Regarding FAQ #319: Are our reports not appraisals if the value results are replacement cost?

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rlbarefoot1919

Regarding FAQ #319: Are our reports not appraisals if the value results are replacement cost?

July 29, 2016

I’m sure you are extremely busy as usual but I wonder if you can advise me on a question raised during the USPAP class you taught in Naples in May.

This has to do with FAQ’s #319 pertaining to replacement cost estimates. According to the answer to the question, an estimate of replacement cost is not an appraisal. The answer defines cost but then goes on to qualify that definition by stating that “replacement cost may be a major component used in developing an opinion of some type of value such as insurable value”. This is ambiguous and seems to mean that if an appraiser is estimating replacement cost and calling it value, then it is an appraisal.

For the last 15 years, my business partner and I, both Certified General Appraisers, have produced what we thought were appraisals for our clients to determine Hazard Insurance Value as Replacement Cost Value and Insurable Replacement Cost Value. That is the only type of appraisal that we now perform and we deliver about 1,800 reports every year. The questions that the answer to FAQ #319 have raised are; (1) are we producing an appraisal according to USPAP or an estimate of replacement cost which does not fall under the guidelines of USPAP and (2) if a replacement cost estimate is a not an appraisal, why do we bother maintaining our licenses.

It is interesting to note that none of the large companies providing insurance valuations that we compete against in Florida use appraisers that are licensed by the state (even though some of them call themselves appraisers and their results appraisals). Additionally, one of the end users of these so-called appraisals by our competitors is the state insurance company Citizens Property Insurance, which appears to sanction non-licensed activity.

Status: Open Aug 01, 2016 - 03:59 PM

FAQ #319: replacement cost is

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TAF-Admin

Aug 01, 2016 - 03:59 PM

As you correctly stated, FAQ #319 in the Frequently Asked Questions section of the 2016-17 USPAP publication identifies "replacement cost estimates" as just that; estimates, not opinions of value (i.e., appraisals). Therefore, in answer to the first question you raise, you are not providing "appraisals" under USPAP.

Regarding your second question about maintaining your appraiser license, although USPAP does not characterize these replacement cost estimates as appraisals, state laws may differ. Many states define "appraisal" and "appraisal report" in their statutes, and some definitions may dictate that these assignments constitute appraisals. Such determinations may require individuals to possess a real property appraiser credential, and may require compliance with USPAP (even if such assignments are not deemed as appraisals under USPAP).

We strongly suggest you contact the appraiser regulatory agencies in the state(s) where you provide your services. Because each state could interpret these assignments differently, you should make sure to contact each one where the properties involved are located.

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Regarding FAQ #319: Are our reports not appraisals if the value results are replacement cost?

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