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Assessment, Consultation, and Auditing Practices.
Appraisal Practice:
Appraisal practice encompasses valuation services provided by professional appraisers, including appraisal (estimating property value at a specific time for a specific purpose), appraisal review (examining the quality of another appraiser’s work), and appraisal consulting (providing advice and analysis on real estate❓ aspects).
An appraiser’s role is to determine fair property value, requiring theoretical knowledge, practical experience, and sound professional judgment.
Elements of a good appraisal include honesty, experience, theory, knowledge, proper process, and common sense/judgment.
The Uniform Standards of Professional Appraisal Practice (uspap❓) are essential for appraisers in the United States, outlining procedures and requirements for appraisal reports, regardless of the terminology used.
Technology enhances appraisal practice through increased speed, accuracy, cost-effectiveness, and ease of payment. For example, smartphone apps can complete appraisal forms on-site and synchronize data.
Consulting:
Real estate consulting provides specialized advice and analysis on various real estate aspects, including marketability analysis, development analysis, land use, and investment analysis.
A real estate consultant provides objective advice based on data analysis. The consultant’s role should be clearly defined as consulting, not appraisal.
A real estate consultant who is also an appraiser must adhere to USPAP regarding ethics, record-keeping, competence, and scope of work.
Examples include advising developers on residential project design and analyzing the feasibility of converting an office building into apartments.
Formulas used in real estate consulting include Net Operating Income (NOI) = Total Revenue - Operating Expenses and Capitalization Rate (Cap Rate) = NOI / Property Value, used to assess potential investment returns.
Appraisal Review:
Appraisal review involves examining and evaluating the quality of another appraiser’s work, potentially including the report and work file.
Objectives include verifying the accuracy and validity of the appraisal, assessing compliance with professional standards, identifying errors or deficiencies, and providing recommendations for improvement.
The reviewer must be qualified to assess the work of other appraisers.
Reviewers must adhere to USPAP, including requirements for competence, independence, and objectivity.
Examples include financial institutions reviewing property appraisals for loan collateral and developers reviewing land appraisals for purchase.
Legal and Professional Regulation of Appraisal Practice in the United States:
The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of 1989 established requirements for licensing and certifying appraisers and created uniform standards for competence and professional practice.
The Appraisal Foundation was established by major appraisal organizations to set valuation standards and appraiser qualifications.
The Appraisal Standards Board (ASB) develops USPAP.
The Appraiser Qualifications Board (AQB) sets standards for appraiser qualifications, licensing, and certification.
Federally Related Transactions, involving federal agencies or insured agencies, are subject to appraiser licensing and certification requirements. An example is mortgage loans to be sold on the secondary market.
Chapter Summary
Appraisal Practice:
- “Appraisal Practice” refers to appraisal services provided by an individual acting as a real estate❓ appraiser, including Appraisal, Appraisal Review, and Appraisal Consulting.
- Appraisal Practices are limited to real estate appraisers, while broader appraisal services can be provided by various professionals.
- Terms (appraisal, review, consultation) are not mutually exclusive. For example, an appraisal review may require an opinion of value, which is necessary in an appraisal consulting assignment.
- Appraisers must adhere to uspap❓ (Uniform Standards of Professional Appraisal Practice) regardless of job title or assignment nature (e.g., analysis, study, appraisal).
Consulting:
- Consulting focuses on providing services to clients in areas such as marketability and development analysis, land uses, and investment analysis. Consultation may include opinions on value, but the primary goal is not necessarily appraisal or appraisal review.
- Consultants must not be biased towards the client’s interest. Work should be clearly classified as consulting, as advice suitable for one client may not be suitable for others.
- If the consultant is also a real estate appraiser, they must adhere to USPAP ethics rules, record-keeping, competence, and scope of work.
Review:
- Appraisal Review is the process of developing and communicating an opinion about the quality of another real estate appraiser’s work, performed as part of an appraisal or appraisal review.
- The subject of an Appraisal Review can include a complete report, a part of it, a work file, or a combination of the two.
History of Real Estate Appraisal:
- The modern real estate appraisal industry in the United States traces its roots to “Black Tuesday” and the beginning of the Great Depression in 1929. Before that, appraisal was not seen as a separate profession, and standardized standards and guidelines were almost non-existent.
- appraisal standards❓ evolved through organizations such as the National Association of Real Estate Boards (now the National Association of Realtors) and the Appraisal Institute.
- The Financial Institutions Reform, Recovery, and Enforcement Act (firrea❓) in 1989 was important, mandating appraiser licensing and accreditation, establishing nationwide competency standards, and USPAP standards.
- The Appraisal Foundation was established in response to FIRREA to set appraisal standards and qualify appraisers for licensing and accreditation.
- Federally Related Transactions are defined, and the importance of applying the Appraisal Foundation’s standards to them is emphasized.
FinTech in Appraisal:
- Mobile FinTech has impacted the appraisal process, leading to improvements in speed, accuracy, cost, and ease of payment.
- Specific examples include digital form filling, instant data synchronization, the use of digital drawing devices, and instant access to modern comparables.
Conclusions:
- Real estate appraisal practices require adherence to specific professional standards (USPAP) and integrity in providing services.
- The historical development of the appraisal industry has led to greater regulation and the adoption of unified standards.
- Financial technology is playing an increasingly important role in improving the efficiency and accuracy of appraisal processes.
