3.3 Standard 2: Real Property Appraisal Reporting

3.3 Standard 2: Real Property Appraisal Reporting

Standard 2 sets forth the mandatory requirements for communicating real property appraisal results. While Standard 1 governs appraisal development (the intellectual process of solving the valuation problem), Standard 2 dictates how an appraiser presents those findings, supporting data, and conclusions to the client and intended users in a written or oral report.

Standards Rule 2-1 establishes the fundamental general reporting requirements that apply to all real property appraisal reports:

• Each written or oral appraisal report must set forth the appraisal clearly and accurately, in a manner that will not be misleading.
• Each report must contain sufficient information to enable the intended users of the appraisal to understand the report properly.
• Each report must clearly and accurately disclose all extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.

Written Report Options (Standards Rule 2-2)

Under Standards Rule 2-2, an appraiser must issue a written appraisal report using one of two options: an Appraisal Report or a Restricted Appraisal Report.

(Historical Note: Earlier editions of USPAP recognized a third option called a 'Self-Contained Appraisal Report'. USPAP retired the Self-Contained option to eliminate confusion and streamline reporting standards into two distinct, functional levels of narrative detail).

An appraiser must prominently state in the report which reporting option is being used so that intended users immediately understand the depth of explanation provided.

'Summarize' vs. 'State': Understanding Narrative Depth

The core functional difference between an Appraisal Report and a Restricted Appraisal Report lies in the depth of narrative required by USPAP:

• Summarize: Requires providing a structured, concise narrative that presents the appraiser's reasoning, supporting data, and analytical procedures. Intended users must be able to follow the appraiser's logical progression from raw data to final value conclusion without needing access to the appraiser's internal files.
• State: Requires only a brief declaration of the facts, opinions, or conclusions without providing underlying analytical narrative or supporting data. The detailed calculation grids, market data sheets, and analytical reasoning are omitted from the report text and retained exclusively within the appraiser's workfile.

Mandatory Report Content Requirements

Under Standards Rule 2-2, both report options must contain twelve minimum required content items, adapted to their respective level of detail ('summarize' vs. 'state'):

1. Identity of Client and Intended Users: Explicitly naming the client and any additional intended users by name or type.
2. Intended Use: Specifying the intended purpose of the appraisal report (e.g., mortgage financing underwriting, estate valuation, eminent domain acquisition).
3. Subject Property Identification: Physical street address, legal description, assessor parcel number, and clear identification of the real property interest appraised (Fee Simple, Leased Fee, Leasehold).
4. Type and Definition of Value: Stating the specific value type (e.g., Market Value, Investment Value, Liquidation Value) and citing the exact authoritative source of its definition.
5. Effective Date of Appraisal & Date of Report: Clearly distinguishing the effective date of valuation (which anchors the market conditions) from the date of report issuance.
6. Scope of Work: Summarizing (in an Appraisal Report) or stating (in a Restricted Report) the extent of research, inspection, data collection, and valuation approaches performed.
7. Exclusions of Valuation Approaches: Explaining the rationale for excluding any standard valuation approach (Sales Comparison, Cost, or Income) to satisfy Standards Rule 1-4.
8. Highest and Best Use Analysis: Summarizing or stating the HBU conclusions as vacant and as improved.
9. Prior Services Disclosure: Disclosing whether the appraiser has performed any services (appraisal, consulting, brokerage, or management) regarding the subject property within the three years prior to accepting the assignment.
10. Signed Certification: Incorporating a signed certification complying with Standards Rule 2-3.
11. Extraordinary Assumptions & Hypothetical Conditions Disclosures: Prominently disclosing all EAs and HCs employed.
12. Workfile Reference: In a Restricted Appraisal Report, including a reference statement that the appraiser's workfile contains supporting documentation.

Disclosure of Extraordinary Assumptions and Hypothetical Conditions

USPAP enforces strict disclosure rules when an appraiser employs extraordinary assumptions or hypothetical conditions:

• Prominent Location: Every extraordinary assumption and hypothetical condition must be disclosed clearly and prominently in the report body and executive summary.
• Mandatory Impact Warning Statement: The report must include a clear, explicit disclosure stating that the use of the extraordinary assumption or hypothetical condition might have affected the assignment results.

Buried disclosures in addenda, fine print, or generic boilerplate language violate Standard 2. The disclosure must be clear enough that an intended user immediately recognizes the condition and understands its potential impact on the final value conclusion.

Oral Appraisal Reports (Standards Rule 2-4)

When an appraiser communicates appraisal results orally (such as in court testimony or public hearings), Standards Rule 2-4 requires that the oral report must address the substantive matters of an Appraisal Report. Furthermore, the appraiser must insert a written summary of the oral report and a signed Standards Rule 2-3 certification into the appraisal workfile immediately following the presentation.