This document provides an overview of the Uniform Standards of Professional Appraisal Practice (USPAP). It discusses the key sections and rules of USPAP, including the Ethics Rule, Record Keeping Rule, Competency Rule, and Standards. It describes the standards for real property appraisal development and reporting. It also discusses practical applications of USPAP, defining types of mortgage fraud like flipping, packed sales, and bogus sales. It explains how USPAP helps prevent fraud through rules regarding competency, use of comparable sales, and identification of bogus transactions.

1. Unit 14: Ethical Appraisal Practice

2.  Overview of USPAP
• Introduction
o The Uniform Standards of Professional Appraisal
Practice (USPAP) are the generally recognized and
accepted standards of appraisal practice in the United
States.
 They are the standards for ethics and competency in
professional appraisal practice.
 The USPAP document, as it is currently structured,
contains five sections—DEFINITIONS, PREAMBLE, Rules,
and STANDARDS and Standards Rules.
 The USPAP document also includes the Advisory Opinions
(AOs), but these are not technically part of USPAP.

3.  Overview of USPAP (continued)
• Definitions
o The DEFINITIONS section is the first section of USPAP.
 The definitions that appear in the USPAP document are
specific to USPAP.
• PREAMBLE
o The PREAMBLE is a two-page mission statement that
explains the goals and describes the overall structure
of the USPAP document.
 USPAP addresses the ethical and performance obligations
of appraisers through DEFINITIONS, Rules, STANDARDS,
and Standards Rules.
 The USPAP document also includes Comments and
Advisory Opinions.

4.  Overview of USPAP (continued)
• Rules
o ETHICS RULE
 The ETHICS RULE identifies the requirements for “integrity,
impartiality, objectivity, independent judgment, and
ethical conduct”. The ETHICS RULE is divided into three
sections: Conduct, Management, and Confidentiality.
 Conduct
• The Conduct section of the ETHICS RULE identifies issues
regarding appraisers’ conduct.
• This section states that appraisers must not engage in
criminal conduct, must be impartial and unbiased, and
cannot act as advocates.

5.  Overview of USPAP (continued)
• Rules
o ETHICS RULE
 Management
• The Management section discusses the disclosure of certain
fees and commissions, identifies prohibited compensation
arrangements, and discusses certain prohibited advertising
and solicitation issues.
 Confidentiality
• The Confidentiality section of the ETHICS RULE states that
the appraiser must protect the confidential nature of the
appraiser-client relationship and is obligated to obey all
confidentiality and privacy laws.
• The Confidentiality section also identifies to whom
confidential information may be disclosed.

6.  Overview of USPAP (continued)
• Rules
o RECORD KEEPING RULE
 The RECORD KEEPING RULE identifies the record keeping
(workfile) requirements appraisers must follow.
 The appraiser’s workfile for a particular assignment consists
of all the documentation necessary to support the analyses,
opinions, and conclusions conveyed in the appraisal report.
 Essential Items in a Workfile
• Name of client and identity, by name or type, of any other
intended users.
• True copies of all written reports. A true copy is a photocopy
or electronic copy of the entire report transmitted to the client.
• Summaries of all oral reports or testimony (or transcript),
including the appraiser’s signed and dated certification.
• All other data necessary to support the appraiser’s opinions
and conclusions and to show compliance with USPAP.

7.  Overview of USPAP (continued)
• Rules
o COMPETENCY RULE
 The COMPETENCY RULE and the remaining Rules cover
performance standards imposed upon appraisers.
 The COMPETENCY RULE identifies requirements for
experience and knowledge both when completing an
appraisal and prior to accepting an appraisal assignment.
o SCOPE OF WORK RULE
 Requirements of the SCOPE OF WORK RULE
• Appraisers must identify the problem to be solved
• Appraisers must determine and perform the scope of work
necessary to develop credible assignment results
• Appraisers must disclose the scope of work in the report.

8.  Overview of USPAP (continued)
• Rules
o JURISDICTIONAL EXCEPTION RULE
 The JURISDICTIONAL EXCEPTION RULE recognizes that in
some instances, portions of USPAP may be contrary to law
or public policy.
• STANDARDS and Standards Rules
o The Standards Rules specify what the appraiser must
do.
o STANDARD 1: Real Property Appraisal, Development
 STANDARD 1 covers the requirements for developing a
real estate appraisal.
 It identifies what an appraiser needs to consider when
formulating his or her opinions and conclusions.

9.  Overview of USPAP (continued)
• STANDARDS and Standards Rules
o The Standards Rules specify what the appraiser must
do.
o STANDARD 2: Real Property Appraisal, Reporting
 STANDARD 2 covers the requirements for reporting a real
estate appraisal.
 When reporting a real estate appraisal, the appraiser must,
among other things, “clearly and accurately set forth the
appraisal in a manner that will not be misleading” and the
report must “contain sufficient information to enable the
intended users of the appraisal to understand the report
properly.”

10.  Overview of USPAP (continued)
• STANDARDS and Standards Rules
o STANDARD 2: Real Property Appraisal, Reporting
 Report Options
• The Appraisal Report option is the most common as it
fulfills the minimum requirements for lenders to process
their loans.
• The Restricted Appraisal Report option is unique, because
with this option the client is the only one allowed to use the
report.
o STANDARD 3, Appraisal Review
 STANDARD 3 establishes requirements for the
development and communication of an appraisal review.
 STANDARD 3 gives the review appraiser the option to
develop his or her own opinion related to the subject of an
appraisal.

11.  Overview of USPAP (continued)
• STANDARDS and Standards Rules
o STANDARDS 4 and 5, Appraisal Consulting (Retired)
 The Appraisal Standards Board (ASB) retired STANDARDS 4
and 5 effective January 1, 2014 because the Board stated
they were redundant.
 Appraisal consulting is defined as the act or process of
developing an analysis, recommendation, or opinion to
solve a problem, where an opinion of value is a
component of the analysis leading to the assignment
results.
 A feasibility analysis is a study of the cost-benefit
relationship of an economic endeavor.

12.  Overview of USPAP (continued)
• STANDARDS and Standards Rules
o STANDARD 6, Mass Appraisal
 A mass appraisal is appraising more than one property
using standard computerized techniques (statistical
analysis, regression, automated valuation models, etc.).
o STANDARDS 7 and 8, Personal Property
 Personal property includes all tangible assets that are not
real property, such as jewelry, autos, boats, etc.
o STANDARDS 9 and 10, Business Appraisal
 These standards cover the appraisal of business entities
including a business’ intangible assets, like a logo or
copyright.

13.  Overview of USPAP (continued)
• Comments
o Comments are extensions to these components of
USPAP, providing interpretation, and establishing
context and conditions for application.
• Advisory Opinions
o Advisory Opinions (AOs) illustrate the applicability of
Standards in specific situations and offer advice for the
resolution of appraisal issues and problems.

14.  Practical Application
• Introduction
o Fraud is intentional deceit, the act of misleading
someone in order to induce him or her to part with
something of value.
o Appraisers most often are caught up in fraud when
mortgages are involved, because mortgage fraud
requires the help of an appraiser.
o Deceptive Practices Used in Mortgage Fraud
 Falsified credit applications
 Credit reports that are cleansed, altered and/or forged
 Altered or forged verifications of employment
 Altered and forged certificates of deposit
 Appraisals that are inflated by the appraiser, lender, or
borrower

15.  Practical Application
• Common Fraud Schemes
o Common fraud schemes include flipping, packed sales, and
bogus sales.
o Flipping
 Flipping occurs when a person buys a property at one price
and quickly sells it to another at an inflated price.
o Packed Sales
 A packed sale charges excessive points, fees, and interest
rates to unsuspecting buyers.
 Elders, minorities, and sub-prime borrowers are common
targets.
o Bogus Sales
 A bogus sale occurs when a lender asks an appraiser to
inflate his or her estimate of value for a property to a certain
degree, providing justification for a higher selling price.

16.  Practical Application
• Lender Pressure
o Lender pressure involves the lender directly or
indirectly pressuring the appraiser to hit a certain
number.
• Fraud Prevention
o The COMPETENCY RULE states that an appraiser should
not perform an appraisal outside of his or her market
or geographic area without taking the steps necessary
to learn the important nuances of the different market.
o Standards Rules 1-4 and 1-5 prevent an appraiser
from using a flip sale as a true comparable sale.
o Standards Rule 1-2 requires the appraiser to look out
for and eliminate bogus sales, whether they are the
subject or the comparables.