Licensed Residential Appraiser cheat sheet

USPAP is issued by the Appraisal Standards Board (ASB) of The Appraisal Foundation; it is not a law itself but is enforced where jurisdictions or agencies adopt it.

The six USPAP Standards: Standard 1 (real property development), Standard 2 (real property reporting), Standard 3 (review), Standard 4 (real property consulting), Standard 5 (mass appraisal development), Standard 6 (mass appraisal reporting).

USPAP defines an appraisal as the act of developing an opinion of value, numerically expressed, and requires the appraiser to identify the client, intended use, intended users, value definition, effective date, and scope of work.

Scope of work is developed and reported; it must be sufficient to produce credible assignment results and is judged against what the appraiser's peers would do in a similar assignment, not against a fixed checklist.

Jurisdictional exception: when USPAP conflicts with applicable law, the law prevails and the appraiser must report the exception; the rest of USPAP still applies.

Competency rule: an appraiser may accept an assignment in an unfamiliar property type only after disclosing the lack of knowledge and taking steps (research, consultation) to gain competency before completing it.

An extraordinary assumption is uncertain and, if false, would change the value conclusion; a hypothetical condition is known to be contrary to fact and is used only for analysis or legal instruction.

Record keeping: the workfile must be retained for at least five years after delivery, or two years after final disposition of a judicial proceeding, whichever is later.

Independence, impartiality, and objectivity rule: fees may not be contingent on a predetermined value, and appraisers may not accept an assignment with a condition to report a specific result.

Four forces: social (population, demographics, lifestyle), economic (income, employment, interest rates, construction costs), governmental (zoning, taxes, building codes, public services), and environmental/physical (location, topography, climate, utilities).

Anticipation: value is created by the expectation of future benefits; a property's price reflects the present worth of expected future income or amenity.

Change and equilibrium: value is dynamic, and markets tend to move toward balance between supply and demand; appraisers must date the value opinion to a specific effective date.

Contribution: a component of a property contributes to value in proportion to what it adds to the whole, not by its cost; a $60,000 pool may add only $25,000 in a given market.

Surplus productivity (highest and best use residual): land value is the residual after labor, capital, and coordination (management) are paid their market share.

Conformity: value is maximized when a property is reasonably similar to surrounding properties; over-improvement and under-improvement both reduce value relative to the neighborhood.

Progression and regression: a lesser property gains value from better neighbors (progression); a superior property loses value from inferior neighbors (regression).

External obsolescence is caused by forces outside the property (neighborhood decline, highway noise, oversupply) and is typically not curable by the owner.

Fee simple absolute is the highest estate, unlimited in duration; leased fee is the owner's interest subject to a lease; leasehold is the tenant's possessory interest.

Easements, encroachments, and deed restrictions are encumbrances that can affect title and value; an appraiser identifies them but does not render legal title opinions.

Zoning ordinances control use, density, setbacks, and height; nonconforming uses are legally permitted continuations of a use that no longer conforms to current zoning.

Police power includes zoning, building codes, and health regulations; it is distinct from eminent domain (condemnation with compensation) and from taxation.

Escheat, police power, eminent domain, and taxation are the four governmental powers over private property.

Real property vs. personal property: fixtures (items permanently attached) transfer with the land; trade fixtures and business equipment generally remain personal property.

Agency: a broker under a listing agreement represents the seller; an appraiser engaged by a lender owes the duty of confidentiality and objectivity to the client, not to the borrower.

Fair housing and appraisal independence rules prohibit basing a value opinion on the race, national origin, religion, sex, familial status, or disability of occupants or neighborhood residents.

Market value: the most probable price in a competitive and open market under all conditions requisite to a fair sale, with buyer and seller acting prudently and knowledgeably, price not affected by undue stimulus.

Market value assumes: parties are typically motivated, both are well informed, price is in cash or equivalent, and reasonable exposure time has been allowed.

Investment value is value to a specific investor based on that investor's required return, tax position, or financing; it can differ from market value.

Assessed value is a value set by a taxing authority for ad valorem taxation and may reflect fractional assessment ratios or assessment caps, not market value.

Insurable value covers the cost to replace or repair the destructible improvements, typically excluding land and often excluding foundations and site work.

Liquidation value assumes a forced or limited-time sale; disposition value assumes a specific time frame and seller motivation that may not meet market value conditions.

Use value (value in use) is the value a property has for a specific use, such as a church or a specialized manufacturing plant, regardless of highest and best use.

Going concern value includes real property, personal property, and business enterprise intangibles; it is used for operating properties such as hotels and assisted living facilities.

Supply and demand: price rises when demand increases relative to supply; real estate supply is inelastic in the short run because construction takes time.

Substitution: a buyer will not pay more for a property than the cost of acquiring an equally desirable substitute; this principle underlies all three approaches to value.

Balance: value is maximized when the factors of production (land, labor, capital, coordination) are in proper proportion; imbalance creates surplus or deficiency.

Opportunity cost: the return forgone from the next best alternative use sets a floor for an investor's required return and informs highest and best use.

Marginal analysis: an improvement should be added only if its marginal cost is less than or equal to its marginal contribution to value.

Increasing and decreasing returns: adding units of an input increases returns until a point, after which additional inputs reduce marginal returns.

Externalities: positive or negative effects from outside the property (a new park, a nearby landfill) are not reflected in the property's own costs but affect its value.

Regression and progression are corollaries of conformity; the principle applies to the subject's relationship with superior or inferior neighbors.

Highest and best use must be legally permissible, physically possible, financially feasible, and maximally productive, in that order.

Market analysis examines supply and demand for a property type in a defined area; marketability analysis focuses on the subject's competitive position within that market.

Key indicators: vacancy rate, absorption rate, months of supply, construction permits, employment and population trends, and cap rates.

Absorption rate = units absorbed per period ÷ units available; months of supply = current inventory ÷ average monthly absorption.

Market segmentation: a property competes within its own submarket defined by location, price range, property type, and buyer/tenant profile.

A balanced market generally has 5-6 months of supply; below that favors sellers, above that favors buyers, though thresholds vary by property type.

Demand analysis identifies the number of prospective users (households, businesses) able to pay; supply analysis counts competitive units available now and in the pipeline.

Cap rate relationship: value = net operating income ÷ capitalization rate; a rising cap rate (higher required return) lowers value for a given NOI.

Exposure time is the estimated length of time the property would have been offered prior to a hypothetical sale at market value on the effective date; it is not a prediction of marketing time.

Valuation process steps: identify the problem, determine scope of work, collect and analyze data, analyze highest and best use, apply the approaches, reconcile, and report.

Highest and best use tests, in order: legally permissible, physically possible, financially feasible, maximally productive. Each must be passed before the next is applied.

For an improved property, the appraiser tests the highest and best use as vacant and as improved; the use that yields the highest value prevails, and demolition may be warranted.

Sales comparison approach: adjust comparables to the subject for differences in market conditions, location, size, quality, and amenities; adjust the comparable, not the subject.

Cost approach: value = replacement or reproduction cost new − physical deterioration − functional obsolescence − external obsolescence + land value.

Income approach: value = net operating income ÷ capitalization rate; NOI = potential gross income − vacancy and collection loss + other income − operating expenses.

Reconciliation weighs the approaches by relevance to the property type and confidence in the data; it is not an average, and the final value is a single point opinion.

Effective date is the date the value opinion applies to; report date is the date the report is signed. They may differ and both must be stated.

Legal description types: metes and bounds (bearings and distances from a point of beginning), lot and block (recorded plat), and rectangular survey (township, range, section).

A township is 6 miles square (36 square miles) containing 36 sections; each section is 1 mile square (640 acres).

Acre = 43,560 square feet; a square mile = 640 acres; a quarter section = 160 acres.

Gross living area (GLA) is finished, heated, above-grade floor area measured by exterior dimensions; below-grade and unfinished space is reported separately.

Functional obsolescence: a defect in design, layout, or utility (poor floor plan, outdated systems) that reduces value; curable if the cost to cure is less than the value added.

Physical deterioration is curable if repair cost is less than or equal to value added; deferred maintenance is a common curable item.

Site analysis includes size, shape, topography, drainage, frontage, access, utilities, easements, and zoning; a nonconforming lot may limit improvements.

Comparable selection: properties should be similar in location, size, age, condition, and amenities, and should be the most recent and proximate closed sales available.