R. Lee Robinette, ASA
President, Collateral Evaluation Associates Inc.
Abstract: This is the second of two articles that discuss appraisal review requirements set forth in the Uniform Standards of Professional Appraisal Practice (USPAP)[1] for appraisal reviews.
The specific standards in USPAP for appraisal review are Standard 3: Appraisal Review, Development and Standard 4: Appraisal Review, Reporting. The appraisal review standards are not discipline specific and address appraisal reviews for all forms of property.
In the following paragraphs, direct quotations from USPAP (2020-2021) are in italics. This article does not contain the full text of Standard 4. While reading this article, you may find it useful to reference the full text in your copy of USPAP.
Appraisal review standards are the only standards that do not address either a particular appraisal discipline, such as real property, personal property, or intangible property (business valuation); or a particular type of appraisal such as Mass Appraisal that is addressed in Standards 5 and 6. Mass Appraisal is only applicable to real property and personal property.
Appraisal review is unique because, unlike appraisal, the purpose and scope of work for a review does not always include an opinion of value. In many cases, an appraisal review focuses on something other than another appraiser’s value opinion. An appraisal review, according to USPAP, is the act or process of developing an opinion about the quality of another appraiser’s work (i.e., a report, part of a report, a workfile, or some combination of these), that was performed as part of an appraisal or appraisal review assignment.[1]
As defined, appraisal review involves the development of an opinion of the quality of work performed by another appraiser and is referred to as the work under review (WUR). While the WUR is the subject document for the appraisal review assignment, the scope of work for an appraisal review can vary. The scope could be a limited, specific area such as USPAP compliance or adherence to the client’s requirements or could focus solely on one aspect of a WUR, such as an approach to value. In other situations, the appraisal review could be a comprehensive analysis of the credibility of the WUR.
Unlike other USPAP development standards 1, 5, 7, and 9, which all involve the appraisal of a particular type of property, or in the case of Mass Appraisal, the use of a specific appraisal method, the developmental standards for appraisal review are applied to the process of review, not a type of property or appraisal method: The subject of an appraisal review assignment may be all or part of a report, a workfile, or a combination of these, and may be related to an appraisal or appraisal review assignment.[2]
Because the purpose of an appraisal review always includes something other than or in addition to a value opinion, Standard 4 requires the appraiser to state the purpose of the assignment. This requirement is unique to Standard 4.
An appraisal review, by definition, does not include the reviewer’s own value opinion; however, the review assignment might call for both a review opinion (i.e., the quality of another appraiser’s work) and an appraisal (i.e., the reviewer’s opinion of value). In cases where the appraisal review assignment includes a value opinion – which could include simply agreeing or disagreeing with a value opinion stated in the WUR – the review assignment also includes an appraisal, defined by USPAP as the act or process of developing an opinion of value.[3] When the reviewer’s own opinion of value is included in the assignment, compliance with parts of the applicable development and reporting standards is required. Appraisal reviewers who are considering an appraisal review assignment that includes the reviewer’s own opinion of value should study Advisory Opinion 20, which explains a number of considerations, including how purpose and intended use affect scope of work.
The four Standards Rules in Standard 4 address requirements of an appraisal review report. Standards Rule 4-1 addresses the general reporting requirements; Standards Rule 4-2 addresses the content of an appraisal review report; Standards Rule 4-3 addresses the signed certification that an appraisal reviewer is required to include in a report; and Standards Rule 4-4 addresses oral appraisal reviews.
Reporting requirements for appraisal review in Standards Rule 4-1 are similar to the reporting requirements in Standards Rules 2-1, 6-1, 8-1, and 10-1.
Standards Rule 4-1(a) requires that a report clearly and accurately set forth the appraisal review in a manner that will not be misleading. Standards Rule 4-1(b) requires that the report contain sufficient information to enable the intended user(s) of the appraisal review to understand the report properly. Standards Rule 4-1(c) requires that the review report clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.
The appraisal review reporting standards are similar to every other USPAP reporting standard: the requirement is that a report provide the intended users with sufficient clear and accurate information to understand the report properly.
Standards Rule 4-2 specifies the report content required by USPAP for an appraisal review report. Each of the Standards Rules 4-2(a) through 4-2(k) address specific content requirements and Standards Rule 4-2(d) includes four specific disclosures about the work under review. The requirements of Standards Rule 4-2(j) apply only when the assignment includes an opinion of value.
Standards Rules 4-2(a) and (b) are similar to the client, intended use, and intended user disclosure requirements contained in the other reporting standards.
Standards Rule 4-2(a) requires the appraisal reviewer to state the identity of the client and state the identity of any intended user(s) by name or type. In some cases, a client may wish to remain anonymous. In such cases, USPAP allows the appraisal reviewer to protect the client’s anonymity as follows, if the client requests anonymity, state that the identity is withheld at the client’s request but is available in the appraiser’s workfile.
Standards Rule 4-2(b) requires the appraisal reviewer to state the intended use of the appraisal review.
Standards Rule 4-2(c) is unique to appraisal review with its requirement for the appraisal reviewer to state the purpose of the appraisal review. An article in the Fall 2021 ARM E-Journal issue[1] discusses the concept of purpose in appraisal review.
Standards Rule 4-2(d)(i)-(iv) require that the report state information sufficient to identify these four specific appraisal review elements:
(i) the work under review, including any ownership interest in the property that is the subject of the work under review;
(ii) the date of the work under review;
(iii) the effective date of the opinions or conclusions in the work under review; and
(iv) the appraiser(s) who completed the work under review, or if the client has withheld their identity, state that the identity of the appraiser(s) has been withheld by the client.
Standards Rules 4-2(e) and (f) contain requirements that are similar to the other reporting standards with (e) requiring the report to state the date of the appraisal review report. Standards Rule 4-2(f) requires the appraisal reviewer to clearly and conspicuously[i] state all extraordinary assumptions and hypothetical conditions; and state that their use might have affected the assignment results.
Standards Rules 4-2(g) and (h) address two requirements that are also found in the other reporting standards. Standards Rule 4-2(g) requires the appraisal review report to state the scope of work used to develop the appraisal review.
Disclosure of the scope of work is required by all USPAP reporting standards. Standards 2, 8, and 10 provide two reporting options that have different scope of work disclosure requirements: an Appraisal Report is required to summarize the scope of work performed; a Restricted Appraisal Report is required to state the scope of work. The scope of work disclosure requirement for appraisal review is the same as for a restricted report: to state the scope of work.
Standards Rule 4-2(h) states that when any portion of the work involves significant appraisal or appraisal review assistance, state the extent of that assistance. The disclosure of significant appraisal assistance is also a requirement of the other four reporting standards. Note that disclosure of who provided that significant assistance (for an appraisal or appraisal review) must also be addressed in the signed certification required by Standards Rule 4-3.
Standards Rule 4-2(i) requires the appraisal review report to state the reviewer’s opinions and conclusions about the work under review, including the reasons for any disagreement. This Standards Rule also includes a comment that specifies the report must provide sufficient information to enable the client and intended users to understand the rationale for the reviewer’s opinions and conclusions.
Standards Rule 4-2(j) addresses the requirements for a review report when that report provides an opinion of value. In particular, it states that any information, analyses, opinions, and conclusions in the WUR that the reviewer accepts as credible may be used by the reviewer in developing an opinion of value.
Standards Rules 4-2(j)(i) - (iii) specify the reviewer must:
(i) state which information, analysis, opinions, and conclusions in the work under review that the reviewer accepted as credible and used in developing the reviewer’s opinions and conclusions;
(ii) if applicable, state the effective date of the reviewer’s opinion of value;
(iii) at a minimum, summarize any additional information relied on and the reasoning for the reviewer’s opinion of value or review opinion related to the work under review.
The comment on Standards Rule 4-2(i)(iii) states that an opinion of value may be included in the appraisal review report and does not require a separate report.
However, when an appraisal reviewer includes an opinion of value in an appraisal review report, that report is also an appraisal report and the information provided to support a different opinion or conclusion must match the applicable reporting standard: Standard 2, 8, or 10, depending on the property type or discipline. For instance, reporting requirements and the scope of work disclosure requirement for an appraisal review with an opinion of value would include summarizing the scope of work performed–as for any appraisal report–instead of solely stating it is as allowed for appraisal review reports in Standards Rule 4-2(g).[i] Likewise, information supporting a reviewer’s value opinion for a mass appraisal would comply with the requirements of Standards Rule 6-2.
Standards Rule 4-2(k) requires that the report include a signed certification in accordance with Standards Rule 4-3. Standards Rules 4-2(h) and 4-3 have requirements regarding the signed certificate.
Standards Rule 4-3 addresses the appraisal reviewer’s certification. The certification requirements for an appraisal review are very similar to those for other appraisal disciplines and include requirements for disclosures of present or prospective interests in the property that is the subject of the work under review, any specified personal interest with respect to the parties involved, and disclosure of any prior services regarding the property that is the subject of the work under the review.
The certification required by Standards Rule 4-3(a) includes the same non-contingency statements as the certifications in other disciplines, as specified in the Management section of the Ethics Rule:
An appraiser must not agree to perform an assignment, or have a compensation arrangement for an assignment, that is contingent on any of the following:
A disclosure as to whether the appraiser made a personal inspection of the subject property in the work under review is also required. This disclosure is not applicable to business or intangible asset appraisal assignments.
Standards Rules 4-3(b) and (c) are similar to those for other disciplines. Standards Rule 4-3(b) requires that the name of anyone who provided significant appraisal or appraisal review assistance be stated in the certification, although the extent of that assistance can be addressed anywhere in the report..[i] Standards Rule 4-3(b) states that anyone who signs any part of an appraisal review report must also sign a certification.
Standards Rule 4-4 is the final rule in Standard 4. This rule regards the reporting of the results of an appraisal review via an oral report and specifies that to the extent that it is both possible and appropriate an oral appraisal review report must address the substantive matters set forth in Standards Rule 4-2. This is the same requirement that is contained in Standards 2, 8, and 10. Mass appraisal does not allow for an oral reporting option.
USPAP defines an appraisal review as the “act or process of developing an opinion about the quality of another appraiser’s work.”[i] An appraisal review is intended to provide information to the intended users about the credibility of the work under review. Standards 3 and 4 provide the framework and foundation for the process of developing and communicating that opinion.
Standard 4 addresses the content and level of information required of an appraisal review report. Standards Rule 4-2 contains specific information that the appraisal reviewer must include in an appraisal review report and serves as a checklist to the appraisal reviewer regarding report content.
If you are given the opportunity to perform an appraisal review assignment, it is important to remember that the Competency Rule applies and that the general development standards require you to be aware of, understand, and correctly employ those methods and techniques that are necessary to produce a credible appraisal review. Prior to agreeing to perform a review assignment, assess your competency by reviewing Standard 3 and Standard 4. Use this link to review the ARM Committee’s Competency Statement.
An appraisal reviewer’s close attention to these Standards Rules contributes to a critical component of USPAP’s pervasive principle: to support public trust in the appraisal profession, which is largely self-regulating (real estate being the exception). Appraisal review is part of how the appraisal profession conscientiously develops and sustains public trust in the profession. Appraisal review educates the public and appraisal professionals regarding appropriate appraisal standards of care.
Using Standard 3 and 4 in the development of your review opinions and the content of your review report is critical. Using the appraisal review checklist designed as a tool for ARM Candidate Report Review, available at this link, is strongly recommended.Using the appraisal review checklist designed as a tool for ARM Candidate Report Review, available at this link, is strongly recommended. Using the appraisal review checklist designed as a tool for ARM Candidate Report Review, available at this link, is strongly recommended.
ASA offers a number of ARM courses for appraisers who are interested in expanding their understanding and competency in appraisal review. For more information on ARM training or an ARM designation, visit the ASA ARM Appraiser site here.
R. Lee Robinette, ASA, is President of Collateral Evaluation Associates Inc. in Charlotte NC, and an Accredited Senior Appraiser (ASA) with over thirty years of machinery & equipment and inventory appraisal experience. He is a course instructor and course developer for the Society’s education curriculum and a contributing author to the textbook, Valuing Machinery & Equipment (2005). Mr. Robinette has served the ASA as an officer and committee member at the local and national levels and was formerly the chairman of the Machinery & Technical Specialties Committee (2005 – 2007). Lee has also served on the Appraisal Standards Board (ASB) of The Appraisal Foundation. The ASB is one of two congressionally authorized Boards and is responsible for the maintenance, revision, and promulgation of the Uniform Standards of Professional Appraisal Practice.
[1] See “Disclosures: Clear, Accurate, Conspicuous,” Shea, Barry, in this issue of the ARM journal.
[1] Stating rather than summarizing the scope of work is also allowed in a Restricted Appraisal Report (Standards 2, 8, and 10).
[1] USPAP Standards Rule 4-2(h)
[1] USPAP Definitions, p. 3