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: An Acceptable Scope of Work
APPLICATION: Real Property, Personal Property, Intangible Property
THE ISSUE:
The SCOPE OF WORK RULE states that an appraiser’s scope of work is acceptable when it meets or exceeds:
the expectations of parties who are regularly intended users for similar assignments; and
what an appraiser’s peers’ actions would be in performing the same or a similar assignment.
What makes an assignment similar?
Who are an appraiser’s peers?
Must an acceptable scope of work satisfy both benchmarks?
ADVICE FROM THE ASB ON THE ISSUE:
Assignment elements define and characterize the problem to be solved in appraisal, appraisal review, and appraisal consulting assignments. The assignment elements necessary for proper identification of the appraisal problem are addressed in the applicable Standards Rules (i.e., SR 1-2, SR 3-1, SR 4-2, SR 6-2, SR 7-2 and SR 9-2). The applicability of Standards Rules depends on the type of asset being appraised (real property, tangible personal property, or intangible property including business interests) and the type of assignment (appraisal, appraisal review, real property appraisal consulting).
Assignments are similar when the assignment elements used to identify the appraisal problem are comparable. Assignment elements include such things as the intended use, intended users, type and definition of value, effective date, relevant characteristics of the subject property, and assignment conditions.
The information gathered about the assignment elements is used by the appraiser to identify the problem to be solved and determine an acceptable scope of work. The greater the commonality among assignment elements, the more similarity there is between assignments.
USPAP defines Appraiser’s Peers as:
other appraisers who have expertise and competency in a similar type of assignment.
To be an appraiser’s peer for a particular assignment, one must have the competency to address the appraisal problem presented in that assignment. This includes the knowledge and experience to:
properly identify the appraisal, appraisal review, or appraisal consulting problem to be solved;
determine the type and extent of research and analyses to include in the development process; and
perform the required research and analyses properly.
Because assignments can require different types of expertise and competency, it is possible to be considered an appraiser’s peer for some assignments, but not for others. Identifying an appraiser’s peer is always done in the context of a particular assignment.
Within appraisal practice there are three disciplines (real property, tangible personal property, and intangible property including business interests), and within those disciplines there are many areas of specific expertise. An appraiser can have a focused area of expertise and competency or a wide variety of expertise and competency. Merely holding the same type or level of credential does not make one an appraiser’s peer.
Determining if an individual is an appraiser’s peer requires examining the individual’s expertise regarding each of the elements that define the assignment. For example, solely having expertise in appraising the same type of property is not sufficient to make someone an appraiser’s peer.
The scope of work is acceptable when it leads to credible assignment results. The SCOPE OF WORK RULE establishes two benchmarks for measuring the acceptability of the scope of work, both of which need to be met. The scope of work is acceptable when it meets or exceeds both (1) the expectations of parties who are regularly intended users for similar assignments; and (2) what an appraiser’s peers’ actions would be in performing the same or a similar assignment. An acceptable scope of work must satisfy both benchmarks.
An appraiser has been engaged to perform an “exterior
only” appraisal of a single-family home for a potential home equity loan.
Another appraiser has been asked to appraise a single-family home in the
same development for
an FHA loan. Since
the subject properties are similar, would the assignments require the
same scope of work?
Answer
A state certified general appraiser is appraising
a highly specialized industrial facility, and is concerned that the assignment
is so complex that many appraisers who are knowledgeable about industrial
property would not be qualified to judge whether or not the scope of work
was appropriate. Who would be considered the appraiser’s peers in this
assignment?
Answer
A business appraiser is engaged to value a 25%
minority interest in the equity of a small privately held company for
estate tax reporting purposes. The standard of value is fair market value
as defined in the tax regulations. The engagement requires that a second
appraiser, meeting the definition of an appraiser’s peer, be retained
to review the work and to opine on the value of the subject interest.
Another
appraiser is experienced in valuing companies in the same industry, but
typically appraises them for purposes of sale, valuing 100% of the equity
and has never performed appraisals of minority interests for estate tax
reporting purposes. Is this other appraiser an appraiser’s peer for this
assignment?
Answer
An appraiser has agreed to complete an assignment
in the next two days. While
conducting research, the appraiser discovers that the primary data source
for the assignment, a regional computer database, is off-line and will
not be available for three days. What
is the appropriate course of action?
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 October 28, 2005
© Copyright 2006 - The Appraisal Foundation