First Exposure Draft of Changes for the 2016-17 USPAP 1

TO: All Interested Parties

FROM: Barry J. Shea, Chair

Appraisal Standards Board

RE: First Exposure Draft of proposed changes for the 2016-17 edition of the

DATE: January 7, 2014

The goal of the Uniform Standards of Professional Appraisal Practice (USPAP) is to promote

and maintain a high level of public trust in appraisal practice by establishing requirements for

appraisers. With this goal in mind, the Appraisal Standards Board (ASB) regularly solicits and

receives comments and suggestions for improving USPAP. Proposed changes are intended to

improve USPAP understanding and enforcement, and thereby achieve the goal of promoting and

maintaining public trust in appraisal practice.

The ASB is currently considering changes for the 2016-17 edition of USPAP. All interested

Respondents should be assured that each member of the ASB will thoroughly read and

consider all comments. Comments are also invited at the ASB public meeting on February 21,

2014, in Orlando, Florida.

Written comments on this exposure draft can be submitted by mail, email and facsimile.

Mail: Appraisal Standards Board

The Appraisal Foundation

1155 15th Street, NW, Suite 1111

Washington, DC 20005

Email: asbcomments@appraisalfoundation.org

Facsimile: (202) 347-7727

First Exposure Draft of Changes for the 2016-17 USPAP 2

If you have any questions regarding the attached exposure draft, please contact Emily Mann,

Standards Administrator at The Appraisal Foundation, via e-mail at

or by calling (202) 624-3058.

The ASB’s plan for the 2016-17 edition of USPAP includes reviewing and revising as needed

the following areas of USPAP:

Definition of report

Edits to eliminate confusion regarding report drafts

Revisions to STANDARD 3 to enhance consistency with other Standards

Other edits to improve clarity and enforceability of USPAP

The ASB believes it is fulfilling its work plan and addressing the needs of appraisers and users of

appraisal services by proposing the revisions contained in this First Exposure Draft of proposed

changes for the 2016-17 edition of USPAP.

Of paramount importance to the Board when considering any potential revisions to USPAP is the

issue of public trust. This umbrella of public trust, therefore, remains the primary consideration

of the ASB in putting forth the concepts contained in this document.

Each member of the Board will review each and every comment submitted in response to this

exposure draft. Based on the feedback received, the Board will likely issue a Second Exposure

Draft sometime after its public meeting in Orlando in February. If that occurs, the Board will

again solicit comments leading up to its second public meeting of the year which will be held in

in June 2014 in Sacramento, California. And if necessary, the Board may elect to issue a Third

Exposure Draft after that meeting, again soliciting feedback.

The Board currently intends to adopt any revisions for the 2016-17 edition of USPAP at its

public meeting in early 2015. Any such revisions to USPAP would become effective on January

1, 2016, and any updates related to USPAP course material should be available by fall 2015.

First Exposure Draft of Changes for the 2016-17 USPAP 3

Each section of this exposure draft begins with a rationale for the proposed changes to USPAP.

The rationale is identified as such and does not have line numbering. Where proposed changes

to USPAP are noted, the exposure draft contains line numbers. This difference is intended to

distinguish for the reader those parts that explain the changes to USPAP from the proposed

changes themselves.

When commenting on various aspects of the exposure draft, it is very helpful to reference the

line numbers, fully explain the reasons for concern or support, provide examples or illustrations,

and suggest any alternatives or additional issues that the ASB should consider.

Unless otherwise noted, where text is proposed to be deleted from USPAP, that text is shown as

strikeout. For example: This is strikeout text proposed for deletion. Text that is proposed to be

added to USPAP is underlined. For example: This is text proposed for insertion.

For ease in identifying the various issues being addressed, the exposure draft is presented in

sections.

1 Proposed Revision to the Definition of Report 4

2 Proposed Revision Related to the Communication of Assignment Results 6

3 Proposed Revisions to STANDARD 3 13

4 Consideration of Retirement of all STATEMENTS ON APPRAISAL

STANDARDS

18

5 Possible Topics for Subsequent 2016-17 Exposure Drafts 20

First Exposure Draft of Changes for the 2016-17 USPAP 4

Proposed Revision to the Definition of Report

The ASB has heard concerns expressed regarding the definition of report for some time. These

concerns have come from enforcement officials and others concerned about appraisers having

issued multiple reports in an assignment and attempting to disavow responsibility for early

iterations of the report because they were not transmitted "upon completion of the assignment"

as specified in the current definition. This claim is reported to have been made even in cases

where an earlier iteration was submitted as a final report and later revised.

There has also been a great deal of discussion regarding the communication of assignment results

prior to the completion of an assignment. This may be in the form of a report draft, preliminary

report, or merely an excerpt for a report that is being prepared. Some have expressed a concern

regarding the record keeping requirements for such communications. USPAP does not currently

directly address this and interpretations regarding the requirements appear to vary greatly.

The ASB proposes revising the current definition of report in the DEFINITIONS section in

USPAP. In addition, the ASB is considering alternative solutions to the issues regarding

corrected reports and preliminary communications (See Section 2 of this Exposure Draft).

The proposed revised definition of report removes the linking of a report to the completion of an

assignment. There have been many requests for the ASB to provide guidance on when an

assignment is complete. The ASB has received comments from appraisers that an assignment is

complete when they sign or transmit a report to the client. Clients have provided comments that

an assignment is not complete until they review and approve or accept a report. Whether an

assignment is complete or not depends on the facts and matters at hand and also the perspective

of a given party. As the ASB studied the overall concept of reporting, it appeared more

important to address all communication of assignment results regardless of where an appraiser is

in the process. The ASB is proposing linking the definition of report to when the certification is

signed by the appraiser and the report is transmitted to the client.

The ASB is also proposing to add "or any other intended user," in addition to the client, as part

of the definition of a report. There are situations where reports might be transmitted to an

intended user other than the client (such as the client’s attorney), and with such cases in mind,

the ASB believes that this edit may be prudent.

With the proposed definition, communication of a portion of an appraiser’s opinions or analyses

performed as part of an appraisal or appraisal review assignment is not a report, thus not subject

to reporting Standards, unless it includes a signed certification. The ASB received many

comments that emphasized the importance of such communications in complex assignments.

These comments came from appraisers of all disciplines. When communicating portions of their

opinions or analyses performed as part of an assignment, the appraiser must still comply with the

ETHICS RULE, the COMPETENCY RULE and the JURISDICTIONAL EXCEPTION RULE.

First Exposure Draft of Changes for the 2016-17 USPAP 5

Each of the alternative solutions in Section 2 of this exposure draft assumes the adoption of the

following revisions to the definition of report:

1 REPORT: any written communication, written or oral, of an appraisal or appraisal review that is

2 transmitted with a signed certification to the client or other intended user, or any oral

3 communication of an appraisal or appraisal review that is transmitted to the client or other

4 intended user in lieu of a written report upon completion of an assignment.

5 Comment: Most reports are written and most clients mandate require written reports.

6 Oral report requirements (see the RECORD KEEPING RULE) are included to cover

7 court testimony and other oral communications of an appraisal or appraisal review.

First Exposure Draft of Changes for the 2016-17 USPAP 6

Proposed Revision Related to the Communication of Assignment Results

Over the last two USPAP revision cycles, the ASB has considered addressing the topics of

preliminary or draft reports, as well as revised reports. There have been different perceptions as

to what is currently required in cases where these types of communications are made in an

assignment. There have also been very different opinions as to what the USPAP requirements

should be.

Much of the confusion and disagreement has centered on record keeping requirements, but there

has also been some discussion regarding how preliminary communications or draft reports

should be labeled.

The ASB recognizes that the different interpretations of the current USPAP requirements can

lead to problems. It is the intent of the ASB to eliminate the confusion and provide clear,

enforceable requirements that will not restrict common practice.

The ASB is considering two similar, but different proposals as possible solutions to the problem.

Each of the two proposals discussed in this section assume that the definition of report will be

revised as discussed in Section 1 of this exposure draft. The ASB is also considering changing

the definition of report and making no other changes related to the communication of assignment

results.

The ASB proposes revising the current definition of report in the DEFINITIONS section in

USPAP along with new definitions for report draft and interim communication and revisions to

the RECORD KEEPING RULE.

Some stakeholders believe that the use of report drafts, also known as drafts or draft reports, is

not allowed by USPAP and that any communication of assignment results constitutes a report.

Further, they believe all assignment results transmitted to the client or intended user(s) in any

format must be a report as defined in USPAP.

Others believe that the use of drafts or other interim communication of opinions and/or

conclusions in an assignment is allowed, and because it is allowed as something other than a

report, they have no USPAP requirements. Given the current definition of report, a draft or other

such interim communications is not a report under the current definition because it is not

delivered "upon completion of an assignment." As a result, report drafts are not subject to

review, enforcement, or the requirements of the RECORD KEEPING RULE.

First Exposure Draft of Changes for the 2016-17 USPAP 7

Some segments of the appraisal profession are strongly opposed to the use of drafts, while others

frequently use them, particularly in complex appraisal assignments and some litigation matters.

Some fear that recognizing drafts in USPAP might encourage some clients to shop for the

appraiser who provides the most favorable results, while others fear prohibition of their use will

inappropriately restrict client input into complex valuation issues until after a signed report is

delivered, resulting in revisions of reports after they have been signed and delivered.

The Appraisal Standards Board has been reviewing this matter for several years and believes that

report drafts and other interim communications of assignment opinions and conclusions may

need to be dealt with in USPAP, especially since state appraisal boards appear to be interpreting

USPAP differently regarding what an appraiser’s responsibilities are when issuing such

communications.

Some appraisers, when issuing a draft, clearly and conspicuously identify the report as a draft or

similar name. Others simply send a signed or unsigned report, or portions thereof, without any

such notation. Must these drafts be retained in the file, or may they be disposed of? USPAP does

not currently specifically address these types of communications. For enhancement of public

trust, should USPAP include requirements for these types of communications which are

currently being used by appraisers?

The Appraisal Standards Board is exposing a solution in which USPAP would define report draft

and other interim communication and detail how they may be utilized, transmitted to the client or

intended users, and clarify requirements for file retention. To do so, this would require the

proposed change to the definition of report, new definitions for report draft and interim

communication, and revisions to the RECORD KEEPING RULE.

The following DEFINITION has been proposed as the new definition for Report Draft:

8 REPORT DRAFT: a communication of preliminary assignment results, including, but not

9 limited to, a value opinion in an appraisal assignment or an opinion about another appraiser’s

10 work in an appraisal review assignment, made to the client or other intended user.

11 Comment: A report draft must not be used by the appraiser for any purpose which would

12 place the appraiser in violation of the ETHICS RULE.

The following DEFINITION has been proposed as the new definition for Other Interim

Communication:

13 OTHER INTERIM COMMUNICATION: any written or oral interim communication of

14 assignment results that includes all or part of the opinions and conclusions of an appraisal or

15 appraisal review assignment.

The following edits to the RECORD KEEPING RULE are proposed as part of this solution:

First Exposure Draft of Changes for the 2016-17 USPAP 8

16 RECORD KEEPING RULE

17 An appraiser must prepare a workfile for each appraisal or appraisal review assignment. A

18 workfile must be in existence prior to the issuance of any report. A written summary of an oral

19 report must be added to the workfile within a reasonable time after the issuance of the oral

20 report.

21 The workfile must include:

22 ?the name of the client and the identity, by name or type, of any other intended users;

23 ?true copies of any all written reports, documented on any type of media. (A true copy is

24 a replica of the report transmitted to the client. A photocopy or an electronic copy of the

25 entire report transmitted to the client satisfies the requirement of a true copy.);

26 ?true copies of all written communications of assignment results transmitted to clients or

27 other intended users, documented on any type of media, unless and until such

28 communication is superseded by a report or other subsequent communication;

29 ?true copies of all written report drafts or other interim communications of assignment

30 results transmitted to clients or other intended users, documented on any type of media,

31 unless and until such report draft is superseded by a subsequent report draft or report;

32 Comment: Any report draft or other interim communication of assignment results

33 transmitted to a client must be prominently labeled as such and must include a

34 conspicuous warning that the results are not final and are subject to change.

35 ?summaries of all oral reports or testimony, or a transcript of testimony, including the

36 appraiser’s signed and dated certification;

37 ?summaries of all oral communications of assignment results transmitted to clients or

38 other intended users, unless and until such communication is superseded by a report

39 (written or oral) or other subsequent communication;

40 ?all other data, information, and documentation necessary to support the appraiser’s

41 opinions and conclusions and to show compliance with USPAP, or references to the

42 location(s) of such other data, information, or documentation; and

43 ?a workfile in support of a Restricted Appraisal Report must be sufficient for the appraiser

44 to produce an Appraisal Report.

45 An appraiser must retain the workfile for a period of at least five years after preparation or at

46 least two years after final disposition of any judicial proceeding in which the appraiser provided

47 testimony related to the assignment, whichever period expires last.

48 An appraiser must have custody of the workfile, or make appropriate workfile retention, access,

49 and retrieval arrangements with the party having custody of the workfile. This includes ensuring

First Exposure Draft of Changes for the 2016-17 USPAP 9

50 that a workfile is stored in a medium that is retrievable by the appraiser throughout the

51 prescribed record retention period.

52 An appraiser having custody of a workfile must allow other appraisers with workfile obligations

53 related to an assignment appropriate access and retrieval for the purpose of:

54 ?submission to state appraiser regulatory agencies;

55 ?compliance with due process of law;

56 ?submission to a duly authorized professional peer review committee; or

57 ?compliance with retrieval arrangements.

58 Comment: A workfile must be made available by the appraiser when required by a state

59 appraiser regulatory agency or due process of law.

60 An appraiser who willfully or knowingly fails to comply with the obligations of this RECORD

61 KEEPING RULE is in violation of the ETHICS RULE.

Concern from stakeholders was apparent from the many comments received both prior to and

after exposure drafts issued in advance of the 2014-2015 edition of USPAP. The major

comments included the need to provide a more definitive means of determining when an

assignment is complete (and from whose standpoint), and the ongoing concern in the areas of

appraisal practice where interim communications (aka, preliminary reports, draft reports, report

drafts, etc.) are issued to the client. In response to the concerns raised, the ASB is proposing the

revised definition of report, as well as a new definition of draft.

The following is the proposed DEFINITION of Draft:

62 DRAFT: a communication of preliminary assignment results, including, but not limited to, a

63 value opinion in an appraisal assignment or an opinion about another appraiser’s work in an

64 appraisal review assignment, made to the client or other intended user.

65 Comment: A draft must not be used by the appraiser for any purpose which would

66 place the appraiser in violation of the ETHICS RULE.

The RECORD KEEPING RULE presently requires true copies of any written reports,

documented on any type of media. (A true copy is a replica of the report transmitted to the client.

A photocopy or an electronic copy of the entire report transmitted to the client satisfies the

requirement of a true copy.) Since the RECORD KEEPING RULE is linked closely to the

First Exposure Draft of Changes for the 2016-17 USPAP 10

report, corresponding revisions are proposed to the Rule to address both the revisions to the

definition of report and the addition of draft.

The RECORD KEEPING RULE lacks specificity with regard to revisions to assignment results

communicated to intended users. For example, there have been instances where there were two

appraisal reports on the same property completed by the same appraiser and submitted to the

client, with the same effective and report dates, but different value conclusions. It is not unusual

for the appraiser to claim that one of the reports did not represent the end of the assignment, and

was not the final report, although it included a signed and dated certification. This type of

communication has been referred to as a draft, an interim report, etc. This type of scenario has

raised, for example, issues from an enforcement standpoint, as well as questions as to the validity

of such products

In other instances, a portion of an appraiser’s work (an opinion which may or may not include a

value indication) has been submitted to a client in ongoing assignment for confirmation of

information, preliminary analysis to help the client/intended user in decision making, etc.

Depending upon the intended use and intended users, there has been support for requiring

appraisers to retain copies of all such communications. In other instances, such as litigation,

retention of such communication has proven problematic.

Appraiser independence is of the utmost importance in an assignment. The ASB feels that

independence will be enhanced by putting workfile retention requirements on all written

communications of assignment results transmitted to the clients or other intended users, as well

as all written drafts transmitted to clients or other intended users, unless and until such

communication or draft is superseded by a report or other subsequent communication, or a draft

or report.

The retention requirement, as proposed in this exposure draft, does not prohibit the appraiser

from retaining all copies of reports and subsequent communication, or drafts. While there are

advantages of short-term retention of earlier communications that are superseded by subsequent

reports, drafts, or communications, there are also some potential problems. These problems,

again, are dependent upon the intended use and intended users of the assignment. The ASB is

further proposing appropriate disclosure of any draft that is transmitted to a client. Any such

draft must be prominently labeled as such and must include a conspicuous warning that the

results are not final and are subject to change.

The following RECORD KEEPING RULE shows the changes the ASB is proposing to the

current Rule:

67 RECORD KEEPING RULE

68 An appraiser must prepare a workfile for each appraisal or appraisal review assignment. A

69 workfile must be in existence prior to the issuance of any report. A written summary of an oral

First Exposure Draft of Changes for the 2016-17 USPAP 11

70 report must be added to the workfile within a reasonable time after the issuance of the oral

71 report.

72 The workfile must include:

73 ?the name of the client and the identity, by name or type, of any other intended users;

74 ?true copies of any all written reports, documented on any type of media. (A true copy is

75 a replica of the report transmitted to the client. A photocopy or an electronic copy of the

76 entire report transmitted to the client satisfies the requirement of a true copy.);

77 ?true copies of all written communications of assignment results transmitted to clients or

78 other intended users, documented on any type of media, unless and until such

79 communication is superseded by a report or other subsequent communication;

80 ?true copies of all written drafts transmitted to clients or other intended users, documented

81 on any type of media, unless and until such draft is superseded by a subsequent draft or

82 report;

83 Comment: Any draft transmitted to a client must be prominently labeled as such

84 and must include a conspicuous warning that the results are not final and are

85 subject to change.

86 ?summaries of all oral reports or testimony, or a transcript of testimony, including the

87 appraiser’s signed and dated certification;

88 ?summaries of all oral communications of assignment results transmitted to clients or

89 other intended users, unless and until such communication is superseded by a report

90 (written or oral) or other subsequent communication;

91 ?all other data, information, and documentation necessary to support the appraiser’s

92 opinions and conclusions and to show compliance with USPAP, or references to the

93 location(s) of such other data, information, or documentation; and

94 ?a workfile in support of a Restricted Appraisal Report must be sufficient for the appraiser

95 to produce an Appraisal Report.

96 An appraiser must retain the workfile for a period of at least five years after preparation or at

97 least two years after final disposition of any judicial proceeding in which the appraiser provided

98 testimony related to the assignment, whichever period expires last.

99 An appraiser must have custody of the workfile, or make appropriate workfile retention, access,

100 and retrieval arrangements with the party having custody of the workfile. This includes ensuring

101 that a workfile is stored in a medium that is retrievable by the appraiser throughout the

102 prescribed record retention period.

103 An appraiser having custody of a workfile must allow other appraisers with workfile obligations

104 related to an assignment appropriate access and retrieval for the purpose of:

First Exposure Draft of Changes for the 2016-17 USPAP 12

105 ?submission to state appraiser regulatory agencies;

106 ?compliance with due process of law;

107 ?submission to a duly authorized professional peer review committee; or

108 ?compliance with retrieval arrangements.

109 Comment: A workfile must be made available by the appraiser when required by a state

110 appraiser regulatory agency or due process of law.

111 An appraiser who willfully or knowingly fails to comply with the obligations of this RECORD

112 KEEPING RULE is in violation of the ETHICS RULE.

First Exposure Draft of Changes for the 2016-17 USPAP 13

It has been brought to the attention of the ASB that several items are addressed differently in

STANDARD 3 than they are in other Standards. One of these is the requirement for a

certification in an oral Appraisal Review Report.

Standards Rules 2-4, 8-4 and 10-4 require that oral appraisal reports address the substantive

matters set forth in Standards Rules 2-2(a), 8-2(a), and 10-2(a) respectively. Similarly,

Standards Rule 3-7 states that an oral Appraisal Review Report must address the substantive

matters set forth in Standards Rule 3-5. However, Standards Rules 2-2 (a)(xii), 8-2(a)(xii), and

10-2(a)(xi) require that the Appraisal Report include a signed certification in accordance with

Standards Rules 2-3, 8-3, and 10-3 respectively. There is no corresponding certification

requirement in Standards Rule 3-5.

So, although the RECORD KEEPING RULE requires a signed and dated certification for any

oral report, there is concern that the requirement is addressed differently in appraisal review

assignments than in appraisal assignments. The ASB is proposing the addition of Standards Rule

3-5(j) to make STANDARD 3 consistent with the other Standards:

113 Standards Rule 3-5

114 The Content of an Appraisal Review Report must be consistent with the intended use of the

115 appraisal review and, at a minimum:

116 (a) state the identity of the client and any intended users, by name or type;

117 (b) state the intended use of the appraisal review;

118 (c) state the purpose of the appraisal review;

119 (d) state information sufficient to identify:

120 (i) the work under review, including any ownership interest in the property that

121 is the subject of the work under review;

122 (ii) the date of the work under review;

123 (iii) the effective date of the opinions or conclusions in the work under review;

124 and

125 (iv) the appraiser(s) who completed the work under review, unless the identity is

126 withheld by the client.

First Exposure Draft of Changes for the 2016-17 USPAP 14

127 Comment: If the identity of the appraiser(s) in the work under review is withheld

128 by the client, that fact must be stated in the appraisal review report.

129 (e) state the effective date of the appraisal review and the date of the appraisal review

130 report;

131 (f) clearly and conspicuously:

132 • state all extraordinary assumptions and hypothetical conditions; and

133 • state that their use might have affected the assignment results.

134 (g) state the scope of work used to develop the appraisal review;

135 Comment: Because intended users’ reliance on an appraisal review may be affected by

136 the scope of work, the appraisal review report must enable them to be properly informed

137 and not misled. Sufficient information includes disclosure of research and analyses

138 performed and might also include disclosure of research and analyses not performed.

139 When any portion of the work involves significant appraisal or appraisal review

140 assistance, the reviewer must state the extent of that assistance. The name(s) of those

141 providing the significant assistance must be stated in the certification, in accordance with

142 Standards Rule 3-6.

143 (h) state the reviewer’s opinions and conclusions about the work under review,

144 including the reasons for any disagreement;

145 Comment: The report must provide sufficient information to enable the client and

146 intended users to understand the rationale for the reviewer’s opinions and conclusions.

147 (i) when the scope of work includes the reviewer’s development of an opinion of value

148 or review opinion related to the work under review, the reviewer must:

149 (i) state which information, analyses, opinions, and conclusions in the work

150 under review that the reviewer accepted as credible and used in developing

151 the reviewer’s opinion and conclusions;

152 (ii) at a minimum, summarize any additional information relied on and the

153 reasoning for the reviewer’s opinion of value or review opinion related to the

154 work under review;

155 (iii) clearly and conspicuously:

156 • state all extraordinary assumptions and hypothetical conditions

157 connected with the reviewer’s opinion of value or review opinion related

158 to the work under review; and

First Exposure Draft of Changes for the 2016-17 USPAP 15

159 • state that their use might have affected the assignment results.

160 Comment: The reviewer may include his or her own opinion of value or

161 review opinion related to the work under review within the appraisal review

162 report itself without preparing separate report. However, data and analyses

163 provided by the reviewer to support a different opinion or conclusion must

164 match, at a minimum, except for the certification requirements, the reporting

165 requirements for an:

166 • Appraisal Report for a real property appraisal (Standards Rule 2-2(a));

167 • Appraisal Report for a personal property appraisal (Standards Rule 8-2(a));

168 • Appraisal Review Report for an appraisal review (Standards Rule 3-5);

169 • Mass Appraisal Report for mass appraisal (Standards Rule 6-8); and

170 • Appraisal Report for business appraisal (Standards Rule 10-2(a)).

171 (j) include a signed certification in accordance with Standards Rule 3-6

Standards Rule 3-2(d) is parallel to Standards Rule 1-2(e) in that it addresses the identification of

the characteristics of the subject of the work. Standards Rule 3-2(d)(i) requires that the review

appraiser identify the relevant characteristics of the work under review including "any ownership

interest in the property that is the subject of the review; …" While this may appear to be asking

the reviewer to identify whether he or she has an ownership interest in the work under review,

that is not the case. When looked at in context and when considered the parallel requirements in

STANDARD 1 (or STANDARDS 7 or 9), it is clear that the identification that is required is the

property rights appraised (if any) in the work under review.

The resolve this confusion, the ASB is proposing the following rewording of Standards Rule 3-

2(d):

172 Standards Rule 3-2

173 In developing an appraisal review, the reviewer must:

174 (a) identify the client and other intended users;

175 (b) identify the intended use of the reviewer’s opinions and conclusions;

176 Comment: A reviewer must not allow the intended use of an assignment or a client’s

177 objectives to cause the assignment results to be biased. A reviewer must not advocate for

178 a client’s objectives.

179 The intended use refers to the use of the reviewer’s opinions and conclusions by the

180 client and other intended users; examples include, without limitation, quality control,

181 audit, qualification, or confirmation.

First Exposure Draft of Changes for the 2016-17 USPAP 16

182 (c) identify the purpose of the appraisal review, including whether the assignment

183 includes the development of the reviewer’s own opinion of value or review opinion

184 related to the work under review;

185 Comment: The purpose of an appraisal review assignment relates to the reviewer’s

186 objective; examples include, without limitation, to determine if the results of the work

187 under review are credible for the intended user’s intended use, or to evaluate compliance

188 with relevant USPAP requirements, client requirements, or applicable regulations.

189 In the review of an appraisal assignment, the reviewer may provide an opinion of value

190 for the property that is the subject of the work under review.

191 In the review of an appraisal review assignment, the reviewer may provide an opinion of

192 quality of the work that is the subject of the appraisal review assignment.

193 (d) identify the work under review and the characteristics of that work which are

194 relevant to the intended use and purpose of the appraisal review, including:

195 (i) the any ownership interest appraised, if any, in the property that is the

196 subject of the work under review;

197 (ii) the date of the work under review and the effective date of the opinions or

198 conclusions in the work under review;

199 (iii) the appraiser(s) who completed the work under review, unless the identity is

200 withheld by the client; and

201 (iv) the physical, legal, and economic characteristics of the property, properties,

202 property type(s), or market area in the work under review.

203 Comment: The subject of an appraisal review assignment may be all or part of a report, a

204 workfile, or a combination of these, and may be related to an appraisal or appraisal

205 review assignment.

206 (e) identify the effective date of the reviewer’s opinions and conclusions;

207 (f) identify any extraordinary assumptions necessary in the review assignment;

208 Comment: An extraordinary assumption may be used in a review assignment only if:

209 • it is required to properly develop credible opinions and conclusions;

210 • the reviewer has a reasonable basis for the extraordinary assumption;

211 • use of the extraordinary assumption results in a credible analysis; and

212 • the reviewer complies with the disclosure requirements set forth in USPAP for

213 extraordinary assumptions.

First Exposure Draft of Changes for the 2016-17 USPAP 17

214 (g) identify any hypothetical conditions necessary in the review assignment; and

215 Comment: A hypothetical condition may be used in a review assignment only if:

216 • use of the hypothetical condition is clearly required for legal purposes, for purposes

217 of reasonable analysis, or for purposes of comparison;

218 • use of the hypothetical condition results in a credible analysis; and

219 • the reviewer complies with the disclosure requirements set forth in USPAP for

220 hypothetical conditions.

221 (h) determine the scope of work necessary to produce credible assignment results in

222 accordance with the SCOPE OF WORK RULE.

223 Comment: Reviewers have broad flexibility and significant responsibility in determining

224 the appropriate scope of work in an appraisal review assignment.

225 Information that should have been considered by the original appraiser can be used by the

226 reviewer in developing an opinion as to the quality of the work under review.

227 Information that was not available to the original appraiser in the normal course of

228 business may also be used by the reviewer; however, the reviewer must not use such

229 information in the reviewer’s development of an opinion as to the quality of the work

230 under review.

Standard Rules 2-2 and 8-2 both state:

Although report forms are quite commonly used in appraisal review assignments, there is no

equivalent language in STANDARD 3. Some may wrongly infer from this there is no similar

requirement applicable to appraisal review assignments. Therefore, the ASB is proposing the

following change to the Comment to Standards Rule 3-4:

231 Comment: An Appraisal Review Report communicates the results of an appraisal

232 review, which can have as its subject another appraiser’s work in an appraisal or

233 appraisal review assignment.

234 The report content and level of information in the Appraisal Review Report is

235 specific to the needs of the client, other intended users, the intended use, and

236 requirements applicable to the assignment. The reporting requirements set forth in

237 this Standard are the minimum for an Appraisal Review Report. An appraiser

238 must supplement a report form, when necessary, to ensure that any intended user

239 of the appraisal review is not misled and that the report complies with the

240 applicable content requirements set forth in this Standards Rule.

First Exposure Draft of Changes for the 2016-17 USPAP 18

The ASB has issued ten Statements on Appraisal Standards, of which five have since been

retired. The ASB is considering the retirement of the remaining Statements and the elimination

of Statements from the USPAP document. The five remaining Statements are:

SMT-2: Discounted Cash Flow Analysis

SMT-3: Retrospective Value Opinions

SMT-4: Prospective Value Opinions

SMT-6: Reasonable Exposure Time in Real Property and Personal Property

Opinions of Value

SMT-9: Identification of Intended Use and Intended Users

Some stakeholders believe that the Statements are no longer necessary and that standards related

issues are covered in the Rules and Standards and that issues related to methods and techniques

should not be addressed in USPAP. Others believe that additional guidance beyond what is

stated in the Rules and Standards is necessary for complete understanding of some issues. While

this may be true in some cases, the Statements are not guidance material; it is most appropriate to

use other communications from the ASB, such as Advisory Opinions and Frequently Asked

Questions, to convey guidance material.

In addition, there have been comments that topics addressed in SMTs 2, 3, and 4 would be more

appropriately handled as Valuation Advisories issued by the Appraisal Practices Board (APB).

First, it seems prudent to review the some terms taken from the USPAP publication:

clarify, interpret, explain, or elaborate on a Rule or

Standards Rule.

are communications that do not establish new Standards or interpret

existing Standards and are not part of USPAP. They illustrate the applicability of

Standards in specific situations and offer advice from the ASB for the resolution of

specific appraisal issues and problems.

It is important to note that the Statements are an integral part of USPAP and appraisers must

comply with any applicable requirements that are included in the Statements. Advisory Opinions

are intended only to provide guidance and do not include any requirements.

The question: Are the Statements necessary, or can any requirements found in the Statements be

incorporated into Rules and Standards Rules, and relevant guidance put into Advisory Opinions?

First Exposure Draft of Changes for the 2016-17 USPAP 19

The ASB has identified some potential alternatives to retiring the remaining Statements. These

alternatives include:

1. Leave the Statements in place, but make revisions as necessary

2. Incorporate any requirements that appear in the Statements but not the appropriate Rule

or Standards Rule and eliminate the Statements

3. Retire the Statements, but develop new Advisory Opinions addressing guidance issues

for each Statement

4. Address whether a need exists for any Q&As relating to each appropriate topic (can

potential questions be added to an Advisory Opinion or should they be in more than one

place?)

5. Work in conjunction with the APB if it elects to address any of the topics in SMTs 2, 3,

and 4 to coordinate retirement from USPAP with adoption of Valuation Advisories.

Potential Unintended Consequences:

The ASB recognizes that there could be unintended consequences as a result as retiring all or

some of the remaining Statements. Therefore, the Board is looking for feedback and poses the

following questions:

1. If we eliminate the Statement, does it negatively impact understandability of Standards

Rules?

2. If we eliminate these Statements and develop Advisory Opinions in their place, have we

hindered enforceability?

3. Are there additional adverse consequences in retiring the Statements?

Before the ASB proceeds with the elimination of the Statements, it is critical to evaluate any

impact that this might have on the various stakeholders. We are, therefore, asking for feedback

on the concept.

First Exposure Draft of Changes for the 2016-17 USPAP 20

In addition to the changes detailed in this exposure draft, the ASB is considering changes to

several definitions. The ASB is also considering additional guidance in the form of new and/or

expanded Advisory Opinions.

The ASB has received a significant amount of correspondence regarding the application of the

Confidentiality section of the ETHICS RULE. Given the concerns raised in this correspondence,

the ASB is considering revisions in that area as well.

Of course, there is always the possibility that additional changes could be proposed based on

input from our various constituencies.