The Professional Appraiser Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 18

The Professional Appraiser

Basic Real Estate Appraisal: Principles & Procedures – 9th Edition

© 2015 OnCourse Learning

Chapter 18

STUDENT LEARNING OUTCOMES

• List the Five Key Elements of becoming a Competent Appraiser• Define the Typical State Requirements for

Appraiser Licensing and Certification• List at least Three Major Organizations of

Professional Appraisers• Outline the First Two Standards of USPAP• Discuss the Common Career Paths for

Appraisal Professionals2

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18.1 THE APPRAISER’S BACKGROUND

Five Key Elements to a Competent Appraiser• Education• Experience• Knowledge• Judgment• Integrity

Detailed on the slides that follow 3

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EDUCATION

Reasons for Education• General Benefits include Learning…• Reasoning skills• Communication skills• Mathematics skills (Algebra & Geometry)• Computer skills

• To Better Understand Factors that Influence Real Estate (Finance, Law, Economics, etc.)• Specific knowledge of Appraisal Theories and

Techniques – Principles & Procedures 4

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EDUCATION (Con’t.)

General Educational Trends• College-Level Education and/or College

Degrees are necessary for…• Professional Designations• Licensing & Certification• Numerous Colleges and Universities offer

Certificate and Degree Programs• Some Degrees are endorsed by the Appraisal

Institute & American Society of Appraisers 5

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EDUCATION (Con’t.)Real Estate Courses• Course Curriculum on Appraisal and Broker-

related Real Estate Topics at…• Community Colleges (AA & Certificate Programs)• Private Educational Providers• Appraisal Courses and Seminars offered by

the Appraisal Institute, American Society of Appraisers, etc.• # of Webinars & Online Courses Growing

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EDUCATION (Con’t.)Shared Ideas•Meetings between Appraisers and other

Real Estate Industry Participants offer…• Form of Self-Improvement• Shared Experiences & Ideas with Peers• Opportunities for Referrals & Career

Advancement• Online Courses, Blogs and Discussion Boards

are growing as a venue for shared ideas7

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EXPERIENCE

Education alone will not create a Competent Appraiser…• Key Appraisal Skills are learned through On-the-Job

Experience• May take Six Months – Under the Supervision of an

Experience Appraiser – to Produce a Credible Appraisal on your own• Trainee-Produced Appraisals must be signed by a

Certified Appraiser• More Complicated Appraisals Require More and/or

Specialized Experience8

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KNOWLEDGE

General Areas of Knowledge that are Important to Appraisers…•Markets• Be Aware of how they Function and Affect

Prices and Trends• Operations• Characteristics and Management Procedures•Market Data• Develop Data Sources of Particular Kinds

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JUDGMENT…the operation of the mind, involving comparison and discrimination, by which knowledge and values and relationships are mentally formulatedEssential Elements…• Compare• Distinguish Differences• Recognize Relationships• Arrive at Opinions

Good Judgment comes from a combination of Education, Experience, Learning from one’s own mistakes, and considering opinions of others 10

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INTEGRITY

Integrity is a critical characteristic; meaning…• …complete, undivided, or unbroken• Unimpaired; soundness; purity…•Moral soundness; honesty; freedom from

corrupting influence or practice…

Integrity, along with Impartiality, is essential to Long-Term Success as a Professional Appraiser

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18.2 STATE LICENSE AND CERTICIATION REQUIREMENTSState and Federal Laws requiring appraisals to meet certain requirements became effective in 1993, pursuant to Title IX of FIRREA. Key Appraisal Requirements:• Federally Related Transactions focus of FIRREA• Performed by Licensed or Certified Appraisers• Appraisals must Conform to USPAP• Qualifications of Appraisers and USPAP itself set

by The Appraisal Foundation (AQB and ASB)12

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LEVELS OF APPRAISAL PRACTICETrainee License: Appraisal of properties that the supervising appraiser is permitted to appraise, under close supervision.Licensed Residential: Appraisal of non-complex one to four-unit residential properties, up to a transaction value of $1 million; complex properties up to a transaction value of $250,000. Certified Residential: Appraisal of all residential properties, regardless of transaction value or complexity. Federal guidelines limit this practice to property with one to four dwelling units. Appraisal of nonresidential properties with a transaction value up to $250,000 is also authorized.Certified General: Appraisal of all real estate property transactions, without regard to property type, transaction value, or complexity. 13

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BASIC EDUCATION REQUIREMENTS

• Hours must involve instruction in specific subject modules (e.g. Principles & Procedures, USPAP, etc.)• These are minimum requirements; some States may

differ (i.e. CA requires 150 Hrs. for Trainee)14

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COLLEGE EDUCATION REQUIREMENTS

Effective January 1, 2015, the AQB requires 30 semester credit hours of College-Level Education, or an Associate’s Degree or higher, for those seeking to be a Licensed Residential appraiser; and has deleted it as an option for those seeking the Certified Residential and Certified General Certifications. The latter now require Bachelor’s Degrees.

See page 598 for specifics15

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BASIC EXPERIENCE REQUIREMENTS

• All Experience must comply with USPAP• Obtaining and Documenting Experience poses a Major

Challenge to those Entering the Appraisal Profession• As of October 2015 the AQB began exploring alternative

tracks for experience (stay informed!) 16

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18.3 APPRAISAL GROUPS

Benefits of membership…• Professional Designations• Major Source of Training (Education) and other

Resources & Publications

Major Organizations• Appraisal Institute (MAI, SRA, AI-GRS & AI-RRS)• American Society of Appraisers (ASA, AM & FASA)• National Association of REALTORS® (RAA & GAA)

Check for Local Chapters 17

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APPRAISAL GROUPS (Con’t.)

Specialized Groups• International Right of Way Association (IRWA)• American Society of Farm Managers and Rural

Appraisers• International Association of Assessing Officers

(IAAO)• National Association of Independent Fee Appraisers• Institute of Business Appraisers• Association of Machinery and Equipment Appraisers

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18.4 STANDARDS OF PROFESSIONAL APPRAISAL PRACTICEUniform Standards of Professional Appraisal Practice (USPAP)…• Originally Adopted in 1986-87; subsequently the

Appraisal Foundation was founded• The Appraisal Standards Board (ASB) of the

Appraisal Foundation maintains USPAP• USPAP is a living document; updated every two

years (2016-2017 Edition of USPAP was adopted but not yet published when this textbook was completed)

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THE USPAP RULES

Ethics Rule• Requires an Appraiser to Comply with

USPAP when Obligated by Law or Regulation, or by Agreement• Covers Three General Areas of Practice..• Conduct• Management• Confidentiality

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THE USPAP RULES (Con’t.)

Conduct Section of the Ethics Rule• Requires that the appraiser perform all

assignments ethically and competently , with impartiality, objectivity, and independence, and without accommodation of personal interests.• Requires an Appraiser to disclose any current of

prospective interests, and the performance (or not) of any services involving the property within the prior three years, in the Certification

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Management Section of the Ethics Rule• Prohibits the payment of any undisclosed fees,

commissions, or things of value in connection with the procurement of an assignment• Accepting compensation for developing an opinion

of value that is contingent upon the value conclusion or result is also forbidden

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Confidentiality Section of the Ethics Rule• Requires that the appraiser not reveal confidential

factual data obtained from the client, or the results of an assignment to anyone other than: • the client and those he/she has authorized by law; • state enforcement agencies and third parties

authorized before “by law”; and • a duly authorized professional peer review

committee, state enforcement agencies and authorized third parties

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Record Keeping Rule• Requires that the appraiser prepare and

keep a comprehensive work file for at least five years after each assignment or at least two years after the final disposition of any judicial proceeding where testimony was given• Retain True Copies of all Written Reports

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Competency RuleAn Appraiser Must…• Be Competent to Perform the Assignment;• Acquire the Necessary Competency to Perform

the Assignment (individually, or, if needed, in association with others); or• Decline or Withdraw from the Assignment

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Scope of Work RuleFor each Appraisal and Appraisal Review Assignment, an Appraiser Must...• Identify the Problem to be Solved• Determine and Perform the Scope of Work

necessary to Develop Credible Assignment Results; and• Disclose the Scope of Work in the Report

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Jurisdictional Exception Rule• If any part of USPAP is contrary to any

applicable Law or Regulation of any Jurisdiction, only that part shall be void and of no force or effect in that Jurisdiction; and disclose the Exception in the Report

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STANDARDS OF PRACTICE

Standard 1 (Development)• In developing a real property appraisal, an

appraiser must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete the research and analyses necessary to produce a credible appraisal

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STANDARDS OF PRACTICE

Standard 2 (Reporting)• In reporting the results of a real property

appraisal, an appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading

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PROTECTING THE PUBLIC• Impartiality• The appraiser should not have an undisclosed

interest in the property being appraised• The appraisal fee should not be contingent on the

amount or direction of value concluded, or on the occurrence of any event• The appraiser should not directly pay or receive

referral fees, so that referrals will be objectively considered

• Disclosure and Methodology• Support for the Conclusion 30

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PROTECTING THE CLIENT• Competency• Appraisers should take on only those appraisal

assignments that are within their ability• Appraisers should only accept assignments that

they anticipate they can complete within the agreed-upon time period• Once an Appraiser accepts an assignment, he or

she should perform it competently and adequately, regardless of the agreed-upon fee (there may be some exceptions)

• Confidentiality 31

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PROTECTING THE PROFESSION• Competitive Activity• Competition for business should be done in a

professional manner• Appraisers should not cast unsupported doubts

about other’s capabilities in an attempt to take away or get business

• Cooperative Activity• Promote a “code of behavior” amongst appraisers• Share data and ideas with other appraisers

(without violating Confidentiality)32

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18.5 APPRAISING AS AN OCCUPATION

Who Do You Work For?• Institutional Appraiser• Salaried Staff Position• Public – Assessor, General Services Dept., IRS,

HUD, BLM, Transportation Agencies, etc.• Private – Lenders, Life Insurance, REITS,

Railroads, Utilities, Large Corporations• Fee Appraiser• Paid a Fee per Assignment• Small or Large Offices; May work out of home 33

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LOAN VS. OTHER ASSIGNMENT TYPESLoan Appraisals• Pressures exist on appraisers…• To Speed Up the Process & Keep Fees Low• To Meet the Number or Make the Deal• Volume dependent on level of loan activity• Monitoring of Quality and Consistency via the

Collateral Underwriter (CU) programOther Intended Uses• Varied types, & not dependent on loan activity

and related pressures; but volume not as great34

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CHAPTER SUMMARY

Becoming a competent appraiser requires many different skills. Besides pursuing a formal education, you also need to develop your knowledge of markets and real estate operations. This kind of knowledge is more often gained through field experience than in the classroom.

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CHAPTER SUMMARY (Con’t.)

Having sound judgment is also an important skill for an appraiser. Developing good judgment comes from a combination of experiences: in the field, in education, and as a result of self-review. Integrity is also essential! Licensing and certification requirements, and complying with USPAP, are important to the professional appraiser.

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IMPORTANT TERMS & CONCEPTSCompetency Rule Impartiality

Conduct Institutional Appraiser

Confidentiality Integrity

Designations Jurisdictional Exception Rule

Ethics Rule Management

Experience Record Keeping Rule

Federally Related Transactions Scope of Work Rule

Fee Appraiser

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Documents

The Professional Appraiser Basic Real Estate Appraisal: Principles & Procedures – 9 th Edition © 2015 OnCourse Learning Chapter 18