2016-2017 USPAP Changes: Summary & Advice for Lenders, Appraisers
An appraisal is required to support all real estate lending transactions so it is important in the lending industry to know the rules an appraiser must follow. Every two years, USPAP is modified and republished by Appraisal Standards Board (ASB) of The Appraisal Foundation (TAF). State and federal regulatory authorities enforce content of current or applicable USPAP editions. Are these changes meaningful or earth-shaking? Not always, but may offer corrections, clarifications, and consistency edits. Between January 1, 2016 and December 31, 2017, appraisers must adhere to adopted changes within 2016-2017 USPAP as well as consider added guidance from USPAP Advisory Opinions and FAQs (AOs and FAQs are not officially part of USPAP but offer advisory guidance to illustrate applicability of USPAP Standards and offer advice from ASB for appraisal issues and problems).
So what are the changes this year? Lenders, appraisers, reviewers, lawyers and others may dread these biennial changes which can affect regulatory compliance, appraisal practice, and litigation cases. I am pleased to report that among revisions this year, few have significant impact on appraisal practice.
This article summarizes revisions to 2016-17 USPAP in plain language and offers light advice – please read carefully. Seven revisions were applied to USPAP and USPAP Advisory Opinions (from USPAP FOREWORD, p. vi-vii): 1) Revisions to DEFINITION of “Report” and to RECORD KEEPING RULE; 2) Revisions to STANDARD 3; 3) Revisions to DEFINITION of “Assignment Results” and Confidentiality section of ETHICS RULE; 4) Changes to Reporting Standards; 5) Exposure Time; 6) Retirement of STATEMENTS ON APPRAISAL STANDARDS; and, 7) Revisions of ADVISORY OPINION 7 and creation of ADVISORY OPINIONS 33-36.
Let’s take these one at a time:
RECORD KEEPING RULE was revised to clarify that an appraiser is to retain true copies of all written reports in the workfile. This includes previously transmitted report copies (plus data, information, and other documentation though not specifically identified) even if subsequently revised. ASB did not act on proposed alterations to communication of assignment results relating to draft reports, interim communications, and record retention specifics. My advice is to retain everything (e.g., all report versions, emails or other communications, dated transcripts of phone calls, etc.) that supports appraisal assignment parameters, assumptions, methodology, verifications, value conclusions, and regulatory compliance.
“The workfile must include…true copies of all 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.)” (excerpt 2016-1017 USPAP Record Keeping Rule, p. 11)
STANDARD 3 was modified to remove the effective date requirement on appraisal reviews due to redundancy with review report date. Review report date, date of appraisal report under review, and effective date(s) of appraised value(s) are still required. USPAP changes did not specifically state whether effective date(s) of any value opinion(s) added by the reviewer are required, but this should be assumed.
ASSIGNMENT RESULTS definition was modified to clarify confusion from 2014-15 edition. As revised, physical characteristics are not considered confidential assignment results. Appraisers may share information about physical characteristics of a property with others without being subject to violation of the Confidentiality section of the ETHICS RULE. However, new clarification does not address the issue of whether appraiser opinions of quality, condition, or functional utility of the subject may be shared – it is anticipated this may be clarified later in a FAQ or future USPAP revision.
CONFIDENTIALITY section of the ETHICS RULE was further revised to require appraisers to take “reasonable steps to safeguard access to confidential information and assignment results by unauthorized individuals.” Appraisers must ensure their appraisal office employees, coworkers, subcontractors and others “are aware of the prohibitions on disclosure of such information or results.” Simply, appraisers and appraisal firms must identify confidential information in their possession and review security protocols to protect such information stored in an office, computer or in the cloud from unauthorized disclosure. There is also a new footnote referencing Federal Trade Commission privacy regulations that affect appraisers.
STATEMENTS AND ADVISORY OPINIONS were retired, revised, and added for clarity. Retired STATEMENTS – due to redundancy with guidance elsewhere – include: 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; and SMT-9: Identification of Intended Use and Intended Users. Minor edits to Standards Rules (from retired Statements) include a requirement for what must be stated in a report when a client wishes to remain anonymous, and to clarify that identity of intended users may be stated by name or type. New ADVISORY OPINIONS are AO-33: Discounted Cash Flow Analysis; AO-34: Retrospective and Prospective Value Opinions; AO-35: Reasonable Exposure Time in Real and Personal Property Opinions of Value; and, AO-36: Identification and Disclosure of Client, Intended Use, and Intended Users (essentially transferred from the retired Statements). AO-7: Marketing Time Opinions was revised to better reflects current practices and more clearly differentiate between exposure time and marketing time.
EXPOSURE TIME development requirements (Standards Rules 1-2c and 7-2c) were slightly revised to clarify between exposure time and reasonable exposure time depending on the assignment.
The Bottom Line
In summary, these changes will not significantly affect most appraisers. They are, however, important to note when completing appraisal and review assignments during the effective period of the 2016-17 USPAP edition.
FOR MORE INFORMATION
- Current 2016-17 USPAP is available for purchase from the publisher, The Appraisal Foundation.
- The public is encouraged to offer future edit suggestions. To better understand the USPAP modification process refer to this TAF slide presentation.
- National USPAP Update Course for 2016-17 is now available from appraisal organizations and various education providers. For more information, go to https://www.appraisalfoundation.org.
ABOUT THE AUTHOR
Since 1980, Mitch Kreeger provides real estate appraisal and review services on residential and commercial valuation assignments, environmental and seismic risk management services for lenders, plus consulting services related to policies and procedures, regulatory compliance, and appraisal / environmental risk in-house or outsource function design. Professional services also have included apartment acquisition investment DCFs, budget analysis, construction lending inspections and analysis, and real estate market trend analysis. Mitch’s client base ranges from very small to very large lending institutions, corporate and individual property owners, investors and syndicates, municipalities and redevelopment agencies, and legal services; however, most of his career has been as internal appraisal management or staff with various institutional lenders. Mitch is considered a Subject Matter Expert (SME) on various valuation, environmental and seismic risk, and regulatory compliance topics by peers nationwide, and volunteers or is sponsored as guest speaker, panelist, author, and network blogger. Mitch is currently Chief Appraiser and Principal Consultant at Kreeger Consulting, a private appraisal / environmental / seismic risk consulting services firm that offers commercial appraisal reviews, outsourced Chief Appraiser duties, and advisory services to lenders on regulatory compliance, efficient appraisal / environmental risk functions, and effective policy updates.
Mitch Kreeger, MAl SRA MBA
Principal Consultant, Kreeger Consulting: Appraisal Review, Environmental & Seismic Risk Policy Manager
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