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Appraisers, Appraisals & You: A Lender’s Guide to USPAP Released by The Appraisal Foundation

January 30, 2013

The Appraisal Foundation, a national non-profit organization dedicated to the advancement of professional valuation and protecting the public trust, announced that it released, Appraisers, Appraisals & You: A Lender’s Guide to USPAP. The pamphlet was developed for lenders who are working in the loan underwriting process. It provides information to lenders about working with appraisers as well as an overview of the entire appraisal process.

Lenders understand the importance of the three Cs (credit, capacity, and collateral) when making lending decisions. It is the valuation of the collateral that creates the need for a lender to use the services of a professional appraiser. A professional appraiser is an integral part of the collateral valuation, whether it is real property or personal property. The primary purpose of this guide is to assist lenders as they work with appraisers to properly value collateral as part of the loan underwriting process.

The Uniform Standards of Professional Appraisal Practice (USPAP), which is also published by The Appraisal Foundation, is recognized as the source for standards for professional appraisal practice in the United States and many other parts of the world. The main purposes of USPAP are to protect the public and to promote public trust in the appraisal profession.

USPAP contains both rules and standards pertaining to: (1) development of an appraisal; and (2) the reporting of that value opinion to the client. USPAP provides details on what an appraiser must consider in order to be independent, impartial, and objective and to arrive at a credible opinion of value.

Lenders need to have a basic understanding of the role of the appraiser in the valuation process. The information that appraisers convey to lenders can often be critical to their decision-making processes. It is important that an appraiser provides a lender with an unbiased and competently developed opinion of value so that a lender can make a sound lending decision.

USPAP requires the appraiser to understand the appraisal assignment to be undertaken. This is done through an agreement for services (for example, an Engagement Letter). Among other things, the agreement for services specifies the scope of work (once it has been agreed upon by the appraiser and the client). Both the client and the appraiser must agree to the terms of the Agreement for Services before the assignment begins. These terms often include the following:

  • The client (and any additional named intended users) have exclusive rights to the use of the appraisal. The client has the exclusive right to have a dialogue with the appraiser regarding the appraisal and its results, unless other parties are also authorized by the client.
  • The scope of work details the specific work that has been agreed to by the client based on the appraiser’s identification of the appraisal assignment.
  • The method of delivery and type of report identify the means by which the appraiser will communicate their opinion of value to the client. The options available to an appraiser are either a written or oral report.
  • The intended use indicates the purpose of the assignment.

The agreement for services must never make the assignment contingent upon “hitting a number.”

The NEBB Institute endorses and strives to observe the highest standards of professional ethics to preserve the public trust inherent in the professional appraisal practice. The Institute provides initial and monthly comprehensive education, ongoing support, and a dynamic international network, and certifies professionals in the art of machinery/equipment appraisal and brokerage.

By: NEBB Institute

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