and correctly employ those recognized methods
and techniques that necessary to produce a credible appraisal;
(b) not commit a substantial error of omission or commission that significantly affects an appraisal
(c) not render appraisal services in a careless or negligent manner, such as a series of errors that considered individually, may not significantly affect the results of an appraisal, but which, which considered in aggregate, would be misleading.
Comment S.R. 7-1 is identical in scope and purpose to S.R. I - 1.
Standards Rule 7-2
In developing a personal property appraisal, an appraiser must
observe the following specific appraisal g
(a) adequately identify the object(s) to be valued, including the method
of identification;
(b) define the purpose and intended use of the appraisal, including any special limiting condition
(c) identify the effective date of the appraisal, clearly distinguishing the appraisal date from the date when appropriate;
(d) define the value to considered consistent with the purpose of the appraisal;
(e) value the object(s) by an appropriate appraisal method or technique;
(f) collect, verify, analyze, and reconcile such data as are available, adequately identified and d to indicate a value conclusion;
No pertinent information shall be withheld.
Comment: These guidelines apply the concepts outlined in S.R. 2-2 to personal property appraisal
Standards Rule 7-3
In developing an appraisal of certain types of fine art, when
applicable, consider and analyze the effect 4
(a) Any relevant damage or imperfections;
(b) the importance of the object(s) as compared to other items of the same type and classification relating to an artist's total work, or as enhancing other parts of a specific collection;
(c) any historical factors (provenance) which would affect value;
(d) the market acceptability of the style and scale of the object(s);
(e) the utility, if any, in today's society as it relates to the originally
intended use of the object(s);
(f) any prior sales of the object(s) being appraised.
Comment: This guideline sets forth recognized appraisal methods
and techniques for certain types of fine art that are consistent with
U.S. Internal Revenue Service requirements.
STANDARD 8
In reporting the results of a personal property appraisal, an appraiser
must communicate each analysis, optimize and conclusion in a manner that
is not misleading.
Comment: Standard 8 is identical in scope and purpose to the appraisal
reporting requirements in Standard(
Standards Rule 8-1
Each written or oral personal property appraisal report must:
(a) clearly and accurately set forth the appraisal in a manner that will not be misleading;
(b) contain sufficient information to enable the person(s) who receive or rely on the report to under it properly;
(c) clearly and accurately disclose any extraordinary assumption or limiting condition that directly the appraisal and indicate its impact on value.
Standards Rule 8-2
Each written personal property appraisal report must comply with the
following specific reporting guidelines
(a) identify and describe the personal property being appraised;
(b) state the purpose and scope of the appraisal:
(c) define the value to be estimated;
(d) set forth the effective date of the appraisal and the date of the report;
(e) set forth all assumptions and limiting conditions that affect the analyses, opinions, conclusions valuations;
(f) where appropriate, set forth the information considered, the appraisal procedures followed, ar reasoning that supports the analyses, opinions, conclusions and valuations;
(g) when analysis of comparable sales is one of the methods used in the appraisal of personal prop sale purposes, carefully document the sales and analysis;
(h) set forth any additional information that may be appropriate to show compliance with, or clearly identify and "plain permitted departures from, the requirements of Standard 7;
(i) include a signed certification in accordance with Standards Rule 8-3.
Standards Rule 8-3
Each written personal property appraisal report must contain a certification that is similar in context of the following form:
I certify that, to the best of my knowledge and belief that the statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and are my personal,
unbiased professional analyses, opinions, and conclusions. I have no (or
the specified) present or prospective interest in the property that is
the subject of this report, and I have no (or the specified) personal
interest or bias with respect to the parties involved. my compensation
is not contingent on an action or event resulting from the analyses, opinions,
or conclusions in, or the use of, this report. my analyses, opinions,
and conclusions were developed, and this report has been prepared, in
conformity with the Uniform Standards of Professional Appraisal Practice.
I have (or have not) made a personal inspection of the personal
property that is the subject of this report. (If more than one
person signs the report, this certification must clearly specify which
individuals did and which individuals did not make a personal inspection
of the appraised property.) no one provided significant professional assistance
to the person signing this report (If there are exceptions, the
name of each individual providing significant professional assistance
must be stated.)
Standards Rule 8-4
To the extent that it is both possible and appropriate, each oral
personal property appraisal report (including expert testimony) most address
the substantive matters set forth in Standards Rule 8-2.
ADDITIONAL DEFINITIONS APPLICABLE TO STANDARDS 9 AND 10
BUSINESS ASSETS: Tangible and intangible resources other than personal
property and real estate the are employed by a business enterprise in
its operations.
BUSINESS ENTERPRISE: A commercial, industrial, or service organization
pursuing an economic activity.
BUSINESS EQUITY: The interests, benefits, and rights inherent in the ownership
of a business enterpriate or a part thereof.
Comment: To the extent that several of the definitions cited on
PageB-7 and B-8 of these Standards apply the business appraisal and include
a direct reference to real estate, they are modified for the purpose of
Standard and 10.
STANDARD 9
In developing a business appraisal, an appraiser must be aware of,
understand, and correctly employ those ref -ined methods and techniques
that are necessary to produce a credible appraisal.
Comment: Standard 9 is directed toward the same substantive aspects
set forth in Standard 1, but address business appraisal.
Standards Rule 9-1
In developing a business appraisal, an appraiser must:
(a) be aware of, understand, and correctly employ those recognized methods
and techniques that an necessary to produce a credible appraisal;
Comment: S.R. 9-1 (a) is identical in scope and purpose to S.R.
I - I (a). Changes and developments in the economy and in investment theory
have a substantial impact on the business appraisal profession. Important
changes in the financial arena, securities regulation, tax law and major
new court decisions may result in corresponding changes in business appraisal
theory and practice.
(b) not commit a substantial error of omission or commission that significantly
affects an appraisal:,
Comment: S.R. 9- 1 (b) is identical in scope and purpose to S.R.
I - I (b).
(c) not render appraisal services in a careless or negligent manner, such as a series of errors that, considered individually, may not significantly affect the results of an appraisal, but which, when considered in the aggregate, would be misleading.
Comment: S.R. 9- 1 (c) is identical in scope and purpose to S.R.
I - I (c).
Standards Rule 9-2
In developing a business appraisal, an appraiser must observe
the following specific appraisal guidelines:
(a) adequately identify the business enterprise, assets, or equity under consideration, define the purpose and the intended use of the appraisal, consider the scope of the appraisal, describe any special conditions, and identify the effective date of the appraisal;
(b) define the value being considered.
Comment: S.R. 9-2(b) is identical in scope and purpose to S.R.
1-2(b).
(i) if the appraisal concerns a business enterprise or equity interests,
consider any buy-sell agreements, investment letter stock restrictions,
restrictive corporate charter or partnership agreement clauses, and any
similar features or factors that may have an influence on value.
(ii) if the appraisal concerns assets, the appraiser must consider whether the assets are:
(1) appraised independently; or (2) appraised as parts of a going concern.
Comment: The value of assets held by a business enterprise may
change significantly depending on whether the basis of valuation is acquisition
or replacement, continued use in place, or liquidation.
(iii) if the appraisal concerns equity interests in a business enterprise,
consider whether the interests are appraised on a majority or minority
basis.
Comment: S.R. 9-2(b)(iii) is identical in scope and purpose to
S.R. 1-2(d).
Standards Rule 9-3
In developing a business appraisal relating to a majority interest
in a business enterprise, an appraiser must investigate the possibility
that the business enterprise may have a higher value in liquidation than
for continued operation as a going concern. If liquidation is the indicated
basis of valuation, any real estate or personal property to be liquidated
must be valued under the appropriate standard.
Comment: This rule requires the appraiser to recognize that continued
operation of a marginally profitable business is not always the best approach
as liquidation may result in a higher value. It should be noted, however,
that this should be considered only when the business equity being appraised
is in a position to cause liquidation. If liquidation is the appropriate
basis of value, then assets such as real estate and personal property
must be appraised under Standard 1 and Standard 7, respectively.
Standards Rule 9-4
In developing a business appraisal, an appraiser must observe
the following specific appraisal guidelines when applicable:
(a) value the business enterprise, assets or equity by an appropriate
method or technique.
(b) collect and analyze relevant data regarding:
(i) the nature and history of the business;
(ii) financial and economic conditions affecting the business enterprise, its industry, and the general economy;
(iii) past results, current operations, and future prospects of the business
enterprise;
(iv) past sales of capital stock or partnership interests in the business
enterprise being appraised;
(v) sales of similar businesses or capital stock of publicly held similar
businesses;
(vi) prices, terms, and conditions affecting past sales of similar business
assets;
(vii) physical condition, remaining life expectancy, and functional and economic utility or obsolescence.
No pertinent information shall be withheld.
Comment: This guideline directs the appraiser to
study the prospective and retrospective aspects of the bi enterprise and
to study it in terms of the economic and industrial environment within
which it operates. P sales of securities of the business itself or similar
businesses for which sufficient information is available also be considered.
This guideline also requires the appraiser to investigate and take into
account not only that loss of value r from deterioration due to age but
also loss of value due to functional and economic obsolescence. Economic
obsolescence is a major consideration when assets are considered as parts
of a going concern. It is also the criterion in deciding that liquidation
is the appropriate basis for valuation.
Standards Rule 9-5
In developing a business appraisal, an appraiser must:
(a) select one or more approaches that apply to the specific appraisal
assignment.
(b) consider and reconcile the quality and quantity of data available
for analysis within the appropriate groups that are applicable.
Comment: This rule requires the appraiser to use all approaches for which sufficient reliable data are available However, it does not mean that the appraiser must use all approaches in order to comply with the rule if approaches are not a