This communication by the Appraisal Standards Board (ASB) does not establish new standards or interpret existing standards. Advisory Opinions are issued to illustrate the applicability of appraisal standards in specific situations and to offer advice from the ASB for the resolution of appraisal issues and problems.
SUBJECT: Inspection of Subject Property
APPLICATION: Real Property, Personal Property
For real property and personal property appraisal assignments, USPAP requires the report to contain a certification indicating whether or not the subject property was personally inspected by the appraiser(s).
What is the purpose of inspecting the subject property?
Does USPAP mandate a minimum level of property inspection?
What are the disclosure obligations relating to inspection?
ADVICE FROM THE ASB ON THE ISSUE:
Examples of Limiting Conditions
The primary reason for inspection of a property is to gather information about the characteristics of the property that are relevant to its value. 1
While there are other ways to gather such information, in many cases the personal observations of the appraiser are the primary source of information regarding the subject property.
An inspection is not required by USPAP, but one is often conducted.
The extent of the inspection process is an aspect of the scope of work, and may vary based on assignment conditions and the intended use of the assignment results. 2 It is the appraiser’s responsibility to determine the appropriate scope of work, including the degree of inspection necessary to produce credible assignment results given the intended use.
Every assignment is subject to conditions that limit, in one way or another, the inspection of the subject property. Regardless of the detail one employs, it is always possible to perform an inspection that is more thorough. The appraiser’s inspection commonly is limited to those things readily observable without the use of special testing or equipment.
An appraiser may use any combination of property inspection, plans and specifications, asset records, photographs, property sketches, recorded media, etc., to gather information about the relevant characteristics of the subject property. For some assignments, it may be necessary to rely on reports prepared by other professionals. In such cases the appraiser must comply with USPAP requirements related to reliance on work done by others.
There are many circumstances that influence the extent of the appraiser’s property inspection. In some assignments, the client may request that the appraiser perform an exterior-only inspection from the street or perform no inspection of the subject property. 3 (i.e. a “desktop appraisal”). There are situations where inspection of the subject property is not possible; for example, if the improvements have been destroyed, removed, or not yet built. In other cases the appraiser is denied access to the property.
The appraiser must ensure that the degree of inspection is adequate to develop a credible appraisal. An appraiser cannot develop a credible appraisal if adequate information about the relevant characteristics of the subject property is not available. When adequate information about relevant characteristics is not available through a personal inspection or from sources the appraiser believes are reliable, an appraiser must withdraw from the assignment unless the appraiser can:
modify the assignment conditions to expand the scope of work to include gathering the necessary information; or
use an extraordinary assumption about such information, if credible assignment results can still be developed.
An inspection conducted by an appraiser is usually not the equivalent of an inspection by an inspection professional (e.g., a structural engineer, a licensed home inspector, a Renaissance art expert). An appraiser’s observations must, at the minimum, be thorough enough to properly develop the appraisal and adequately report the relevant characteristics. Regardless of how the information is gathered, it must be sufficient for the development of relevant analyses, such as highest and best use, the application of the approaches, etc.
Appraisal reports for real and personal property must contain a signed certification indicating whether the appraiser has or has not personally inspected the subject property. All appraisal reports must also contain sufficient information to enable the intended users to understand the extent of the inspection that was performed.
Because of the infinite variability of inspections, it is important that the appraisal report clearly communicates the degree of the inspection in order for the report to be meaningful. 4
The examples cited below are illustrations of the wording of a limiting condition in an appraisal report for a client who requested an appraisal based on an exterior only inspection.
The appraiser has been requested to perform an appraisal based on an exterior only inspection and not to disturb the occupants by entering the building. The physical characteristics used to develop this appraisal are based on an inspection that the appraiser made three years ago when the property was appraised for estate tax purposes. For the purpose of this appraisal, it is assumed that the interior condition of the subject property has not materially changed during the past three years. The subject property was observed from the public street as of the effective date of the appraisal. This exterior inspection revealed that the outside of the building has been repainted and that the roof has been replaced.
or
The appraiser has been requested to perform an appraisal based on an exterior only inspection and not to disturb the occupants by entering the building. The physical characteristics used to develop this appraisal are based on the assessment records of (cite jurisdiction) and on the multiple listing service information of (cite source). The subject property was observed from the public street as of the effective date of the appraisal. On the basis of the observed conditions, the assessment records and multiple listing service information appear to be accurate. For the purposes of this appraisal, it is assumed that the interior condition of the subject property is consistent with the exterior conditions as observed and that the information concerning the interior condition as provided by the assessor’s records and the multiple listing service is accurate.
I have been asked to appraise a single-family
home based on an exterior-only inspection from the street. What
are my development and reporting obligations?
Answer
A dealer has asked me to appraise a Rolex watch.
I will not be provided access to the piece. However,
I have been given the serial number, a copy of an authenticity certificate
and several recent photographs of the watch. Can I develop an appraisal
based solely on this information?
Answer
I have been contacted by a property owner who
is being transferred by his company to another city. The
owner indicated that while he might want a “detailed appraisal” later,
right now he only needs a rough idea of the value of the residence to
begin negotiations related to the relocation. The
owner has asked me to perform a “desktop” appraisal (i.e., an appraisal
with no inspection of the property). I believe that, given this intended
use, credible assignment results can be developed without an inspection.
Is this permitted under USPAP?
Answer
This Advisory Opinion is based on presumed conditions without investigation or verification of actual circumstances. There is no assurance that this Advisory Opinion represents the only possible solution to the problems discussed or that it applies equally to seemingly similar situations.
Approved December 4, 1990
Last Revised October 28, 2005
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1. |
See Advisory Opinion 23, Identifying the Relevant Characteristics of the Subject Property of a Real Property Appraisal Assignment. |
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2. |
See Advisory Opinion 28, Scope of Work Decision, Performance, and Disclosure. |
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3. |
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4. |
See Standards Rules 2-2(a)(vii), 2-2(b)(vii), 2-2(c)(vii), 7-2(a)(vii), 7-2(b)(vii) and 7-2(c)(vii). |
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