Appraisals are professional judgments of the market value of real property based on a variety of market factors. Uniform Standards of Professional Appraisal Practice (USPAP) can be considered the quality control standards applicable for real property, personal property, intangible assets, and business valuation appraisal analysis and reports in the United States and its territories.
USPAP, as it is commonly known, was first developed by a joint committee representing major U.S. and Canadian appraisal organizations as a response to the 1980s savings and loan crisis. The Appraisal Foundation (TAF) was formed by these same groups, along with support and input from major industry and educational groups, and TAF took over administration of USPAP.
TAF carries out its work through two divisions – the Appraisal Standards Board (ASB) and the Appraiser Qualifications Board (AQB). The latter group sets forth minimum qualifications for appraisal licensure, and its work has been adopted by all states and territories. The ASB maintains USPAP, and issues updates in January of even numbered years.
One critical requirement of the USPAP rules is the independence with which appraisers conduct valuations. Valuation independence is addressed in Regulation Z – Truth in Lending, and it is founded in federal law at 15 U.S. Code § 1639e. Some states also have laws or rules pertaining to appraisal independence. Influencing the selection, conduct, or results of appraisers is commonly called “appraiser pressure,” and it continues to be reported as a problem in the mortgage industry.
According to the USPAP, an appraiser is “one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective,” and an appraisal is “the act or process of developing an opinion of value; an opinion of value; or pertaining to appraising and related functions such as an appraisal practice or appraisal services. An appraisal must be numerically expressed as a specific amount, as a range of numbers, or as a relationship (e.g., not more than, not less than) to a previous value opinion or numerical benchmark (e.g., assessed value, collateral value).”
Several industry sources provide guidance on appraiser independence, including Fannie Mae, Freddie Mac, and interagency appraiser independence guidance published by the federal financial regulatory agencies. The Freddie Mac “Appraiser Independence Requirements” is particularly user friendly and offers an interactive format for frequently-asked questions about appraiser and appraisal independence requirements.
Appraiser and appraisal management is integral to mortgage loan compliance management. Be sure your appraiser/appraisal process is included in the Compliance Management System (CMS), company audits, and is reviewed and approved periodically. A robust, well-documented appraiser selection process and detailed analysis of appraisal content serves the home buyer/owner, the lender, and the mortgage industry overall.
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