Uniform Standards of Professional Appraisal Practice (USPAP) Vs. International Valuation Standards (IVS)

29th April 2022

Uniform Standards of Professional Appraisal Practice (USPAP)

Vs.

International Valuation Standards (IVS) as adopted by the

Royal Institution of Chartered Surveyors (“RICS”)

In such a multicultural society as the Cayman Islands with close proximity to the United States, Bould Consulting Limited ensures its valuation team is fully conversant with major practice standards in common usage. This paper reviews the two major standards in use and highlights their differences.

Uniform Standards of Professional Appraisal Practice (“USPAP”) is the generally recognized ethical and performance standards for the appraisal profession in the United States. USPAP was first published in 1989 by The Appraisal Foundation resulting from what was the US Savings and Loan crisis in the late 1980s resulting in nearly a third of all US savings and loans associations failure at a cost of approximately $160 billion US dollars. Market conditions, speculation, and deregulation as well as corruption and fraud played major roles. As a result, the US Congress enacted in 1989 the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) which authorizes the appraisal standards and qualifications on a US national scale.

International Valuation Standards (“IVS”) as adopted by the Royal Institution of Chartered Surveyors (“RICS”) are standards set for assets and liabilities on a global scale. The IVS are published by the international Valuation Standards Council (“IVSC”) who began publishing international valuation standards in the 1990s. The IVSC sets International Valuation Standards to promote consistency and professionalism in the name of public interest. The use of IVS global standards continues as our world is increasingly economically interconnected.

Neither USPAP nor IVS require compliance, but both are a matter of choice, agreement, or regulation by another authority. It is notable that those who produce USPAP compliant valuations most likely will comply with IVS standards, and although they differ to some degree, they are both quite similar yet not all USPAP compliant valuations are IVS compliant. For instance, a US Restricted Appraisal Report is not IVS compliant.

USPAP compliance is mandatory in the US when completing an appraisal assignment for a US Federally Insured Mortgage Loan. The majority of mortgage loans in the US are federally insured by the Federal Deposit Insurance Corporation (“FDIC”) The FDIC requires strict adherence to USPAP in appraisals for use in US mortgage lending and the underwriting of US mortgage loans. USPAP adherence is one of the minimum requirements in the FDIC’s regulations as it pertains to appraisal reporting.

The similarities of USPAP and IVS are founded in their Core Principles which are:

Ethics

Competency

Compliance

Basis of Value

Date of Value

Assumptions and Conditions

Intended Use

Intended User(s)

Scope of Work

Identification of the Subject to be Valued

Data

Valuation Methodology

Communication of Value

Record Keeping

Additionally, Both USPAP and IVS are similar with regards to their Core Principles of Valuation Standards:

Purpose

The purpose of valuation standards is to promote and maintain a high level of public trust in valuation practice by establishing appropriate requirements for appraisers/valuers.

Valuation Standards

Valuation Standards should be principle based and adequately address the development of a credible opinion of value and the communication of that opinion to the intended user(s).

Development and Revisions of Standards

Standards are to be created and revised, when necessary, by way of a transparent process after appropriate exposure.

Jurisdiction

Departures from the standards to comply with legislative and regulatory requirements that conflict with the standards are allowed.

There are specific requirements that appear in USPAP but do not appear in the IVS, and vice versa. Although USPAP and IVS have many similarities, there are notable differences, such as:

USPAP allows the use of an Extraordinary Assumptions and Hypothetical Conditions.

IVS allows the use of Assumptions and Special Assumptions. IVS also utilizes what is labeled a Significant Assumption if it could reasonably be expected to influence the decision of the users of the valuation.

An Extraordinary Assumption in USPAP would be considered a Significant Assumption in IVS, and a Hypothetical Condition in USPAP would be considered a Special Assumption in IVS.

USPAP defines an Extraordinary Assumption as “an assignment-specific assumption as of the effective date regarding uncertain information used in analysis which, if found to be false, could alter the appraiser’s opinion or conclusions.”

USPAP defines a Hypothetical Condition as “a condition, directly related to a specific assignment, which if contrary to what is known by the appraiser to exist on the effective date of the assignment results but is used for the purpose of analysis.”

In creating a report that is both USPAP and IVS compliant, you must use the IVS terminology as USPAP does not require the use of specific terms as does IVS.

Further to this point, USPAP provides 42 terms and their definitions whereas IVS includes a Glossary of 18 terms. IVS uses the term “valuer” whereas USPAP defines an “appraiser.” An IVS valuer can be an individual, a group of individuals or a firm whereas in USPAP, an appraiser is an individual.

Some of the IVS terms include the verbs “should”, “must” and “may” which are not defined in USPAP.

Although these differences appear as minor in scope, both USPAP and IVS are meant to promote and maintain a high level of public trust in valuation practice by establishing appropriate requirements, standards, development of a credible opinion and communicating that opinion to the intended user(s).

The current USPAP 2020-2021 version has been extended to 31^st December 2022 as a result of the SARS COV2 (COVID-19) Pandemic and is typically reviewed and open for revision every two years after exposure drafts. The most recent version of IVS is dated 31^st January 2022, and like USPAP, is reviewed and open for revision every two years after exposure drafts. Exposure drafts are proposed changes to each USPAP and IVS during a specific revision period and the process seeks public and professional comments prior to finalizing.

USPAP includes what is defined as the Ethics Rule that specifically addresses an appraiser’s conduct, fees, and confidentiality. Because IVS is recognized globally, its framework is designed with the use by organizations working under different ethical codes throughout the world taking into consideration differing global regulations pertaining to valuations. USPAP on the other hand includes an Ethics Rule that specifically addresses an appraiser’s conduct, fees, and confidentiality as it relates to US valuations.

Both USPAP and IVS set standards for the Scope of Work of an assignment. With USPAP the Scope of Work is a process, and the appraiser must develop the scope of work prior to accepting an assignment by identifying the problem to be solved and the appraiser is required to disclose the full scope of work to the client/intended user(s) in an appraiser report.

IVS sets out its Scope of Work in its Terms of Engagement agreement that describes not only the work to be conducted but all matters that should be disclosed to the client from the onset of the assignment. IVS requires a valuer to ensure the client and intended user(s) of the valuation understand what is to be provided and any limitations prior to finalizing a report.

The IVS permit the valuer to decide the bases of value to be used in a valuation. In USPAP, the selected type of value must be appropriate for the purposes of the valuation, and the appraiser must either provide the definition of the basis of value, explain the basis of value, or cite the source of the basis of value within an appraisal report.

Although both standards differ, there are more similarities than differences. Minor adjustments to each USPAP and IVS valuations are in the reporting. A US report meeting the minimum USPAP requirements will not meet IVS requirements. IVS reports must be sufficient to communicate to the intended user(s) the scope of the valuation assignment, the work performed, and the conclusions reached.

A USPAP compliant Appraisal Report can meet IVS requirements by addressing the following:

A clear and accurate description of the Scope of the Work within the report.

Disclosure of Special Assumptions and any uncertainty that would significantly affect the valuation.

Explicitly disclose any limitations on the extent of any investigations per the Scope of Work.

Identification of any departure from IVS and the justification for same as long as it is not misleading and does not significantly affect procedures, inputs and assumptions, value conclusions, legislation or regulatory requirements, or other authoritative requirements. The way it differs from IVS must be disclosed.

USPAP requires an appraisal report not to mislead whether intentionally or unintentionally and only provides that it is clear to the intended user(s); however, IVS states that a valuation report should be sufficient for an appropriate experienced valuation professional with no prior involvement with the valuation engagement to review and understand the report.

The objective of both USPAP and IVS are to maintain public trust in the valuation process. A good understanding of the responsibility of an appraiser/valuer in each USPAP and IVS compliant valuations is critical.

At Bould Consulting Limited, we have extensive experience in adherence to both USPAP and IVS complaint valuations and look forward to answering any questions you may have.

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