Reporting is at the heart of what appraisers do. Whatever was done, good or bad, to reach the conclusion gets communicated mostly through written appraisal reports. Here are some things to know about proposed 2020 USPAP changes currently being exposed.
Why is this important? These changes will affect your practice if you are an appraiser, and your ability to understand and act on appraisals if a user or reviewer.
Proposed changes to reporting options from the First Exposure Draft. After doing away with the summary and self-contained option (the removal of which did not appear to be cause major upheavals), the proposed USPAP change is to eliminate existing labels.
The Exposure Draft notes, “(r)ather than limiting appraisal reports to a one-size-fits-all or the current two-sizes-fits-all options, the ASB is proposing a model that reduces the specificity without diminishing the USPAP reporting requirements. The goal is to provide a set of minimum reporting rules with unlimited reporting options based on communication between the client and the appraiser.”
The ASB is recommending that USPAP, rather than requiring a specific label, and limited such reports on to the clients with specific warning language requirements, should require the following statement: that, “If there are use restrictions or other limitations, the appraiser must state them accurately, clearly and conspicuously.” Thus, appraisers may continue to use a label provided it is appropriate for the intended use and not misleading to the client or any other intended users.
This change would eliminate labels such as Restricted Appraisal Report. Clients could individually order such report – appraisers would then need to provide a report.
Workfile requirements don’t change. The requirements that reports not be misleading and contain sufficient information so that intended users can understand all assumptions, extraordinary assumptions, hypothetical condition, and limiting conditions used in the assignment would still be in place.
There is the potential for users and appraisers to take undue advantage of this flexibility. By leaving the market to “sort it out,” the possibility for legitimate confusion, especially in practice areas, such as financial institution work, is possible. Some financial institution users have asked for more guidance, rather than less, to avoid exactly the need to have to negotiate the content and format of the report. There is also the potential to create confusion - and there is surely plenty of that in the appraisal marketplace – where this highly regulated profession could enjoy less.
The Exposure Draft was issued without any accompanying Advisory Opinions. There are also some changes proposed to the Scope Of Work Rule, relating “only” to reporting.
From the proposed Standard 2 language, the appraiser is “not required to label an appraisal report using specific terminology, provided it is clear to the intended user that the document is an appraisal report.” The report can have any label as it “does not mislead the intended user. The use of other terms (e.g., analysis, consultation, evaluation, study, valuation) does not exempt an appraiser from adherence to the Uniform Standards of Professional Appraisal Practice.”
Requirements about when information in reports may be stated or summarized are modified to allow for determinations to be made in certain categories as “appropriate for the intended user(s) and intended use of the assignment.”
There are some that would say, and they might just have a point, that there is a lack of direction in the proposed changes. While the market “decides” many things, not having clear direction in reporting may be an invitation to chaos. The proposed changes recognize that there is great proliferation of forms and formats in which opinions of value can be communicated. The ASB’s goal is to ensure that USPAP stays current and continues to promote and maintain a high level of public trust in appraisal practice.
What are some other reporting-related issues worth paying attention to in the current 2018-2019 USPAP requirements?
Extraordinary Assumptions: In a continuing effort to clarify the handling of “assignment-specific” assumptions, the definition was tweaked (again) based on concerns that the distinctdion between assumption and extraordinary assumption was still unclear. Some properties have specific uncertain conditions which need to be addressed. And, there are still appraisers out there who consistently put general assumptions in as extraordinary assumptions! The disclosure requirements have not changed. To help, the definition of assumption was removed as it has no meaning in USPAP different from that in common usage.
Sales History: Major changes were made to Advisory Opinion 1 which provides clear guidance to appraisers and users as to what is the appropriate manner in which to disclose the information necessary to comply with Standard Rule 1-5. In a nutshell, it is more than a statement or an assertion, but the factual information needs to be analyzed. For many reviewers, appraisers, and users, this is welcome guidance indeed.
These changes have the potential to affect you and your practice area. Consider taking a look at the issues, if only to gain some understanding of what the Board is thinking and what you think of it. Be proacitve, not reative.
The written comment deadline is Friday, July 15. To submit comments on the proposals, please email ASBcomments@appraisalfoundation.org.
Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.