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Understanding Scope of Work Requirements A Division Advisory

In five minutes or less, you will learn how to be compliant with the Scope of Work Rule.

What rule of the Uniform Standards of Professional Appraisal Practice (“USPAP”) has a common frequency of noncompliance?

It is the Scope of Work Rule

The Division of Real Estate ("the Division") routinely investigates complaints that result in non-compliance with the Scope of Work Rule of USPAP. The Board of Real Estate Appraisers ("the Board") and the Division want to achieve better compliance with this rule so that credible assignment results can be accomplished for the public.

Scope of Work Requirements

An appraiser must establish the appropriate scope of work necessary to complete an assignment.

Identify the problem to be solved by gathering the necessary information.

An appraiser must identify the following elements of the assignment as per USPAP:

  • Client and any intended users;
  • Intended use of the appraiser’s opinions and conclusions;
  • Type and definition of value;
  • Effective date of the appraiser’s opinions and conclusions;
  • Subject of the assignment and its relevant characteristics; and
  • Assignment conditions.

Determine and perform the scope of work necessary to produce credible results.

The scope of work is acceptable when it meets or exceeds:

  • The expectations of parties who are regularly intended users for similar assignments; and
  • What an appraiser’s peers’ actions would be in performing the same or similar assignment.

Do not limit the scope of work if it leads to non-credible assignment results.

If the conditions limit research opportunities into relevant information that is necessary to produce credible results in the context of the intended use, the appraiser must withdraw from the assignment UNLESS the appraiser can:

  • Modify the assignment conditions to expand the scope of work to include gathering the information; or
  • Use an extraordinary assumption about such information, IF credible assignment results can still be developed.
  • Remember: Lack of competency does not mean you can limit the scope of work.
Disclose Scope of Work in the Report

The report must contain sufficient information to allow the client and other intended users to understand the scope of work performed. The information disclosed must be appropriate for the intended use of the assignment results. Sufficient Information includes:

  • Disclosure of research and analysis performed.
  • Disclosure of relevant research and analysis not performed.

Disclosure may be confined to one area of the report, or spread throughout the report.

What are some common issues?

  • Unfamiliarity with the property type (condo, manufactured home, land, commercial) can lead to insufficient scope of work and non-credible assignment results.
  • Appraiser must determine the scope of work needed to develop credible assignment results within the context of the intended use.
  • If a client prohibits expansion of scope of work that is needed, the appraiser must decline the assignment.

What are some common issues?

  • Not using the correct definition of market value, or including multiple definitions of market value. You must only include that definition of value which pertains to the assignment.
  • There is not enough analysis disclosed in terms of adjustment support, cost analysis, and income resources.

What are some common issues?

  • Inclusion of boilerplate information does not constitute scope of work disclosure. Example: “Adjustments are supported by one of the following….”. “Land value included is supported by land sales, allocation or Extraction…” Scope of Work Rule requires that you discuss the information pertinent to that specific appraisal.
  • One of the tests of acceptability is by judging the actions of an appraiser’s peers. This pertains more to methodology than using the conclusions of your peers.
  • This also applies to percentages, cost figures, and the use of a cost approach itself. Remember to always use *your own* market analysis and support for all appraisal conclusions.

What are some possible violations?

  • Failure to comply with the Scope of Work Rule will result in discipline for violating it and the Competency Rule and Standards Rules.
  • Violation of the Ethics Rule is also possible depending on the severity of the violations.

Conclusion

The scope of work carries with it the burden of proof to support conclusions. Appraisers cannot meet their obligations in a market value assignment without having competently identified and then completed a scope of work that enables development of credible opinions and conclusions. (USPAP Advisory Opinion 22)

Resources

Follow a New Series of Common Appraisal Practice Issues

The Division conducts a significant amount of work product reviews every year through investigations and licensure applications. As part of the Division’s effort to better achieve compliance with frequently violated rules and for more meaningful communication, a new series regarding the most common appraisal issues seen by the Division has been developed for licensed appraisers.

This has been an advisory of the Division of Real Estate.

If you have questions please contact the Division at dora_realestate_website@state.co.us.

Credits:

Created with images by Nick Morrison - "Laptop and notepad" • RetroSupply - "taking a picture of hanging lights" • ErikaWittlieb - "house home residence" • Trent Erwin - "Hard at work" • Joshua Hoehne - "untitled image" • geralt - "result balance sheet follow" • Goumbik - "office business notebook" • Etienne Boulanger - "untitled image" • Ian Keefe - "untitled image" • Dan Meyers - "This shot makes me thirsty! I love how this shot turned out. I was about 10 meters above the ground with my Mavic Pro. This is a small winery in the mid-Willamette Valley outside Salem, Oregon. This is one of the biggest wine-producing areas in the country and it makes for some wonderful evening drone flights. " • chachpond - "denver skyline colorado" • Maximillian Conacher - "Rooftops"