USPAP 2018-2019 Edition

© The Appraisal Foundation

37

**STANDARD 5**

**STANDARDS RULE 5-3**

**When necessary for credible assignment results, an appraiser must:**

**(a) in appraising real property, identify and analyze the effect on use and value of the following factors:**

**existing land use regulations, reasonably probable modifications of such regulations, economic supply**

**and demand, the physical adaptability of the real estate, neighborhood trends, and highest and best use**

**of the real estate; and**

Comment: This requirement sets forth a list of factors that affect use and value. In considering neighborhood

trends, an appraiser must avoid stereotyped or biased assumptions relating to race, age, color, gender, or

national origin or an assumption that race, ethnic, or religious homogeneity is necessary to maximize value

in a neighborhood. Further, an appraiser must avoid making an unsupported assumption or premise about

neighborhood decline, effective age, and remaining life. In considering highest and best use, an appraiser

must develop the concept to the extent required for a proper solution to the appraisal problem.

**(b) in appraising personal property, identify and analyze the effects on use and value of industry trends,**

**value-in-use, and trade level of personal property. Where applicable, analyze the current use and**

**alternative uses to encompass what is profitable, legal, and physically possible, as relevant to the type**

**and definition of value and intended use of the appraisal. Personal property has several measurable**

**marketplaces; therefore, the appraiser must define and analyze the appropriate market consistent with**

**the type and definition of value.**

Comment: The appraiser must recognize that there are distinct levels of trade and each may generate its

own data. For example, a property may have a different value at a wholesale level of trade, a retail level of

trade, or under various auction conditions. Therefore, the appraiser must analyze the subject property within

the correct market context.

**STANDARDS RULE 5-4**

**In developing a mass appraisal, an appraiser must:**

**(a) identify the appropriate procedures and market information required to perform the appraisal, including**

**all physical, functional, and external market factors as they may affect the appraisal;**

Comment: Such efforts customarily include the development of standardized data collection forms,

procedures, and training materials that are used uniformly on the universe of properties under

consideration.

**(b) employ recognized techniques for specifying property valuation models; and**

Comment: The formal development of a model in a statement or equation is called model specification. Mass

appraisers must develop mathematical models that, with reasonable accuracy, represent the relationship

between property value and supply and demand factors, as represented by quantitative and qualitative

property characteristics. The models may be specified using the cost, sales comparison, or income

approaches to value. The specification format may be tabular, mathematical, linear, nonlinear, or any other

structure suitable for representing the observable property characteristics. Appropriate approaches must

be used in appraising a class of properties. The concept of recognized techniques applies to both real and

personal property valuation models.

**(c) employ recognized techniques for calibrating mass appraisal models.**

Comment: Calibration refers to the process of analyzing sets of property and market data to determine the

specific parameters of a model. The table entries in a cost manual are examples of calibrated parameters, as

well as the coefficients in a linear or nonlinear model. Models must be calibrated using recognized techniques,

including, but not limited to, multiple linear regression, nonlinear regression, and adaptive estimation.

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