Cost Approach - Including An Unreliable Approach

The ASB USPAP Q&A is issued to state and territory appraisal regulators to inform all states and territories of the ASB responses to questions raised by regulators and individuals; to illustrate the applicability of the Uniform Standards of Professional Appraisal Practice (USPAP) in specific situations; and, to offer advice from the ASB for the resolution of appraisal issues 

This issue deals with : Including an unreliable approach to value; review appraiser bias; and appraiser's fees . . .READ MORE:

Including an “Unreliable” Approach to Value

Question: I have a client requesting that the cost approach be included in every appraisal assignment, including those where I feel the cost approach may not yield meaningful results. I am concerned that by complying with the client’s request I may be providing a misleading appraisal report. How can I comply with USPAP and satisfy the client at the same time?

Response: Performing a cost approach that may not yield a meaningful indication of value does not result in a misleading appraisal report if the appraiser properly addresses the applicability and suitability of the approach in the report. Many appraisers address this in the reconciliation by including statements such as, “The cost approach was included solely at the request of the client; it has been given no weight in arriving at the final opinion of value because … .”

Review Appraiser Bias

Question: An appraiser receives a request to review an appraisal; however, the reviewer has previously appraised the same property. Does the reviewer’s prior experience with the property create a bias that then precludes an objective review?

Response: No. Prior appraisal experience with the subject of the work under review might be considered an asset and may have contributed to the reviewer’s selection for the assignment. Before accepting any assignment, an appraiser must be certain that he or she will be able to attest in the certification that the assignment results are impartial and unbiased. If the performance of the prior appraisal assignment creates a predisposition regarding appropriate and reasonable assignment results, the appraiser should decline the appraisal review assignment. For the original pdf document - click here.

Appraiser's Fees

Question: I’m aware that an appraiser’s fee cannot be based on the amount of the appraiser’s value conclusion. However, does USPAP allow an appraiser’s fee to be based on the amount of the owner’s estimate or a pending sale price of the subject property?

Response: USPAP does not prohibit an appraiser’s fee from being based on an owner’s estimate, a pending sale price of the subject property, loan amount, or any other factor outside the appraiser’s control. This is in contrast to a fee based on the amount of the appraiser’s opinion of value, which is within the appraiser’s control. A fee arrangement based on the appraiser’s opinion of value violates the ETHICS RULE.