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tions. Appraisers and clients must ascertain whether any supplemental standards in addition to these Uniform Standards apply to the assignment being considered.
DEFINITIONS For the purpose of these standards, the following definitions apply:
Appraisal: (noun) The act or process of estimating value; an estimate of value. (adjective) of or pertaining to appraising and related functions, e.g. appraisal practice, appraisal services.
Appraisal practice: The work or services performed by appraisers, defined by three terms in these standards: appraisal, review, and consulting. Comment: These three terms are intention
ally generic, and not mutually exclusive. For example, an estimate of value may be required as part of a review or consulting service. The use of other nomenclature by an appraiser (e.g. analysis, counseling, evaluation, study, submission, valuation) does not exempt an appraiser from adherence to these standards.
Cash Flow Analysis: A study of the anticipated movement of cash into or out of an investment.
Client: Any party for whom an appraiser performs a service.
Consulting: The act or process of providing information, analysis of real estate data, and recommendations or conclusions on diversified problems in real estate, other than estimating value.
Feasibility Analysis: A study of the cost benefit relationship of an economic endeavor.
Investment Analysis: A study that reflects the relationship between acquisition price and anticipated future benefits of a real estate investment.
Market Analysis: A study of real estate market conditions for a specific type of property.
Market Value: Market value is the major focus of most real property appraisal assignments. Both economic and legal definitions of market value have been developed and refined.
A current economic definition agreed upon by federal financial institutions in the United States of America is:
The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what they consider their best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Substitution of another currency for United States dollars in the fourth condition is appropriate in countries or in reports addressed to clients from other countries.
Persons performing appraisal services that may be subject to litigation are cautioned to seek the exact legal definition of market value in the jurisdiction in which the services are being performed.
Mass Appraisal: The process of valuing a universe of properties as of a given date utilizing standard methodology, employing common data, and allowing for statistical testing.
Mass Appraisal Model: A mathematical expression of how supply and demand factors interact in a market.
Personal Property: Identifiable portable and tangible objects which are considered by the general public as being “personal," e.g. furnishings, artwork, antiques, gems and jewelry, collectibles, machinery and equipment; all property that is not classified as real estate.
Real Estate: An identified parcel or tract of land, including improvements, if any.
Real Property: The interests, benefits, and rights inherent in the ownership of real estate. Comment: In some jurisdictions, the terms
real estate and real property have the same legal meaning. The separate definitions recognize the traditional distinction between the two concepts in appraisal theory.
Report: Any communication, written or oral, of an appraisal, review, or analysis; the document that is transmitted to the client upon completion of an assignment. Comment: Most reports are written and
most clients mandate written reports. Oral report guidelines (See Standards Rule 2-4) and restrictions (See Ethics Provision: Record Keeping) are included to cover court testimony and other oral communications of an appraisal, review or consulting service.
Review: The act or process of critically studying a report prepared by another.
Section II-Real Property Appraisals
Standard 1 In developing a real property appraisal, an appraiser must be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal. Comment: Standard 1 is directed toward the substantive aspects of developing a competent appraisal. The requirements set forth in Standards Rule 1-1, the appraisal guidelines set forth in Standards Rules 12, 1-3, 1-4, and the requirements set forth in Standards Rule 1-5 mirror the appraisal process in the order of topics addressed and can be used by appraisers and the users of appraisal services as a convenient checklist. Standards Rule 1-1. In developing a real property appraisal, an appraiser must:
(a) Be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal; Comment: Departure from this binding requirement is not permitted. This rule recognizes that the principle of change continues to affect the manner in which appraisers perform appraisal services. Changes and developments in the real estate field have a substantial impact on the appraisal profession. Important changes in the cost and manner of constructing and marketing commercial, industrial, and residential real estate and changes in the legal framework in which real property rights and interests are created, conveyed, and mortgaged have resulted in corresponding changes in appraisal theory and practice. Social change has also had an effect on appraisal theory and practice. To keep abreast of these changes and developments, the appraisal profession is constantly reviewing and revising appraisal methods and techniques and devising new methods and techniques to meet new circumstances. For this reason it is not sufficient for appraisers to simply maintain the skills and the knowledge they possess when they become appraisers. Each appraiser must continuously improve his or her skills to remain proficient in real property appraisal. (b) Not commit a substantial error of omission or commission that significantly affects an appraisal; Comment: Departure from this binding re
quirement is not permitted. In performing appraisal services an appraiser must be certain that the gathering of factual in. formation is conducted in a manner that is sufficiently diligent to ensure that the data that would have material or signifi
cant effect on the resulting opinions or conclusions are considered. Further, an appraiser must use sufficient care in analyzing such data to avoid errors that would significantly affect his or her opinions and conclusions.
(c) Not render appraisal services in a careless or negligent manner, such as a series of errors that, considered individually, may not significantly affect the results of an appraisal, but which, when considered in the aggregate, would be misleading. Comment: Departure from this binding re
quirement is not permitted. Perfection is impossible to attain and competence does not require perfection. However, an appraiser must not render appraisal services in a careless or negligent manner. This rule requires an appraiser to use due diligence and due care. The fact that the carelessness or negligence of an appraiser has not caused an error that significantly affects his or her opinions or conclusions and thereby seriously harms a client or a third party does not excuse such carelessness or negligence.
Standards Rule 1-2. In developing a real property appraisal, an appraiser must observe the following specific appraisal guidelines:
(a) Adequately identify the real estate, identify the real property interest, consider the purpose and intended use of the appraisal, consider the extent of the data collection process, identify any special limiting conditions, and identify the effective date of the appraisal;
(b) Define the value being considered; if the value to be estimated is market value, the appraiser must clearly indicate whether the estimate is the most probable price:
(i) In terms of cash; or
(ii) In terms of financial arrangements equivalent to cash; or
(iii) In such other terms as may be precisely defined; if an estimate of value is based on submarket financing or financing with unusual conditions or incentives, the terms of such financing must be clearly set forth, their contributions to or negative influence on value must be described and estimated, and the market data supporting the valuation estimate must be described and explained; Comment: For certain types of appraisal as
signments in which a legal definition of market value has been established and takes precedence, the Jurisdictional Ex
ception may apply to this guideline. If the concept of reasonable exposure in the
open market is involved, the appraiser should be specific as to the estimate of marketing time linked to the value estimate.
(c) Consider easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature;
(d) Consider whether an appraised fractional interest, physical segment, or partial holding contributes pro rata to the value of the whole; Comment: This guideline does not require
an appraiser to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding. However, if the value of the whole is not considered, the appraisal must clearly reflect that the value of the property being appraised cannot be used to estimate the value of the whole by mathematical extension.
(e) Identify and consider the effect on value of any personal property, trade fix. tures or intangible items that are not real property but are included in the appraisal. Comment: This guideline requires the ap
praiser to recognize the inclusion of items that are not real property in an overall value estimate. Additional expertise in personal property or business appraisal may be required to allocate the overall value to its various components. Separate valuation of such items is required when they are significant to the overall value.
Standards Rule 1-3. In developing a real property appraisal, an appraiser must observe the following specific appraisal guidelines:
(a) Consider the effect on use and value of the following factors: existing land use regulations, reasonably probable modifications of such land use regulations, economic demand, the physical adaptability of the real estate, neighborhood trends, and the highest and best use of the real estate; Comment: This guideline sets forth a list of
factors that affect use and value. In considering neighborhood trends, an appraiser must avoid stereotyped or biased assumptions relating to race, age, color, religion, gender, or national origin or an assumption that racial, ethnic, or religious homogeneity is necessary to maximize value in a neighborhood. Further, an appraiser must avoid making an unsupported assumption or premise about neighborhood decline, effective age, and remaining life. In considering highest and best use, an appraiser should develop the concept to the extent that is required for a proper solution of the appraisal problem being considered.
(b) Recognize that land is appraised as though vacant and available for development to its highest and best use and that
the appraisal of improvements is based on their actual contribution to the site. Comment: This guideline may be modified
to reflect the fact that, in various legal and practical situations, a site may have a contributory value that differs from the value as if vacant.
Standards Rule 1-4. In developing a real property appraisal, an appraiser must observe the following specific appraisal guidelines, when applicable:
(a) Value the site by an appropriate appraisal method or technique;
(b) Collect, verify, analyze, and reconcile:
(i) Such comparable cost data as are available to estimate the cost new of the improvements (if any);
(ii) Such comparable data as are available to estimate the difference between cost new and the present worth of the improvements (accrued depreciation);
(iii) Such comparable sales data, adequately identified and described, as are available to indicate a value conclusion;
(iv) Such comparable rental data as are available to estimate the market rental of the property being appraised;
(v) Such comparable operating expense data as are available to estimate the operating expenses of the property being appraised;
(vi) Such comparable data as are available to estimate rates of capitalization and/or rates of discount. Comment: This rule covers the three ap
proaches to value. See Standards Rule 22(j) for corresponding reporting requirements.
(c) Base projections of future rent and expenses on reasonably clear and appropriate evidence; Comment: This guideline requires an ap
praiser, in developing income and expense statements and cash flow projections, to weigh historical information and trends, current market factors affecting such trends, and anticipated events such as competition from developments under construction.
(d) When estimating the value of a leased fee estate or a leasehold estate, consider and analyze the effect on value, if any, of the terms and conditions of the lease(s);
(e) Consider and analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and refrain from estimating the value of the whole solely by adding together the individual values of the various estates or component parts; Comment: Although the value of the whole
may be equal to the sum of the separate
Standards Rule 1-5. In developing a real property appraisal, an appraiser must:
(a) Consider and analyze any current Agreement of Sale, option, or listing of the property being appraised, if such information is available to the appraiser in the normal course of business;
(b) Consider and analyze any prior sales of the property being appraised that occurred within the following time periods:
(i) One year for one-to-four family residential property; and
(ii) Three years for all other property types; Comment: The intent of this requirement is
to encourage the research and analysis of prior sales of the subject; the time frames cited are minimums.
(c) Consider and reconcile the quality and quantity of data available and analyzed within the approaches used and the applicability or suitability of the approaches used. Comment: Departure from this binding re
quirement is not permitted. See Standards Rule 2-2(k) Comment for corresponding reporting requirements.
estates or parts, it also may be greater than or less than the sum of such estates or parts. Therefore, the value of the whole must be tested by reference to appropriate market data and supported by an appropriate analysis of such data. A similar procedure must be followed when the value of the whole has been established and the appraiser seeks to estimate the value of a part. The value of any such part must be tested by reference to appropriate market data and supported by an appropriate analysis of such data.
(f) Consider and analyze the effect on value, if any, of anticipated public or private improvements, located on or off the site, to the extent that market actions reflect such anticipated improvements as of the effective appraisal date; Comment: In condemnation valuation assignments in certain jurisdictions, the Jurisdictional Exception may apply to this guideline. (g) Identify and consider the appropriate procedures and market information quired to perform the appraisal, including all physical, functional, and external market factors as they may affect the appraisal; Comment: The appraisal may require a com
plete market analysis. (h) Appraise proposed improvements only after examining and having available for future examination:
(1) Plans, specifications, or other documentation sufficient to identify the scope and character of the proposed improvements;
(ii) Evidence indicating the probable time of completion of the proposed improvements; and
(iii) Reasonably clear and appropriate evidence supporting development costs, anticipated earnings, occupancy projections, and the anticipated competition at the time of completion. Comment: The evidence required to be examined and maintained under this guideline may include such items as contractor's estimates relating to cost and the time required to complete construction, market, and feasibility studies; operating cost data; and the history of recently completed similar developments. The appraisal may require a complete feasibility analysis. (i) All pertinent information in items (a) through in) above shall be used in the de. velopment of an appraisal. Comment: See standards Rule 2-2(k) for corresponding reporting requirements.
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. Comment: Standard 2 governs the form and
content of the report that communicates the results of an appraisal to a client and third parties.
Standards Rule 2-1. Each written or oral real property appraisal report must:
(a) Clearly and accurately set forth the appraisal in a manner that will not be misleading; Comment: Departure from this binding re
quirement is not permitted. Since most reports are used and relied upon by third parties, communications considered adequate by the appraiser's client may not be sufficient. An appraiser must take extreme care to make certain that his or her reports will not be misleading in the marketplace or to the public.
(b) Contain sufficient information to enable the person(s) who receive or rely on the report to understand it properly; Comment: Departure from this binding re
quirement is not permitted. A failure to observe this rule could cause a client or other users of the report to make a serious error even though each analysis, opinion, and conclusion in the report is clearly and accurately stated. To avoid this problem and the dangers it presents to clients and other users of reports, this rule requires an appraiser to include in each report sufficient information to enable the reader to understand it properly. All reports, both written and oral, must clearly and accurately present the analyses, opinions, and conclusions of the appraiser in sufficient depth and detail to address adequately the significance of the specific appraisal problem.
(c) Clearly and accurately disclose any extraordinary assumption or limiting condition that directly affects the appraisal and indicate its impact on value. Comment: Departure from this binding re
quirement is not permitted. Examples of extraordinary assumptions or conditions might include items such as the execution of a pending lease agreement, atypical financing, or completion of onsite or offsite improvements. In a written report the disclosure would be required in conjunction with statements of each opinion or conclusion that is affected.
Standards Rule 2-2. Each written real property appraisal report must:
(a) Identify and describe the real estate being appraised;
(b) Identify the real property interest being appraised; Comment on (a) and (b): These two require
ments are essential elements in any
report. Identifying the real estate can be
accomplished by any combination of a
legal description, address, map reference,
copy of a survey or map, property sketch
and/or photographs. A property sketch
and photographs also provide some de-
scription of the real estate in addition to
written comments about the physical at-
tributes of the real estate. Identifying the
real property rights being appraised re-
quires a direct statement substantiated as
needed by copies or summaries of legal de- scriptions or other documents setting forth any encumbrances.
(c) State the purpose of the appraisal;
(d) Define the value to be estimated;
(e) Set forth the effective date of the appraisal and the date of the report; Comment on (c), (d) and (e): These three re
quirements call for clear disclosure to the reader of a report the "why, what and when” surrounding the appraisal. The purpose of the appraisal is used generically to include both the task involved and rationale for the appraisal. Defining the value to be estimated requires both an appropriately referenced definition and any comments needed to clearly indicate to the reader how the definition is being applied (See Standards Rule 1-2(b)]. The effective date of the appraisal establishes the context for the value estimate, while
the date of the report indicates whether the perspective of the appraiser on the market conditions as of the effective date of the appraisal was prospective, current, or retrospective. Reiteration of the date of the report and the effective date of the appraisal at various stages of the report in tandem is important for the clear understanding of the reader whenever market conditions on the date of the report are different from market conditions on the effective date of the appraisal.
(f) Describe the extent of the process of collecting, confirming, and reporting data; Comment: This requirement is designed to
protect third parties whose reliance on an appraisal report may be affected by the extent of the appraiser's investigation; i.e., the process of collecting, confirming and reporting data.
(g) Set forth all assumptions and limiting conditions that affect the analyses, opinions, and conclusions; Comment: It is suggested that assumptions
and limiting conditions be grouped together in an identified section of the report.
(h) Set forth the information considered, the appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions; Comment: This requirement calls for the
appraiser to summarize the data considered and the procedures that were fol. lowed. Each item must be addressed in the depth and detail required by its significance to the appraisal. The appraiser must be certain that sufficient information is provided so that the client, the users of the report, and the public will understand it and will not be misled or confused. The substantive content of the report, not its size, determines its compliance with this specific reporting guideline.
(i) Set forth the appraiser's opinion of the highest and best use of the real estate, when such an opinion is necessary and appropriate; Comment: This requirement calls for writ
ten report to contain a statement of the appraiser's opinion as to the highest and best use of the real estate, unless an opinion as to highest and best use is unnecessary, e.g., insurance valuation or value in use appraisals. If an opinion as to highest and best use is required, the reasoning in support of the opinion must also be included.
(j) Explain and support the exclusion of any of the usual valuation approaches;
(k) Set forth any additional information that may be appropriate to show compliance with, or clearly identify and explain