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Editor’s Note: What do the federal income tax and the sinking of the Titanic have to do with USPAP and retrospective appraisals? Read on!
USPAP, Retrospective Appraisals and the Titanic
by Tim Andersen, MAI, MSc
Not too long ago an appraiser contacted me with a question regarding a retrospective appraisal and a contemporary report. The question is which edition of the Uniform Standards of Professional Practice (UAPAP) applies: the one in effect as of the appraisal’s effective date or the one in effect as of the effective date of the contemporary report? To answer this question, let’s look at a really silly example, one where there is no USPAP to apply.
Assume you were preparing a retrospective appraisal with an effective date of April 15, 1912, the date the income tax went into effect and also the date the RMS Titanic sank. There was no USPAP in 1912: indeed, there was no organized real estate appraisal industry in 1912. However, does that mean that USPAP does not apply to the new appraisal report with a 2014 date? Of course it does not. While there was no USPAP in 1912, thus no USPAP standards, standards of development and reporting apply since USPAP governs appraisals developed and written today, the effective date of the appraisal notwithstanding.
Which development and reporting standards apply? Clearly those in effect as of the date of the appraisal report, which would be contemporary. Therefore, even with an April 15, 1912 effective date of the appraisal, the current USPAP document and its standards, rules, and so forth apply to the development and reporting of the appraiser’s findings and conclusions. This is because the report has a contemporary date, while the appraisal’s date is retrospective (i.e., more than 100 years in the past).
Context is Key
The context of the appraisal has nothing to do with the date the appraiser did the analyses and formed the conclusions in the report. Rather, the context of the appraisal has everything to do with market conditions effective as of the effective date of the appraisal, in this case 4/15/1912. While there were geo-political and geo-economic conditions present on 4/15/1912 that still reverberate today, the current market conditions are not relevant to the older appraisal.
To analyze a 1915 market in light of 2014 market conditions makes no sense. Thus, the appraiser would have to form value conclusions and opinions in the context of 1912 market conditions, not those of 2014. But the USPAP standards governing the development and reporting of that appraisal would be those current as of the date of the letter of transmittal (or Certification if there was no letter of transmittal).
The following statement from the Appraisal Foundation should be clear “…the effective date of the appraisal has no bearing on which edition of USPAP applies…” Again, assuming a retrospective date of 4/15/1912, there were no USPAP standards to which the appraiser could appraise. Therefore, to advocate that an appraisal done today, but with an effective date of over 100 years ago, has no standards of development and reporting to apply to it, ignores the fact that USPAP applies today, when the appraiser prepares the appraisal and report.
Therefore, the date of the appraisal report’s preparation, usually expressed as the date of the letter of transmittal or certification is the governing factor as to which edition of USPAP applies, not the effective date of the appraisal itself, But you knew that, didn’t you?
> Expert’s Guide to Defensible Workfile
Do you have the proper support for every adjustment, every claim, and each conclusion in your appraisal? In today’s climate, you’d better. As many appraisers are finding out the hard way, even if the value conclusion is correct, if your appraisal report comes under the microscope, every “i” must be dotted and “t” crossed in order to escape trouble. The 2014 Expert’s Guide shows you how to “bulletproof” your workfile and protect your license and your livelihood. Learn quick tips from an expert on how to produce defensible reports that keep you safe and make you look good. Click now.
About the Author
Timothy C. Andersen, MAI has been in real estate and consulting since 1975. He is a commercial real estate appraiser, AQB-certified USPAP instructor, USPAP consultant, Special Magistrate for the Palm Beach County Value Adjustment Board, author, instructor and expert witness. As a USPAP consultant, he works nationwide as an expert with appraisers whom the state has charged with license law violations. He is an instructor with the Appraisal Institute and has worked all over the U.S. with various proprietary schools, as well as a community college. The University of St. Thomas in Minneapolis, MN recently awarded him a Master of Science degree in Real Estate Appraisal. Tim’s e-mail address is firstname.lastname@example.org.
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