Acronyms are abundant in the world of real estate. In addition to our favorite, NAR, we have MLS, FHA, VA, HOA, CC&R, REO, CMA, and BPO. At the top of every appraiser’s list is USPAP, the Uniform Standards of Professional Appraisal Practice.
Developed and copyrighted in 1987 by The Appraisal Foundation, a private, not-for-profit corporation, USPAP has been adopted by the major appraisal organizations in North America. Since the establishment of the Appraisal Standards Board of The Appraisal Foundation in 1989, and the enactment of the Financial Institutions Reform, Recovery, and Enforcement Act the same year, all federal banking agencies have been required to prescribe standards for the performance of real estate appraisals that, at a minimum, meet those published in USPAP. Fannie Mae, Freddie Mac, HUD, and the VA also insist on USPAP-compliant appraisals. In short, USPAP represents the generally accepted and recognized standards of appraisal practice in the United States.
What was the catalyst for USPAP? Trust in the United States’ banking system, banking regulation, and mortgage market had eroded with the collapse of the nation’s savings and loan industry in the 1980s. The Appraisal Foundation developed USPAP with the goal of promoting and maintaining a high level of public trust in appraisal practice. The standards established requirements for appraisers to develop and communicate their analyses, opinions, and conclusions to clients and intended users in a manner that is meaningful and not misleading. This focus on public trust drives and influences the definitions, rules, standards rules, and comments in USPAP and is always considered by the Appraisal Standards Board of The Appraisal Foundation when making changes to the publication.
Contrary to popular thought, appraisal methodology is not the focus of USPAP. Instead, USPAP establishes appraiser performance parameters and a minimum set of quality standards for the development and reporting of an appraisal. Appraisers are required to be competent, independent, impartial, and objective. In the interest of promoting public trust, appraisers must perform their work without bias and must neither advocate for the cause or interest of any party or issue nor communicate their opinions and conclusions in a manner intended to mislead or defraud. In addition, appraisers must comply with all laws, rules, and regulations applicable to the appraisal assignment. Among those are the Fair Housing Act and Equal Credit Opportunity Act. Confidentiality is also important to promoting public trust. Appraisers, with few exceptions, may not disclose confidential information or the results of their appraisal to anyone other than their client or parties specifically authorized by their client. Importantly, for most appraisals completed for mortgage lending purposes, the buyer, seller, and agents are not the client.
With respect to the development of the appraisal, USPAP requires the appraiser to be aware of and correctly employ recognized methods necessary to produce a credible appraisal. This includes an obligation to be aware of transformations in real estate, the cost of construction, innovative marketing techniques, and the legal framework within which real property is conveyed and financed. Awareness of societal change and its effect on appraisal theory and practice is also expected. Not only must appraisers maintain their skills and knowledge, USPAP requires them to continuously improve their skills to maintain proficiency.
Some changes in appraisal practice were anticipated with the 2006 introduction of the Scope of Work Rule. This rule provides appraisers with quite a bit of flexibility in their decisions about the extent of the property inspection, the amount and type of data researched, and the type and extent of their analysis of the data. With the flexibility comes significant responsibility. Appraisers must ensure the scope of work is sufficient to produce credible results within the context of the appraisal’s intended use. USPAP provides two tests of scope-of-work acceptability.
- The scope of work meets or exceeds the expectations of parties who are intended users for similar assignments; and
- The scope of work meets or exceeds what an appraiser’s peers’ actions would be in performing a similar assignment.
The recent introduction of “desktop” appraisals by Fannie Mae and Freddie Mac are the perfect illustration of changes in appraisal practice. Remember, however, the scope-of-work decision belongs to the appraiser, not the client, intended user, or borrower. The appraiser must decide if it is possible to produce a credible appraisal without a visit to the subject property.
By law, rule, and regulation, appraisers are required to comply with USPAP when preparing appraisals for the purpose of a mortgage loan. Appraisers’ independence, impartiality, and objectivity are intended to promote and maintain public trust in their work and the appraisal profession.