Standards and Ethics: Applying USPAP Rules and Standards 1 and 2
Standards and Ethics tests whether you can apply USPAP to a live assignment rather than recite it. The heaviest weight falls on the ETHICS RULE, the SCOPE OF WORK RULE, the COMPETENCY RULE, and Standards 1 and 2 (development and reporting of a real property appraisal). USPAP is revised on a two-year cycle, so cite the edition in force on the effective date.
Structure
USPAP contains definitions, five rules (ETHICS, RECORD KEEPING, COMPETENCY, SCOPE OF WORK, JURISDICTIONAL EXCEPTION), Standards 1 through 10, and Advisory Opinions, which illustrate application but are not themselves enforceable standards.
ETHICS RULE
Four parts. Conduct requires impartiality, objectivity, independence, and no advocacy; you may not accept an assignment with a predetermined value or direction, and fees may not be contingent on a value conclusion, a loan approval, or a stipulated result. Management repeats the fee prohibition and bars accepting assignments where results are dictated. Confidentiality makes the client relationship confidential, with disclosure limited to the client, persons the client authorizes, state enforcement agencies, and as required by law or peer review. Record Keeping requires retaining the workfile for five years after delivery of the report, or two years after final disposition of a judicial proceeding in which testimony was given, whichever is later.
SCOPE OF WORK and COMPETENCY
Scope of work has three steps: identify the problem (client and intended users, intended use, type of value, effective date, property characteristics, assignment conditions), determine and perform scope sufficient to produce credible results, and disclose it. The COMPETENCY RULE requires that you know the property type, market, and issue; if not, disclose the deficiency, take the steps to become competent, or decline or withdraw.
Worked example
A lender calls eight months after delivery asking you to "recertify" the value. If nothing material has changed and the request is to confirm the original assignment results as of the original effective date, you may provide a recertification of value, which is not a new appraisal. If the lender wants an opinion as of today, that is a new assignment: new problem identification, new scope of work, current market conditions, and a new effective date. The wording of the request, not its label, controls.
Traps
- Looking for a Departure Rule; it was eliminated in 2006 and replaced by the SCOPE OF WORK RULE.
- Invoking the JURISDICTIONAL EXCEPTION for convenience; it applies only to the extent a law actually conflicts with USPAP.
- Assuming a Restricted Appraisal Report permits less development; Standard 1 is unchanged.
- Accepting an assignment conditioned on a target value or a minimum loan amount.