USPAP and 49 CFR Part 24 ( Appraisal Provisions of 49CFR)

USPAP and 49 CFR Part 24USPAP and 49 CFR Part 24((Appraisal Provisions of 49CFR)Appraisal Provisions of 49CFR)

The State of the Real Estate The State of the Real Estate Industry in 2010 Industry in 2010

The State of the The State of the Appraisal Industry in 2010 Appraisal Industry in 2010

Definitions of Appraisal Definitions of Appraisal Terminology Terminology

((NOTNOT from USPAP or 49 CFR) from USPAP or 49 CFR)

Purpose of the Appraisal –

To make a living in the appraisal business.



Highest and Best Use –

Whatever the person who is paying for the appraisal wants to do with the property.



Capitalization Rate –

The number which is arrived at by dividing the number the client wants by the net operating income.



Eminent Domain –

From the Latin. Eminent, meaning big, or prominent. Domain, meaning where one lives.

Hence, a big house.

49 CFR Part 24 - Subpart B49 CFR Part 24 - Subpart B

1. Appraisal Requirements

2. Appraiser Qualifications

3. Uniform Act Appraisal “Requirements”

vs. USPAP “Standards”

4. Scope of Work

Key TopicsKey TopicsAppraisal Requirements

§ 24.2(a)(3) and § 24.103(a) and Appendix A

Agency Responsibilities

§ 24.103(a)(1) & (2)

Key TopicsKey TopicsAppraiser/Review Appraiser Responsibilities § 24.103(a) and § 24.104(a) and (b)

Uniform Act Appraisal “Requirements” vs. USPAP “Standards” References to USPAP standards are found in § 24.103(a) and Appendix A

Key TopicsKey Topics

Scope of Work

§ 24.103(a) and Appendix A

49CFR Appraisal - Definition49CFR Appraisal - Definition

24.2 (a) (3) – “Appraisal. The term appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion of defined value of an adequately described property as of a specific date, supported by the presentation and analysis of relevant market information.”

USPAP Appraisal - Definition “(noun) the act or process of developing an

opinion of value; an opinion of value.

(adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.”

(USPAP; “Definitions”)

“(noun) the act or process of developing an opinion of value; an opinion of value.

(adjective) of or pertaining to appraising and related functions such as appraisal practice or appraisal services.”

(USPAP; “Definitions”)

24.2 (a) (3) – “Appraisal. The term appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion of defined value of an adequately described property as of a specific date, supported by the presentation and analysis of relevant market information.”

Criteria for AppraisalCriteria for Appraisal

Reference: 24.103 and Appendix A

49 CFR and USPAP49 CFR and USPAP

49 CFR appraisal “requirements”

USPAP “standards”

49 CFR and USPAP49 CFR and USPAP

24.103 Criteria for appraisals. (New Rule Appendix A)

The term "requirements" is used throughout this section to avoid confusion with The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice (USPAP) "standards."

“ Section 24.103(a) Appraisal requirements. The first sentence instructs readers that requirements for appraisals for Federal and federally-assisted programs or projects are located in 49 CFR part 24. These are the basic appraisal requirements for Federal and federally-assisted programs or projects.”

49 CFR and USPAP

Section 24.103(a) (continued)

“ However, Agencies may enhance and expand on them, and there may be specific project or program legislation that references other appraisal requirements.”

Section 24.103(a) (continued)

“ These appraisal requirements are necessarily designed to comply with the Uniform Act and other Federal eminent domain based appraisal requirements.

They are also considered to be consistent with Standards Rules 1, 2, and 3 of the 2004 edition of the USPAP.”

Consistency with USPAPConsistency with USPAP

Consistency with USPAP has been a feature of these appraisal requirements since the beginning of USPAP. This "consistent" relationship was more formally recognized in OMB Bulletin 92-06.

Comparison of 49CFR & USPAPComparison of 49CFR & USPAP

Government acquisition of private property in support of public programs

Various private sector needs but dominated by mortgage lending


Comply with Constitution:

“Just Compensation”, based on “Fair Market Value”

appraisal

Provide order and control of the appraisal profession

Avoid confusing and misleading appraisal users and protect appraisers


Fair treatment of owner(s) and taxpayer

Based on the assumption that the acquiring agency is a knowledgeable user or appraisal services

Set nationwide standards

Appraisal user may have limited or no appraisal knowledge


Agency knows what is needed and why

Appraiser may need information and guidance to comply with applicable laws, regulations, policies and procedures

Appraiser determines what is needed and sets the appraisal parameters

Consistencies with USPAPConsistencies with USPAP

A written statement

Independently and impartially prepared

By a qualified appraiser

Setting forth an opinion of defined value

Standard 2 – Reporting

Ethics provision – conduct

Standard 1, Standards Rule 1

Standards Rule 1 and 2


of an adequately described property

as of a specific date

supported by the presentation



Standards Rule 2


and analysis

of relevant market information

Standards Rule 1


Appraisal RequirementsAppraisal Requirements

Identification of “Real Property” and “Personal Property”

Reference 24.103(a) and Appendix A

The Appraisal AssignmentThe Appraisal Assignment

Reference 24.103(a) and Appendix AThe agency is to participate in :

– Defining the appraisal problem– Developing the scope of work


§ 24.103 (a) (1)“The Agency acquiring real property has a

legitimate role in contributing to the appraisal process, especially in developing the scope of work and defining the appraisal problem. The scope of work and development of an appraisal under these requirements depends on the complexity of the appraisal problem.”


“2) The Agency has the responsibility to assure that the appraisals it obtains are relevant to its program needs, reflect established and commonly accepted Federal and federally-assisted program appraisal practice, and as a minimum, complies with the definition of appraisal in § 24.2(a)(3) and the five following requirements: (See appendix A, §§ 24.103 and 24.103(a).


(i) “An adequate description of the physical characteristics of the property being appraised (and, in the case of a partial acquisition, an adequate description of the remaining property), including items identified as personal property, . . .”


(ii) All relevant and reliable approaches to value consistent with established Federal and federally-assisted program appraisal practices. If the appraiser uses more than one approach, there shall be an analysis and reconciliation of approaches . . .”


(iii) A description of comparable sales, including a description of all relevant physical, legal, and economic factors such as parties to the transaction, source and method of financing, and verification by a party involved in the transaction.


(iv) A statement of the value of the real property to be acquired and, for a partial acquisition, a statement of the value of the damages and benefits, if any, to the remaining real property, where appropriate.


v) The effective date of valuation, date of appraisal, signature, and certification of the appraiser.

Qualifications of Appraisers Qualifications of Appraisers and Review Appraisersand Review Appraisers

24.103(d) - The agency shall establish criteria for determining the minimum qualifications and competency of appraiser and review appraisers.

Qualifications shall be consistent with the scope of work for the assignment.


24.103(d) (continued) “The agency shall review the experience, education, training licensing, designation(s) and other qualification of appraisers, and review appraisers, and use only those determined by the agency to be qualified.”


Agency considerations/factors:– Competency– Experience– Education– Training– Certification/licensing– Professional designations


Agency responsibility:– Set criteria on minimum qualifications– Assure qualifications match the scope of work– Contract (fee) appraisers must be state

licensed/certified.

49 CFR Part 2449 CFR Part 24

“Scope of Work”

Link to FHWA Appraisal “Scope of Work” Template:

http://www.fhwa.dot.gov/realestate/sow4.htm

Scope of WorkScope of Work

Why was the “scope of work” text added to the regulation?

The Scope of Work language replaces and supplants the former appraisal problem statement.


It is an infinitely variable standard driven by the circumstances of the appraisal assignment.

It is a vehicle of agreement and communication between the agency and the appraiser.


The scope of work requirements in the Final Rule are written on the basis that the Acquiring Agency is a “knowledgeable user” of appraisal services.


It is a written statement that defines the general parameters of the appraisal.

It is developed together by the appraiser and the agency.

It is prepared before the appraisal work starts

It should be updated as needed.


It matches the UA and 49CFR requirements to the appraisal problem, covering:– The definition of “appraisal” in the UA– Specific rule requirement in 24.103(a)(2) –

appraisal shall be relevant to program needs– Specific rule requirement in 24.103(b) – Project

influence


Should address:– Purpose/function of the appraisal– Definition of the estate to be appraised– Definition of “Fair Market Value”, if applicable.– Assumptions and limiting conditions.– 24.103(a)(1)-(5) requirements


24.103(a)(2)(i) requirements– Identify items of personal property– An adequate description of the physical

characteristics of the property being appraised– Title information, zoning, highest and best use– At least a five year sales history


24.103(a)(2)(i)-(v) requirements– All relevant and reliable approaches to value– If more than one approach is used, an analysis

and reconciliation of approaches to value shall be included.


24.103(a)(2)(iii) requirements– A description and analysis of comparable sales

A discussion of all relevant physical, legal, and economic factors

– Verification of sales data with at least one party involved in the transaction


24.103(a)(2)(iv) requirements– A statement of the value of the real property to

be acquired– For a partial acquisition, a statement of the

value of the damages and benefits, if any to the remaining real property, where appropriate


24.103(a)(2)(v) requirements– The effective date of the valuation– A statement of the value of the real property to

be acquired, and a statement of damages, if any– Date of the appraisal– Signature and certification of the appraiser

Scope of WorkScope of WorkExampleExample

The appraiser must, at a minimum:– In developing and reporting the appraisal,

disregard any decrease or increase in the fair market value of the property caused by the project for which the property is being acquired or by the likelihood that the property would be acquired for the project.

PROJECT INFLUENCE


Definition of Market Value: This will be determined by State law, but typically

includes the following: – Buyer and seller are typically motivated



includes the following: – Buyer and seller are typically motivated– Both parties are will informed or well advised, each

acting in what he or she considers his or her own best interests



includes the following: – Buyer and seller are typically motivated– Both parties are will informed or well advised, each

acting in what he or she considers his or her own best interests

– A reasonable time is allowed for exposure in the open market


Certification: Typically the required certification will be in the

State DOT’s FHWA-approved Right-of-Way or Appraisal Manual.


Assumptions and Limiting Conditions:

The appraiser shall state all relevant assumptions and limiting conditions necessary.

In addition, the acquiring agency may provide other assumptions and conditions that may be required for the particular appraisal assignment.

Realty/Personalty ReportRealty/Personalty Report

Identify:– Personal property – 24.103(a)(2)(i)– Real property – Appendix A 24.103(a)(i)

Agency ResponsibilityAgency Responsibility

Acquiring agency responsible to assure that appraisals:– Are relevant to its program needs– Reflect established and commonly accepted

Federal and federally-assisted program appraisal practices

Agency ResponsibilityAgency Responsibility

Acquiring agency responsible to assure that appraisals:– As a minimum, comply with both:

Definition of appraisal in 24.2(a)(3) Five requirements in 24.103(a)(2) (i)–(v)

Just CompensationJust Compensation(a reminder)(a reminder)

Agency official must determine the just compensation offer based on:

Just CompensationJust Compensation(a reminder)(a reminder)

Agency official must determine the just compensation offer based on:– Waiver valuation– Approved appraisal

Staff review appraiser may be authorized by agency to perform this function

49 CFR Part 2449 CFR Part 24Subpart BSubpart B

Questions and Answers

Discussing 49 CFR and USPAP Discussing 49 CFR and USPAP Appraisal Requirements and Appraisal Requirements and

Methodology withMethodology with Management Management

USPAP and 49 CFR Part 24 ( Appraisal Provisions of 49CFR)

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