Additional Items That May Be Included in the Appraisal Scope of Work

Topic:

This article will discuss some items that may be included the appraisal scope of work, in addition to those items that are typically addressed.


Discussion:

The Uniform Act regulations point out that an Agency "acquiring real estate has a legitimate role in contributing to the appraisal process, especially in developing the scope of work…" [49 CFR 24.103(a)(1)] But what does this mean?

In a June 2008 USPAP* Q&A release from the Appraisal Standards Board of The Appraisal Foundation, a question was asked as to the appropriateness of the input from clients into the scope of work (Scope). The Standards Board replied, in part:

"Direction from the client on the scope of work is acceptable if the appraiser is able to develop credible assignment results. If the scope of work specified by the client does not allow the development of credible assignment results, the appraiser needs to discuss changing the scope of work or withdraw from the assignment."

This interpretation means that as long as the developed Scope is reasonable, then an appraiser may accept such a Scope. The intent of the Federal Regulation is that the Scope is mutually developed by the Agency and appraiser. This should allay any concerns of the appraiser that the work product will be so restricted as to not be credible.

Traditionally, the Appraisal Scope of Work section deals with a number of issues such as the extent of property identification, the inspection process, the geographical area and time span searched for market data, the confirmation process, as well as the extent by which the approaches to value used by the appraiser are developed. The scope of work often appears as an "introduction" in the appraisal. It lays out what will be addressed and how the materials were assembled. But, beyond the routine issues addressed in the Scope, what else might be included?

Some suggestions:

  1. The development of a realty-personalty report per §24.103(a)(2)(i). This might entail a meeting with the real estate owner, the business tenant, and representatives of the Agency. The terms of this meeting could be a Scope item.
  2. The valuation methodology of tenant-owned improvements per §24.105. This approach does not represent the typical approach utilized by appraisers, so some explanation is appropriate.
  3. The requirement that the owner be afforded an opportunity to accompany the appraiser on an inspection of the property. This requirement, located in §24.102(c)(1), is not a USPAP requirement, so some appraisers may not be familiar with it. Since it is a Uniform Act requirement, however, it is worthwhile to include it in the Scope.
  4. Legal interpretations applicable to a jurisdiction are often useful to pass along to the appraiser. For example, in certain jurisdictions, court decisions have discouraged the sole use of the income approach for small investment property; or the cost approach for older improvements. However these approaches to value are often developed as a unit of comparison by which the sales approach can be measured against. As a result, this information is useful to the appraiser in support of the final value conclusion and may be justified by USPAP requirements, but deemed not that important to the Agency/client.
  5. The requirement that any increase or decrease in value be disregarded in the "before" situation is a deviation from standard USPAP interpretation. The appraiser may need some guidance as to what aspects should be disregarded and which should be considered, especially in projects that have been pending for a substantial period of time.
  6. Appraisers will typically include an "intended use and intended user" limitation in their reports. This should specifically define the intended use of the appraisal report, as well as be worded broadly enough to include all legitimate users of the report, including the property owner, if it is the practice of the Agency to provide a copy to the owner. The wording may be adjusted to reflect the intended initial recipient of the report, i.e., the client and other users.
  7. The five-year sale history requirement found in §24.103(a)(2)(i). This five-year requirement exceeds the standard three-year USPAP requirement and is often omitted by appraisers unfamiliar with Uniform Act work.
  8. Other specific needs of the Agency: This might include an analysis of potential uneconomic remnants, carve-outs for use in relocation computations, methods of addressing environmental contamination of the subject, and how any specialty reports will be obtained or incorporated into the appraisal (parking studies, cost to cure, etc.).

 

* USPAP is an acronym for the Uniform Standards of Professional Appraisal Practice. It is the governing standards for all licensed appraisers.


Source:

Bob Merryman Bob Merryman
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