CompEx Ex01-Ex04 (Gas & Vapours)

Correct: The USPAP Record Keeping Rule specifically mandates that for any oral report, the appraiser must include a summary of the report and a signed and dated certification in the workfile. This ensures professional accountability and provides a permanent record of the appraiser’s findings and conclusions, even when a formal written report is not issued.

Correct: The USPAP Ethics Rule explicitly requires appraisers to perform assignments with impartiality, objectivity, and independence. By intentionally excluding relevant sales data that occurred in the subject’s immediate vicinity solely because they did not align with a client’s preferred valuation outcome, the appraiser has demonstrated bias. This is a fundamental violation of the Ethics Rule and Standards Rule 1-1, which prohibits an appraiser from being negligent or biased in the development of an appraisal.

Incorrect: Failing to inspect the interior of comparable properties is a scope of work decision that may be acceptable depending on the assignment conditions and does not address the core ethical issue of data manipulation. The Record Keeping Rule focuses on the retention of data used to support the opinion, but the primary violation here is the intentional exclusion of data to influence the value. While reporting requirements under Standard 2 are important, the prompt specifically asks about the development of the approach and the ethical failure regarding data selection rather than the visual presentation of the report.

Takeaway: Appraisers must select comparable data based on market relevance and proximity rather than the desired value outcome to uphold the ethical requirement of impartiality.

Correct: According to the USPAP Scope of Work Rule and Standard 1, the appraiser is responsible for determining the type and extent of research and analysis necessary to produce credible results. When a property has unique materials, craftsmanship, or historical significance that contributes to its value, reproduction cost (the cost to create an exact replica) may be the only way to accurately capture those value-influencing characteristics in the cost approach. The appraiser must ensure the method chosen is appropriate for the intended use and the nature of the subject property.

Incorrect: The suggestion that reproduction cost is mandatory for all landmarks is incorrect because USPAP does not set age-based or designation-based mandates; the choice depends on what is necessary for credibility. Deferring the methodology choice entirely to the client’s risk department violates the Scope of Work Rule, which places the burden of determining the appropriate scope on the appraiser. Finally, using reproduction cost does not eliminate the need to calculate functional obsolescence; in fact, reproduction cost often necessitates a more detailed analysis of functional obsolescence because it replicates outdated features that a modern replacement would not include.

Takeaway: The selection of reproduction cost over replacement cost is a scope of work decision that must be justified by the appraiser’s need to produce credible results based on the property’s unique physical and historical characteristics.

Correct: According to USPAP Standards Rule 1-4(c), when an appraisal involves the development of a property, the appraiser must analyze the effect on value of anticipated market conditions and the time required for the project to reach stabilized occupancy (absorption). This is a fundamental requirement for a credible development risk analysis, as it ensures the appraiser considers the realistic timeframe and market environment in which the property will actually compete.

Incorrect: Verifying a developer’s IRR against a specific client’s hurdle rate is a matter of investment analysis or underwriting, not a USPAP requirement for a market value appraisal. Adopting developer-provided absorption schedules without independent analysis or verification fails the requirement for the appraiser to perform their own research and analysis. Excluding prospective value opinions when they are necessary for the intended use of the appraisal (such as a construction loan) would result in a report that is not useful and fails to address the scope of work required for development risk.

Takeaway: USPAP requires appraisers to independently analyze market conditions and absorption periods for proposed developments to ensure the prospective value is based on realistic market expectations.

Correct: According to USPAP Standards Rule 1-2(g) and 2-2, when an appraiser values a property contrary to what is known to exist (such as valuing a damaged building as if it were already repaired), they are using a hypothetical condition. The appraiser must clearly and conspicuously disclose the use of this condition, state that its use might have affected the assignment results, and determine that the use of the hypothetical condition is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison.

Incorrect: Classifying the future state as an extraordinary assumption is incorrect because an extraordinary assumption is used for situations where the fact is uncertain; since the foundation failure is known to exist, valuing it as repaired is a hypothetical condition. A jurisdictional exception is only applicable when a specific part of USPAP is precluded by law or regulation of a jurisdiction, not by a client’s internal policy. Limiting the scope of work or the report type does not exempt the appraiser from the requirement to disclose hypothetical conditions or from the duty to not be misleading.

Takeaway: When an appraiser values an industrial property based on a condition known to be contrary to fact, they must identify and disclose it as a hypothetical condition to maintain USPAP compliance.

Correct: According to the USPAP Ethics Rule, specifically the Confidentiality section, an appraiser must not disclose confidential information or assignment results to anyone other than the client and persons specifically authorized by the client (or as allowed by law/regulation). Even if a spouse is a co-owner of the property, they are not automatically an intended user or authorized to receive the results unless the client has specifically granted permission to the appraiser.

Incorrect: The Scope of Work Rule does not grant ‘de facto’ intended user status; intended users must be identified by the appraiser at the time of the assignment based on communication with the client. The Record Keeping Rule focuses on the retention of the workfile and documentation of the analysis, not the management of non-disclosure agreements with third parties. The Jurisdictional Exception Rule only applies when a specific part of USPAP is precluded by law or regulation; it does not allow an appraiser to unilaterally bypass confidentiality requirements without a specific legal mandate or court order.

Takeaway: Under USPAP, confidentiality is owed strictly to the client and authorized parties, regardless of the legal ownership status of third parties involved in the property.

Correct: Standards Rule 1-3(a) of USPAP requires that when the scope of work includes an opinion of market value, the appraiser must identify and analyze real estate market trends and relevant conditions. This includes an analysis of the supply and demand for the specific property type and the effects of anticipated public or private improvements that may influence the subject property’s value.

Incorrect: Requiring a specific three-year look-back period for an entire metropolitan area is a common secondary market guideline but is not a specific USPAP requirement for market analysis. Aligning an appraisal with a bank’s internal risk rating would violate the Ethics Rule regarding independence and objectivity. USPAP does not mandate the use of specific data sources like national subscription services, as the appraiser is responsible for selecting the most relevant and reliable data available for the specific assignment.

Takeaway: USPAP requires appraisers to perform a meaningful analysis of specific market trends and supply-demand factors rather than relying on unsupported generalizations or external non-appraisal metrics.

Correct: According to USPAP Standards Rule 1-4(a), when a sales comparison approach is necessary for credible assignment results, an appraiser must analyze such comparable sales data as are available. Furthermore, the Ethics Rule strictly prohibits an appraiser from developing or communicating a report that is biased or misleading. Intentionally omitting relevant sales data that would influence the value conclusion is a direct violation of these standards, as it compromises the objectivity and credibility of the appraisal.

Incorrect: Requiring a specific number of sales or listings is often a client-specific supplemental requirement or a secondary market guideline (such as Fannie Mae), but it is not a fundamental requirement of USPAP itself. Applying uniform adjustments dictated by a client’s internal department violates the appraiser’s responsibility to derive adjustments from actual market evidence and maintain independence. Prioritizing location over recency without a market-based justification may result in an outdated value opinion and fails to meet the requirement of analyzing the most relevant available data to produce a credible result.

Takeaway: USPAP requires appraisers to objectively analyze all relevant available data and prohibits the selective exclusion of information to produce a biased or misleading result.

Correct: Under USPAP, particularly Standard 1 and the Scope of Work Rule, the appraiser must develop an opinion of value that is credible. For Level 3 assets, where observable market data is limited or non-existent, the appraiser must use the best information available. This requires that the unobservable inputs and the model’s logic are consistent with the perspective of market participants. The appraiser’s responsibility is to simulate the market’s logic, ensuring the valuation reflects the economic reality of how such an asset would be priced in an open market.

Incorrect: The option regarding alignment with client budgetary forecasts is incorrect because it violates the Ethics Rule, which requires an appraiser to perform assignments with impartiality, objectivity, and independence, without regard to a client’s desired outcome. The option focusing on software sophistication is incorrect because USPAP emphasizes the quality of the data and the logic of the analysis rather than the specific tools or processing power used. The option prioritizing historical cost is incorrect because Level 3 valuations for fair value reporting are generally forward-looking and market-based; relying solely on historical cost may fail to capture current market conditions or the specific risks associated with complex assets.

Takeaway: For Level 3 assets, USPAP compliance hinges on the appraiser’s ability to justify unobservable inputs through the lens of market participant assumptions to ensure a credible and objective value opinion.

Correct: Under USPAP Standards Rule 1-2(e), an appraiser must identify the real property interest to be appraised. When a property is encumbered by a lease, the fee simple interest is divided into a leased fee interest (the landlord’s) and a leasehold interest (the tenant’s). If the appraiser is valuing the owner’s interest in a property subject to a long-term, below-market lease, they are valuing the leased fee interest, and the impact of the lease terms must be analyzed to provide a credible opinion of value.

Incorrect: Treating a legal lease agreement as a mere management inefficiency is incorrect because a lease is a legally binding encumbrance that dictates cash flows and property rights. Using a hypothetical condition to ignore a lease is only permissible under specific circumstances (e.g., for a ‘what-if’ analysis) and requires clear disclosure; it cannot be used simply to bypass the complexity of a leasehold interest. The right to sublease is a characteristic of the leasehold interest but does not dictate whether the appraiser must identify the division of property rights in the first place.

Takeaway: USPAP requires appraisers to accurately identify and analyze the specific property rights being appraised, particularly when leases create a division between leased fee and leasehold interests.