USPAP Standard Rule 1-4

 

Standards Rule 1-4

In developing a real 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)

develop an opinion of site value by an appropriate appraisal method or technique;

(ii)

analyze such comparable cost data as are available to estimate the cost new of the improvements (if any); and

(iii)

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

(c)

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

(i)

analyze such comparable rental data as are available and/or the potential earnings capacity of the property to estimate the gross income potential 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 rent and/or income potential and expenses on reasonably clear and appropriate evidence. 13 

Comment: In developing income and expense statements and cash flow projections, an appraiser must weigh historical information and trends, current supply and demand factors affecting such trends, and anticipated events such as competition from developments under construction.

(d)

When developing an opinion of the value of a leased fee estate or a leasehold estate, 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 estates or 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 estates or component parts.

Comment: Although the value of the whole may be equal to the sum of the separate estates or parts, it also may be greater than or less than the sum of such estates or 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 public or private improvements, located on or off the site, an appraiser must analyze the effect on value, if any, of such anticipated improvements to the extent they are reflected in market actions.

(g)

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

Comment: When the scope of work includes an appraisal of personal property, trade fixtures or intangible items, competency in personal property appraisal (see STANDARD 7) or business appraisal (see STANDARD 9) is required. 

Original content was published in The Appraisal Foundation site.

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Phone: +1 203 858 6727

Complete Real Estate Answers, Inc.
453 Webbs Hill Road
Stamford, CT 06903

Nana G. Smith, Proprietor

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