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What Bankers should know about Commercial
Appraising
A synopsis
The metamorphous in the real estate appraisal industry has now stabilized.
Appraisers had been highly respected for decades, with many aspiring to
professional designations. From the depression in the 1930's through to the
past decade, appraisers evolved as an assemblage of professionals regulated by
their respective organizations.
In the 1990's appraising largely became a commodity controlled by state
regulators. Appraising in the first decade of the 2000s remains predominantly a
commodity, with a broad range of professionalism. The future of the appraisal
industry will now continue to be driven by fees more than by quality, based on
standardized entry into the field.
These state regulatory controls are predicated upon federal regulations
authorized by Congress, under the guidance of the Appraisal Foundation. The
Foundation develops, publishes, interprets, and amends the Uniform Standards of
Professional Appraisal Practice (USPAP). The respective state agencies enforce
these USPAP regulations.
USPAP has continued to grow and evolve. USPAP is the generally accepted and
recognized standards of appraisal practice in the United States. It is a
250-page document of appraisal standards and advisory opinions. What are a
banker's and his/her respective bank/financial institution's objectives
regarding USPAP in order to:
(1) To minimize the bank's risk management;
(2) To satisfy all federal/state banking regulations;
(3) To minimize appraisal fees to its borrowers.
USPAP has two (2) appraisal development options (Standard 1); complete and
limited. It has three (3) types of reporting options (Standard 2);
self-contained, summary, and restricted. The combination of these development
and reporting options results in six (6) various combinations. Which one is
best for your bank?
It is strongly suggested that bankers can best meet its above 3 objectives by
requesting "Complete Appraisals in a Summary Format". USPAP defines this type
appraisal as:
(A) Complete Appraisal - The act or process of developing an opinion of
value... without invoking the "Departure Rule"... The Departure Rule permits
exceptions from USPAP...
(B) Summary Report - contains a summary of all information significant to the
solution of the appraisal problem. The essential difference between the
self-contained report and the summary report is the level of presentation.
USPAP definitions are clear, but its interpretation among appraisers is
diverse. An appraisal is only as good as the appraiser's data, analysis and
conclusions. There are appraisal standards, but no appraiser is standard.
Bankers need to qualify their appraisers!
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