USPAP and 49 CFR Part 24 (Appraisal Provisions of 49CFR)

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USPAP and 49 CFR Part 24(Appraisal Provisions
of 49CFR)
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The State of the Real Estate Industry in 2010
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The State of the Appraisal Industry in 2010
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Definitions of Appraisal Terminology (NOT from
USPAP or 49 CFR)
Purpose of the Appraisal To make a living in
the appraisal business.   
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Definitions of Appraisal Terminology (NOT from
USPAP or 49 CFR)
Highest and Best Use Whatever the person who
is paying for the appraisal wants to do with the
property.
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Definitions of Appraisal Terminology (NOT from
USPAP or 49 CFR)
Capitalization Rate The number which is
arrived at by dividing the number the client
wants by the net operating income.    
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Definitions of Appraisal Terminology (NOT from
USPAP or 49 CFR)
Eminent Domain From the Latin. Eminent,
meaning big, or prominent. Domain, meaning where
one lives. Hence, a big house.
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49 CFR Part 24 - Subpart B

• 1. Appraisal Requirements
• 2. Appraiser Qualifications
• 3. Uniform Act Appraisal Requirements
• vs. USPAP Standards
• 4. Scope of Work

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Key Topics

• Appraisal Requirements

24.2(a)(3) and 24.103(a) and Appendix A
Agency Responsibilities
24.103(a)(1) (2)
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Key Topics
Appraiser/Review Appraiser Responsibilities
24.103(a) and 24.104(a) and (b)
Uniform Act Appraisal Requirements vs. USPAP
Standards References to USPAP standards are
found in 24.103(a) and Appendix A
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Key Topics

• Scope of Work
• 24.103(a) and Appendix A

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49CFR Appraisal - Definition

• 24.2 (a) (3) Appraisal. The term appraisal
  means a written statement independently and
  impartially prepared by a qualified appraiser
  setting forth an opinion of defined value of an
  adequately described property as of a specific
  date, supported by the presentation and analysis
  of relevant market information.

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USPAP Appraisal - Definition

• (noun) the act or process of developing an
  opinion of value an opinion of value.
• (adjective) of or pertaining to appraising and
  related functions such as appraisal practice or
  appraisal services.
• (USPAP Definitions)

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• (noun) the act or process of developing an
  opinion of value an opinion of value.
• (adjective) of or pertaining to appraising and
  related functions such as appraisal practice or
  appraisal services.
• (USPAP Definitions)

24.2 (a) (3) Appraisal. The term appraisal
means a written statement independently and
impartially prepared by a qualified appraiser
setting forth an opinion of defined value of an
adequately described property as of a specific
date, supported by the presentation and analysis
of relevant market information.
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Criteria for Appraisal

• Reference 24.103 and Appendix A

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49 CFR and USPAP

• 49 CFR appraisal requirements
• USPAP standards

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49 CFR and USPAP

• 24.103 Criteria for appraisals.
• (New Rule Appendix A)
• The term "requirements" is used throughout this
  section to avoid confusion with The Appraisal
  Foundation's Uniform Standards of Professional
  Appraisal Practice (USPAP) "standards."

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49 CFR and USPAP

• Section 24.103(a) Appraisal requirements. The
  first sentence instructs readers that
  requirements for appraisals for Federal and
  federally-assisted programs or projects are
  located in 49 CFR part 24. These are the basic
  appraisal requirements for Federal and
  federally-assisted programs or projects.

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• Section 24.103(a) (continued)
• However, Agencies may enhance and expand on
  them, and there may be specific project or
  program legislation that references other
  appraisal requirements.

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• Section 24.103(a) (continued)
• These appraisal requirements are necessarily
  designed to comply with the Uniform Act and other
  Federal eminent domain based appraisal
  requirements.
• They are also considered to be consistent with
  Standards Rules 1, 2, and 3 of the 2004 edition
  of the USPAP.

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Consistency with USPAP

• Consistency with USPAP has been a feature of
  these appraisal requirements since the beginning
  of USPAP. This "consistent" relationship was more
  formally recognized in OMB Bulletin 92-06.

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(No Transcript)
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Comparison of 49CFR USPAP

• Government acquisition of private property in
  support of public programs

• Various private sector needs but dominated by
  mortgage lending

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Comparison of 49CFR USPAP

• Comply with Constitution
• Just Compensation,
• based on
• Fair Market Value appraisal

• Provide order and control of the appraisal
  profession
• Avoid confusing and misleading appraisal users
  and protect appraisers

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Comparison of 49CFR USPAP

• Fair treatment of owner(s) and taxpayer
• Based on the assumption that the acquiring agency
  is a knowledgeable user or appraisal services

• Set nationwide standards
• Appraisal user may have limited or no appraisal
  knowledge

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Comparison of 49CFR USPAP

• Agency knows what is needed and why
• Appraiser may need information and guidance to
  comply with applicable laws, regulations,
  policies and procedures

• Appraiser determines what is needed and sets the
  appraisal parameters

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Consistencies with USPAP

• A written statement
• Independently and impartially prepared
• By a qualified appraiser
• Setting forth an opinion of defined value

• Standard 2 Reporting
• Ethics provision conduct
• Standard 1, Standards Rule 1
• Standards Rule 1 and 2

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Consistencies with USPAP

• of an adequately described property
• as of a specific date
• supported by the presentation

• Standards Rule 1 and 2
• Standards Rule 1 and 2
• Standards Rule 2

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Consistencies with USPAP

• and analysis
• of relevant market information

• Standards Rule 1
• Standards Rule 1 and 2

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Appraisal Requirements

• Identification of Real Property and Personal
  Property
• Reference 24.103(a) and Appendix A

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The Appraisal Assignment

• Reference 24.103(a) and Appendix A
• The agency is to participate in
• Defining the appraisal problem
• Developing the scope of work

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The Appraisal Assignment

• 24.103 (a) (1)
• The Agency acquiring real property has a
  legitimate role in contributing to the appraisal
  process, especially in developing the scope of
  work and defining the appraisal problem. The
  scope of work and development of an appraisal
  under these requirements depends on the
  complexity of the appraisal problem.

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The Appraisal Assignment

• 2) The Agency has the responsibility to assure
  that the appraisals it obtains are relevant to
  its program needs, reflect established and
  commonly accepted Federal and federally-assisted
  program appraisal practice, and as a minimum,
  complies with the definition of appraisal in
  24.2(a)(3) and the five following requirements
  (See appendix A, 24.103 and 24.103(a).

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The Appraisal Assignment

• (i) An adequate description of the physical
  characteristics of the property being appraised
  (and, in the case of a partial acquisition, an
  adequate description of the remaining property),
  including items identified as personal property,
  . . .

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The Appraisal Assignment

• (ii) All relevant and reliable approaches to
  value consistent with established Federal and
  federally-assisted program appraisal practices.
  If the appraiser uses more than one approach,
  there shall be an analysis and reconciliation of
  approaches . . .

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The Appraisal Assignment

• (iii) A description of comparable sales,
  including a description of all relevant physical,
  legal, and economic factors such as parties to
  the transaction, source and method of financing,
  and verification by a party involved in the
  transaction.

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The Appraisal Assignment

• (iv) A statement of the value of the real
  property to be acquired and, for a partial
  acquisition, a statement of the value of the
  damages and benefits, if any, to the remaining
  real property, where appropriate.

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The Appraisal Assignment

• v) The effective date of valuation, date of
  appraisal, signature, and certification of the
  appraiser.

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Qualifications of Appraisers and Review Appraisers

• 24.103(d) - The agency shall establish criteria
  for determining the minimum qualifications and
  competency of appraiser and review appraisers.
• Qualifications shall be consistent with the scope
  of work for the assignment.

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Qualifications of Appraisers and Review Appraisers

• 24.103(d) (continued) The agency shall review
  the experience, education, training licensing,
  designation(s) and other qualification of
  appraisers, and review appraisers, and use only
  those determined by the agency to be qualified.

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Qualifications of Appraisers and Review Appraisers

• Agency considerations/factors
• Competency
• Experience
• Education
• Training
• Certification/licensing
• Professional designations

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Qualifications of Appraisers and Review Appraisers

• Agency responsibility
• Set criteria on minimum qualifications
• Assure qualifications match the scope of work
• Contract (fee) appraisers must be state
  licensed/certified.

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49 CFR Part 24

• Scope of Work

Link to FHWA Appraisal Scope of Work
Template http//www.fhwa.dot.gov/realestate/sow4
.htm
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Scope of Work

• Why was the scope of work text added to the
  regulation?
• The Scope of Work language replaces and supplants
  the former appraisal problem statement.

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Scope of Work

• It is an infinitely variable standard driven by
  the circumstances of the appraisal assignment.
• It is a vehicle of agreement and communication
  between the agency and the appraiser.

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Scope of Work

• The scope of work requirements in the Final Rule
  are written on the basis that the Acquiring
  Agency is a knowledgeable user of appraisal
  services.

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Scope of Work

• It is a written statement that defines the
  general parameters of the appraisal.
• It is developed together by the appraiser and the
  agency.
• It is prepared before the appraisal work starts
• It should be updated as needed.

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Scope of Work

• It matches the UA and 49CFR requirements to the
  appraisal problem, covering
• The definition of appraisal in the UA
• Specific rule requirement in 24.103(a)(2)
  appraisal shall be relevant to program needs
• Specific rule requirement in 24.103(b) Project
  influence

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Scope of Work

• Should address
• Purpose/function of the appraisal
• Definition of the estate to be appraised
• Definition of Fair Market Value, if
  applicable.
• Assumptions and limiting conditions.
• 24.103(a)(1)-(5) requirements

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Scope of Work

• 24.103(a)(2)(i) requirements
• Identify items of personal property
• An adequate description of the physical
  characteristics of the property being appraised
• Title information, zoning, highest and best use
• At least a five year sales history

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Scope of Work

• 24.103(a)(2)(i)-(v) requirements
• All relevant and reliable approaches to value
• If more than one approach is used, an analysis
  and reconciliation of approaches to value shall
  be included.

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Scope of Work

• 24.103(a)(2)(iii) requirements
• A description and analysis of comparable sales
• A discussion of all relevant physical, legal, and
  economic factors
• Verification of sales data with at least one
  party involved in the transaction

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Scope of Work

• 24.103(a)(2)(iv) requirements
• A statement of the value of the real property to
  be acquired
• For a partial acquisition, a statement of the
  value of the damages and benefits, if any to the
  remaining real property, where appropriate

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Scope of Work

• 24.103(a)(2)(v) requirements
• The effective date of the valuation
• A statement of the value of the real property to
  be acquired, and a statement of damages, if any
• Date of the appraisal
• Signature and certification of the appraiser

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Scope of WorkExample

• The appraiser must, at a minimum
• In developing and reporting the appraisal,
  disregard any decrease or increase in the fair
  market value of the property caused by the
  project for which the property is being acquired
  or by the likelihood that the property would be
  acquired for the project.

PROJECT INFLUENCE
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Scope of WorkExample

• Definition of Market Value
• This will be determined by State law, but
  typically includes the following
• Buyer and seller are typically motivated

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Scope of WorkExample

• Definition of Market Value
• This will be determined by State law, but
  typically includes the following
• Buyer and seller are typically motivated
• Both parties are will informed or well advised,
  each acting in what he or she considers his or
  her own best interests

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Scope of WorkExample

• Definition of Market Value
• This will be determined by State law, but
  typically includes the following
• Buyer and seller are typically motivated
• Both parties are will informed or well advised,
  each acting in what he or she considers his or
  her own best interests
• A reasonable time is allowed for exposure in the
  open market

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Scope of WorkExample

• Certification
• Typically the required certification will be in
  the State DOTs FHWA-approved Right-of-Way or
  Appraisal Manual.

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Scope of WorkExample

• Assumptions and Limiting Conditions
• The appraiser shall state all relevant
  assumptions and limiting conditions necessary.
• In addition, the acquiring agency may provide
  other assumptions and conditions that may be
  required for the particular appraisal assignment.

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Realty/Personalty Report

• Identify
• Personal property 24.103(a)(2)(i)
• Real property Appendix A 24.103(a)(i)

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Agency Responsibility

• Acquiring agency responsible to assure that
  appraisals
• Are relevant to its program needs
• Reflect established and commonly accepted Federal
  and federally-assisted program appraisal
  practices

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Agency Responsibility

• Acquiring agency responsible to assure that
  appraisals
• As a minimum, comply with both
• Definition of appraisal in 24.2(a)(3)
• Five requirements in 24.103(a)(2) (i)(v)

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Just Compensation(a reminder)

• Agency official must determine the just
  compensation offer based on

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Just Compensation(a reminder)

• Agency official must determine the just
  compensation offer based on
• Waiver valuation
• Approved appraisal
• Staff review appraiser may be authorized by
  agency to perform this function

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49 CFR Part 24Subpart B

• Questions and Answers

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Discussing 49 CFR and USPAP Appraisal
Requirements and Methodology with Management