Top 8 USPAP Myths
August 7, 2019 |
With many appraisers doing most of their work for lender-clients, they have become very familiar with the guidelines of Fannie Mae, Freddie Mac, and other programs’ underwriting rules. It’s common to confuse these guidelines with USPAP (Uniform Standards of Professional Appraisal Practice) requirements – so let’s take a look at how these can get misunderstood!
USPAP was written as an ethical and practical guide – the first and only such guidance for practicing appraisers. Although some may view it as an albatross, it can also be seen as a framework for solid and credible appraisal practice. There are common myths about what USPAP requires. Let’s take a quick look at some of them.
MYTH #1: you must always measure a house unless it’s a drive-by request
Guess what? USPAP does not discuss measuring homes at all! Instead, it advises you to do what it takes to develop a “credible” appraisal – which may involve such measurements. USPAP does not state that you must follow national measurement standards like ANSI, though appraisers typically do follow such standards.
MYTH #2: you must use at least 3 comparable sales
This is commonly misunderstood. USPAP does not recommend a number of sales, or how far they can be from the subject property, or when you should make them.
MYTH #3: you must always develop the sales comparison approach
Although this approach may typically be considered as most reliable for residential appraisal work, there are other appraisals where this approach is not relevant and not developed. Appraisers of churches, for example, may find limited sales data that’s so scarce, or incomparable, as to render the approach unreliable.
MYTH #4: you can’t use MLS photos in reports and your photos must be “seasonal”
USPAP does not comment on using photos at all in reports; nor does it give this kind of direction. Photographs in reports are utilized to clarify and prove what you saw at the observation or by driving by comparable sales and are a great defense of your appraisal.
MYTH #5: your gross adjustments on a sales grid cannot exceed 25%, net adjustments cannot exceed 15%, and line item adjustments cannot exceed 10%
USPAP does not give guidance on recommended “limits” of adjustment totals. It gives no guidance on making adjustments – how much they can be, or how to support adjustments. Freddie Mac and Fannie Mae both have recommended “limits”. But this does not come from the USPAP document.
MYTH #6: USPAP states that there can be no peeling paint, unsafe conditions, or foundation issues in a home or you must make the appraisal “subject to” repair or remedy
USPAP does not give guidance on what the condition of improvements must be, or any contingencies to be met in order to appraise it “as is”. These are all coming from underwriting guidelines from FHA, VA, USDA, or others.
MYTH #7: USPAP says that an appraiser must “bracket” line items like gross living area, site size, basements, and garages
“Bracketing” is the new buzz word coming from reviewers looking for at least one sale that is higher in GLA than your subject property, and one lower. As well as, one sale with a larger site size than your subject property, and one lower – and so on. This is not a USPAP issue at all.
MYTH #8: USPAP says that condition ratings must be C1 through C6; and quality ratings must be Q1 through Q6, for residential properties
This rating system comes from the UAD methodology, where appraisers utilize this format for typing appraisals for certain clients. Such methodology does not come from the USPAP document.
Hopefully, this clarifies some of the misconceptions of what topics the Uniform Standards of Professional Appraisal Practice covers, and what it does not address. A clear understanding of underwriting guidelines will assist an appraiser in separating USPAP guidance from those every-day “rules” typically followed in preparing appraisal reports for lender-clients.