1.3 Core Definitions & Terminology
Key Takeaways
- An Appraiser is defined by USPAP as one who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.
- Intended User and Intended Use must be identified by the appraiser at the time of assignment acceptance and directly dictate the required Scope of Work.
- An Extraordinary Assumption presumes an uncertain fact to be true as of the effective date; a Hypothetical Condition presumes a condition contrary to known facts for analysis.
- Assignment Results consist of an appraiser's opinions and conclusions (such as final value, cap rate, or highest and best use) and are strictly confidential under the Ethics Rule.
- A complete Workfile must exist prior to or simultaneous with report issuance and must be retained for at least 5 years (or 2 years following final disposition of court testimony).
Core Definitions & Terminology
Precise understanding of defined terms is crucial for interpreting USPAP and passing professional appraisal examinations. USPAP assigns specific, legally binding definitions to standard industry words. Misinterpreting these terms can lead to ethical breaches, inadequate scopes of work, and regulatory violations.
Appraiser, Client & Intended Users
1. Appraiser
USPAP defines an Appraiser as:
"One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective."
Notice that the definition centers on public expectation and ethical standards. An appraiser must remain completely neutral and free from bias or personal interest in the outcome of an assignment.
2. Client
The Client is defined as:
"The party (or parties) who engages an appraiser (by employment or contract) in a specific assignment."
- The client is always the party establishing the contractual engagement.
- Crucial Exam Point: The party who pays for the appraisal is not necessarily the client. For example, if a homebuyer pays a mortgage lender an appraisal fee, but the lender formally retains the appraiser, the lender is the client, NOT the homebuyer.
3. Intended User & Intended Use
- Intended User: The client and any other party as identified, by name or type, as a user of the appraisal or appraisal review report by the appraiser, based on communication with the client at the time of the assignment.
- Intended Use: The use(s) of an appraiser's reported appraisal or appraisal review assignment results, as identified by the appraiser based on communication with the client at the time of the assignment.
Key Rule: Intended users and intended uses must be established at the time of the assignment. Parties who receive a copy of the appraisal report after completion without prior identification by the appraiser do not become intended users under USPAP.
Assignment Results vs. Confidential Information
Assignment Results
Assignment Results are defined as an appraiser's opinions and conclusions developed in connection with an assignment. Assignment results extend beyond the final value opinion and include:
- Opinions of Highest and Best Use
- Developed capitalization rates or discount rates
- Site value estimates
- Recommended repairs or adjustments
Factual Data Exemption: Physical, verifiable factual data regarding the subject property (e.g., gross living area of 2,400 sq ft, 4 bedrooms, tax parcel ID, or zoning designation) are NOT assignment results unless tied directly to an appraiser's subjective opinion.
Confidential Information
Under the Ethics Rule, an appraiser must protect client confidentiality. Confidential Information is defined as:
- Information identified by the client as confidential when providing it to the appraiser and not available from any other source; or
- Information classified as confidential or private by applicable law or regulation.
Disclosure Rule: An appraiser must not disclose confidential information or assignment results to anyone other than:
- The client;
- Parties specifically authorized by the client;
- State appraiser regulatory agencies;
- Third-party peer review committees authorized by law; or
- A court of law pursuant to a duly issued subpoena.
Extraordinary Assumption vs. Hypothetical Condition
Understanding the distinction between an Extraordinary Assumption (EA) and a Hypothetical Condition (HC) is one of the most heavily tested areas on USPAP exams.
| Feature | Extraordinary Assumption (EA) | Hypothetical Condition (HC) |
|---|---|---|
| Definition | An assignment-specific assumption as of the effective date regarding uncertain information, which if found to be false, could alter conclusions. | A condition directly related to a specific assignment, which is contrary to known facts on the effective date, but used for analysis. |
| Fact Basis | The fact is unknown or uncertain (could be true or false). | The fact is known to be false on the effective date. |
| Typical Example | Assuming an underground oil tank has not leaked when no environmental testing is available. | Valuing a vacant parcel of land as if a proposed commercial building were fully constructed today. |
| Mandatory Disclosure | Must be clearly disclosed in the report along with a statement that its use might have affected assignment results. | Must be clearly disclosed in the report stating that the condition is contrary to fact and its use might have affected assignment results. |
| Legal/Credible Standard | Must be required to develop credible results and have a reasonable basis. | Must be required for legal, clear, or analytical purposes. |
Workfile & Record Keeping
A Workfile is mandatory for every appraisal and appraisal review assignment.
- Creation Timing: The workfile must be in existence prior to or simultaneous with the issuance of any report (written or oral).
- Required Contents: Must contain the client name; written records of oral reports/summaries; true copies of written reports; and all data, research, and documentation necessary to support the appraiser's opinions and conclusions.
- Retention Mandate: The workfile must be retained for:
- A minimum of 5 years after preparation; OR
- A minimum of 2 years after final disposition of any judicial proceeding in which the appraiser gave testimony concerning the assignment, whichever period expires later.
Signature & Personal Inspection
Signature
A Signature represents the appraiser's personal acceptance of responsibility for the report content, analyses, and certification. An appraiser must not allow unauthorized access to their electronic signature.
Personal Inspection
A Personal Inspection is a physical observation performed by the appraiser to inspect property features.
- USPAP Mandate: USPAP does NOT strictly require a physical personal inspection for every assignment (e.g., desktop appraisals or drive-by appraisals are permissible under USPAP if credible results can be produced).
- Disclosure Requirement: However, the appraiser must explicitly disclose in the report certification whether or not they conducted a personal inspection of the subject property.
Under USPAP, how is an Extraordinary Assumption defined in contrast to a Hypothetical Condition?
For how long must an appraiser retain their assignment workfile under the USPAP Record Keeping Rule?
Which of the following is classified as Confidential Information under USPAP?
Who determines the Intended User(s) and Intended Use of an appraisal report under USPAP?