Comment: STANDARD 7 is directed toward the substantive aspects of developing a credible appraisal of personal property. The requirements set forth in STANDARD 7 follow the appraisal development process in the order of topics addressed and can be used by appraisers and the users of appraisal services as a convenient checklist.

In developing a personal property appraisal, an appraiser must:
 

(a)

be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal;
 

Comment: This Standards Rule recognizes that the principle of change continues to affect the manner in which appraisers perform appraisal services. Changes and developments in personal property practice have a substantial impact on the appraisal profession. Important changes in the cost and manner of acquiring, producing, and marketing personal property and changes in the legal framework in which property rights and interests are created, marketed, conveyed, and financed have resulted in corresponding changes in appraisal theory and practice. Social change has also had an effect on appraisal theory and practice. To keep abreast of these changes and developments, the appraisal profession reviews and revises appraisal methods and techniques and develops methods and techniques to meet new circumstances. For this reason, it is not sufficient for appraisers to simply maintain the skills and the knowledge they possess when they become appraisers. Each appraiser must continuously improve his or her skills to remain proficient in personal property appraisal.

(b)

not commit a substantial error of omission or commission that significantly affects an appraisal; and

Comment: An appraiser must use sufficient care to avoid errors that would significantly affect his or her opinions and conclusions. Diligence is required to identify and analyze the factors, conditions, data, and other information that would have a significant effect on the credibility of the assignment results.

(c)

not render appraisal services in a careless or negligent manner, such as by making a series of errors that, although individually might not significantly affect the results of an appraisal, in the aggregate affect the credibility of those results.

Comment: Perfection is impossible to attain, and competence does not require perfection. However, an appraiser must not render appraisal services in a careless or negligent manner. This Standards Rule requires an appraiser to use due diligence and due care.

In developing a personal property appraisal, an appraiser must:
 

(a)

identify the client and other intended users;  67
 

(b)

identify the intended use of the appraisers opinions and conclusions; 68
 

Comment: An appraiser must not allow the intended use of an assignment or a clients objectives to cause the assignment results to be biased.

(c)

identify the type and definition of value, and, if the value opinion to be developed is market value, ascertain whether the value is to be the most probable price:

(i)

in terms of cash; or
 

(ii)

in terms of financial arrangements equivalent to cash; or
 

(iii)

in other precisely defined terms; and
 

(iv)

if the opinion of value is to be based on non-market financing or financing with unusual conditions or incentives, the terms of such financing must be clearly identified and the appraisers opinion of their contributions to or negative influence on value must be developed by analysis of relevant market data;

Comment: When developing an opinion of value in a specified market or at a specified market level based on the potential sale of the property, the appraiser must also develop an opinion of reasonable exposure time linked to the value opinion.

(d)

identify the effective date of the appraisers opinions and conclusions; 69
 

(e)

identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, including:

(i)

sufficient characteristics to establish the identity of the item including the method of identification;
 

(ii)

sufficient characteristics to establish the relative quality of the item (and its component parts, where applicable) within its type;
 

(iii)

all other physical and economic attributes with a material effect on value;
 

Comment: Some examples of physical and economic characteristics include condition, style, size, quality, manufacturer, author, materials, origin, age, provenance, alterations, restorations, and obsolescence. The type of property, the type and definition of value, and intended use of the appraisal determine which characteristics have a material effect on value.

(iv)

the ownership interest to be valued;
 

(v)

any known restrictions, encumbrances, leases, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; and

(vi)

any real property or intangible items that are not personal property but which are included in the appraisal;

Comment on (i)(vi): The information used by an appraiser to identify the property characteristics must be from sources the appraiser reasonably believes are reliable.

An appraiser may use any combination of a property inspection and documents or other resources to identify the relevant characteristics of the subject property.

When appraising proposed modifications, an appraiser must examine and have available for future examination, plans, specifications, or other documentation sufficient to identify the extent and character of the proposed modifications.

An appraiser may not be required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding.

(f)

identify any extraordinary assumptions necessary in the assignment;
 

Comment: An extraordinary assumption may be used in an assignment only if:

•  it is required to properly develop credible opinions and conclusions;

• the appraiser has a reasonable basis for the extraordinary assumption;

• use of the extraordinary assumption results in a credible analysis; and

• the appraiser complies with the disclosure requirements set forth in USPAP for extraordinary assumptions.

(g)

identify any hypothetical conditions  necessary in the assignment; and

Comment: : A hypothetical condition may be used in an assignment only if:

• use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison;

• use of the hypothetical condition results in a credible analysis; and

• the appraiser complies with the disclosure requirements set forth in USPAP for hypothetical conditions.

(h)

determine the scope of work necessary to produce credible assignment results in accordance with the SCOPE OF WORK RULE. 70

In developing a personal property appraisal, when necessary for credible assignment results, an appraiser must:  

(a)

identify the effect of highest and best use by measuring and analyzing the current use and alternative uses to encompass what is profitable, legal, and physically possible, as relevant to the type and definition of value and intended use of the appraisal;

Comment: In the context of personal property, highest and best use may equate to the choice of the appropriate market or market level for the type of item, the type and definition of value, and intended use of the appraisal.

(b)

define and analyze the appropriate market consistent with the type and definition of value; and

Comment: The appraiser must recognize that there are distinct levels of trade (measurable marketplaces) and each may generate its own data. For example, a property may have a different value at a wholesale level of trade, a retail level of trade, or under various auction conditions. Therefore, the appraiser must analyze the subject property within the correct market context.

(c)

analyze the relevant economic conditions at the time of the valuation, including market acceptability of the property and supply, demand, scarcity, or rarity.

In developing a personal property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results.
 

(a)

When a sales comparison approach is necessary for credible assignment results, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion.

(b)

When a cost approach is necessary for credible assignment results, an appraiser must:

(i)

analyze such comparable cost data as are available to estimate the cost new of the property; and

(ii)

analyze such comparable data as are available to estimate the difference between cost new and the present worth of the property (accrued depreciation).

(c)

When an income approach is necessary for credible assignment results, an appraiser must:

(i)

analyze such comparable data as are available to estimate the market income of the property;

(ii)

analyze such comparable operating expense data as are available to estimate the operating expenses of the property;

(iii)

analyze such comparable data as are available to estimate rates of capitalization and/or rates of discount; and

(iv)

base projections of future income and expenses on reasonably clear and appropriate evidence.

Comment: An appraiser must, in developing income and expense statements and cash flow projections, weigh historical information and trends, current supply and demand factors affecting such trends, and competition.

(d)

When developing an opinion of the value of a lease or leased property, an appraiser must analyze the effect on value, if any, of the terms and conditions of the lease(s).

(e)

When analyzing the assemblage of the various component parts of a property, an appraiser must analyze the effect on value, if any, of the assemblage.  An appraiser must refrain from valuing the whole solely by adding together the individual values of the various component parts.

Comment: Although the value of the whole may be equal to the sum of the separate parts, it also may be greater than or less than the sum of such parts. Therefore, the value of the whole must be tested by reference to appropriate data and supported by an appropriate analysis of such data.

A similar procedure must be followed when the value of the whole has been established and the appraiser seeks to value a part. The value of any such part must be tested by reference to appropriate data and supported by an appropriate analysis of such data

(f)

When analyzing anticipated modifications to the subject property, an appraiser must analyze the effect on value, if any, of such modifications to the extent they are reflected in market actions.

(g)

When real property or intangible items are included in the appraisal, the appraiser must analyze the effect on value of such non-personal property items.

Comment: When the scope of work includes an appraisal of real property or intangible items, competency in real property appraisal (see STANDARD 1) or business appraisal (see STANDARD 9) is required. In addition, competency in other types of personal property outside of the appraisers specialty area may be necessary (see STANDARD 7 and the COMPETENCY RULE).
 

When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business: 71

(a)

analyze all agreements of sale, validated offers or third-party offers to sell, options, and listings  of the subject property current as of the effective date of the appraisal; and

(b)

analyze all prior sales of the subject property that occurred within a reasonable and applicable time period, given the intended use and the type of property involved.

Comment: The data needed for the required analyses in SR 7-5(a) and 7-5(b) may not be available or relevant in all assignments. See the Comments to Standards Rules 8-2(a)(viii), 8-2(b)(viii), and 8-2(c)(viii) for corresponding reporting requirements.

In developing a personal property appraisal, an appraiser must:
 

(a)

reconcile the quality and quantity of data available and analyzed within the approaches used; and
 

(b)

reconcile the applicability or suitability of the approaches used to arrive at the value conclusion(s).
 

Comment: See the Comments to Standards Rules  8-2(a)(viii), 8-2(b)(viii), and 8-2(c)(viii) for corresponding reporting requirements.

67.

See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users.

68.

See Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended Users.

69.

See Statement on Appraisal Standards No. 3, Retrospective Value Opinions, and Statement on Appraisal Standards No. 4, Prospective Value Opinions.

70.

See Advisory Opinion 28, Scope of Work Decision, Performance, and Disclosure, and Advisory Opinion 29, An Acceptable Scope of Work. References to Advisory Opinions are for guidance only and do not incorporate Advisory Opinions into USPAP.

71.

See Advisory Opinion 24, Normal Course of Business. References to Advisory Opinions are for guidance only and do not incorporate Advisory Opinions into USPAP.