Good Appraisal Reports Stephen L. Ott, Ph.D. Appraisal, Compensation and Indemnity Specialist

Good Appraisal ReportsGood Appraisal Reports

Stephen L. Ott, Ph.D.Stephen L. Ott, Ph.D.Appraisal, Compensation and Appraisal, Compensation and

Indemnity SpecialistIndemnity Specialist


Characteristics of a good appraisal reports Characteristics of a good appraisal reports for APHISfor APHISBy private professional appraisalsBy private professional appraisalsAPHIS employeesAPHIS employees

Critique of past appraisal reportsCritique of past appraisal reports


A good appraisal report for APHIS leads A good appraisal report for APHIS leads you to the valueyou to the value Not only will you be in agreement with Not only will you be in agreement with

valuation, but will have enough information so valuation, but will have enough information so you could explain / defend valuation to othersyou could explain / defend valuation to others

A poor appraisal report for APHIS simply A poor appraisal report for APHIS simply tells you the valuetells you the value You may not have enough information to judge You may not have enough information to judge

the reasonableness of values presentedthe reasonableness of values presented

Private appraisers follow USPAP Private appraisers follow USPAP guidelinesguidelines

USPAP StandardsUSPAP StandardsStandard Rule 8-2Standard Rule 8-2Each written personal property Each written personal property

appraisal report must be prepared appraisal report must be prepared under one the following three types under one the following three types of appraisal report writing options, of appraisal report writing options, and it must state which of the and it must state which of the following report options is being following report options is being used: the Self-Contained Appraisal used: the Self-Contained Appraisal Report, the Summary Appraisal Report, the Summary Appraisal Report, or the Restricted Use Report, or the Restricted Use Appraisal ReportAppraisal ReportAPHIS desires Self-Contained Appraisal APHIS desires Self-Contained Appraisal

Reports as they are the most completeReports as they are the most complete

USPAP: USPAP: Self-Contained Appraisal ReportsSelf-Contained Appraisal ReportsItems included in a self-contained Items included in a self-contained appraisal report (Standard Rule 8-2)appraisal report (Standard Rule 8-2)Generally on Title PageGenerally on Title Page

State the identity of the client and any intended State the identity of the client and any intended users, by name or typeusers, by name or type

State the effective date of the appraisalState the effective date of the appraisal It is the date which appraisal was basedIt is the date which appraisal was based The effective date may be retrospective, current, or The effective date may be retrospective, current, or

prospective relative to the date when the work was doneprospective relative to the date when the work was doneAlsoAlso

What is being appraisedWhat is being appraised Who is doing the appraisalWho is doing the appraisal What type of appraisal: self-contained or summaryWhat type of appraisal: self-contained or summary

SELF-CONTAINED APPRAISALOF

Holstein-Jersey Crossbred Cow

IN POSSESSION OFJohn Goodhands

ADDRESS123 ABC Rd

Dairyland, USA

PREPARED FORI.M. Boss, AVIC

USDA:APHIS:VS

EFFECTIVE DATE12/2/2008

PREPARED BYJane Best, AIC

USDA:APHIS:VS

USPAP: USPAP: Self-Contained Appraisal ReportsSelf-Contained Appraisal Reports

State the intended use of the appraisalState the intended use of the appraisalDescribe the subject property sufficiently enough Describe the subject property sufficiently enough so that it can be identified, including its physical so that it can be identified, including its physical and economic characteristics, as may be relevant and economic characteristics, as may be relevant to the assignmentto the assignmentState the property interest (% owned)State the property interest (% owned) Especially if not 100%Especially if not 100%

State all assumptions, hypothetical conditions, State all assumptions, hypothetical conditions, and limiting conditions that affected the analysis, and limiting conditions that affected the analysis, opinions, and conclusions of the appraisalsopinions, and conclusions of the appraisals Hypothetical conditions: that which is contrary to what Hypothetical conditions: that which is contrary to what

exists, but is supposed for the purpose of analysisexists, but is supposed for the purpose of analysis APHIS assumes disease free status for valuation purposesAPHIS assumes disease free status for valuation purposes

USPAP: USPAP: Self-Contained Appraisal ReportsSelf-Contained Appraisal ReportsDescribe (in detail) the information Describe (in detail) the information analyzed, the appraisal procedures analyzed, the appraisal procedures followed, and the reasoning that followed, and the reasoning that supports the analysis, opinions, and supports the analysis, opinions, and conclusion of the appraisalconclusion of the appraisalThe heart of an appraisal reportThe heart of an appraisal reportIt is the detail and completeness that It is the detail and completeness that

differs from a summary reportdiffers from a summary report

Include a signed statement that one Include a signed statement that one is in compliance with Standard Rule is in compliance with Standard Rule 8-38-3


Standard Rule 8-3Standard Rule 8-3Reporting of facts and analysesReporting of facts and analyses

The statements of fact in this report are true The statements of fact in this report are true and correctand correct

The reported analyses, opinions, and The reported analyses, opinions, and conclusions are limited only by the reported conclusions are limited only by the reported assumptions and limiting conditions, and are assumptions and limiting conditions, and are my personal, impartial, unbiased professional my personal, impartial, unbiased professional analyses, opinions, and conclusionsanalyses, opinions, and conclusions

My analyses, opinions, and conclusions were My analyses, opinions, and conclusions were developed, and this report has been prepared, developed, and this report has been prepared, in conformity with the Uniform Standards of in conformity with the Uniform Standards of Professional Appraisal PracticeProfessional Appraisal Practice

USPAP: USPAP: Self-Contained Appraisal ReportsSelf-Contained Appraisal ReportsStandard Rule 8-3 (continued)Standard Rule 8-3 (continued)Work is unbiased, i.e. don’t have a stake in Work is unbiased, i.e. don’t have a stake in

the out comethe out comeI have no present or prospective interest in the I have no present or prospective interest in the

property that is the subject of this report, and I property that is the subject of this report, and I have personal interest with respect to the parties have personal interest with respect to the parties involvedinvolved

I have no bias with respect to the property that is I have no bias with respect to the property that is the subject of this report or to the parties involved the subject of this report or to the parties involved with this assignmentwith this assignment

My engagement in this assignment was not My engagement in this assignment was not contingent up developing or reporting contingent up developing or reporting predetermined resultspredetermined results


Standard Rule 8-3 (continued)Standard Rule 8-3 (continued)Results are independent of compensationResults are independent of compensation

My compensation is not contingent upon the My compensation is not contingent upon the development or reporting of a predetermined value development or reporting of a predetermined value or direction in value that favors the cause of the or direction in value that favors the cause of the client, the amount of the value that favors the client, the amount of the value that favors the cause of the client, the amount of the value cause of the client, the amount of the value estimate, attainment of a stipulated result, or the estimate, attainment of a stipulated result, or the occurrence of a subsequent event directly related occurrence of a subsequent event directly related to the intended use of this appraisalto the intended use of this appraisal


Standard Rule 8-3 (continued)Standard Rule 8-3 (continued)Property inspection and assistance from Property inspection and assistance from

othersothersI have (or have not) made a personal inspection I have (or have not) made a personal inspection

of the property that is the subject of this report. of the property that is the subject of this report. (If more than one person signs the report, then (If more than one person signs the report, then need to specify which individuals did and which need to specify which individuals did and which individuals do not make a personal inspection.)individuals do not make a personal inspection.)

No one provided significant professional No one provided significant professional assistance to the person signing this report. (If assistance to the person signing this report. (If someone did provide significant professional someone did provide significant professional assistance, that person’s name must be stated).assistance, that person’s name must be stated).

Parts of a Good Appraisal Parts of a Good Appraisal ReportReport

USPAP Boiler PlateUSPAP Boiler Plate

Appraisal ProcessAppraisal Process

PurposePurpose

Assumptions and LimitationsAssumptions and Limitations

Conflict of InterestConflict of Interest

Appraiser’s QualificationAppraiser’s Qualification

Appraisal ProcessAppraisal Process

Discusses Which Method UsedDiscusses Which Method UsedGenerally sales comparison approachGenerally sales comparison approachOther MethodsOther Methods

Income, Cost-of-ReplacementIncome, Cost-of-Replacement

Sales ComparisonSales ComparisonBased upon actual sales dataBased upon actual sales data

Self-contain report will include sales data usedSelf-contain report will include sales data used

Expert opinion (auctioneers) is not a sales Expert opinion (auctioneers) is not a sales comparisoncomparison

Purpose of AppraisalPurpose of AppraisalEstimate net value if sold in appropriate Estimate net value if sold in appropriate

marketmarketon-farm value, i.e. subtract trucking and other on-farm value, i.e. subtract trucking and other

marketing charges from market price is appropriatemarketing charges from market price is appropriate Often isn’t done, which increase valuationOften isn’t done, which increase valuation

Assumptions & LimitationsAssumptions & LimitationsCan be a clue if key information wasn’t Can be a clue if key information wasn’t

includedincludedAPHIS Assume animals are free of disease of APHIS Assume animals are free of disease of

interestinterest

Conflict of InterestConflict of Interest

Comes from relationshipsComes from relationships Need to judge on your own, not what is statedNeed to judge on your own, not what is stated

ObviousObvious Partial ownershipPartial ownership RelativeRelative

Not so obviousNot so obvious Have direct business dealings, e.g. banker, Have direct business dealings, e.g. banker,

auctioneerauctioneer Desire to have direct business dealingsDesire to have direct business dealings Fellow producerFellow producer Membership in same professional – personal Membership in same professional – personal

organizationsorganizations

Better to use someone out-of-state than Better to use someone out-of-state than someone local with potential conflict of interestsomeone local with potential conflict of interest

Qualification / ExperienceQualification / Experience

Have they received training from the Have they received training from the American Society of Agricultural American Society of Agricultural Appraisers (ASAA) or similar organizationAppraisers (ASAA) or similar organizationIf yes, then you should expect a high quality If yes, then you should expect a high quality

reportreportShould know what is a self-contained appraisal Should know what is a self-contained appraisal

reportreport

Heart of a Good AppraisalHeart of a Good Appraisal

Description of Subject PropertyDescription of Subject Property

Description & Justification of Sales Description & Justification of Sales ComparablesComparables

Adjustments to ComparablesAdjustments to Comparables

Takes into consideration various Takes into consideration various characteristics that influence valuecharacteristics that influence value

Description of Subject PropertyDescription of Subject Property

General herd backgroundGeneral herd backgroundIndividual characteristics if individual Individual characteristics if individual animal appraisalanimal appraisalDocumentation of above average quality if Documentation of above average quality if so claimedso claimedRegistration papers are not sufficient to Registration papers are not sufficient to

support above average qualitysupport above average qualityNeed documentation of above average Need documentation of above average

productivity or above average selling priceproductivity or above average selling price

Description & Justification Description & Justification of Sales Comparablesof Sales Comparables

Sales Comparables are listed with their pricesSales Comparables are listed with their prices

Should be of similar quality to subject propertyShould be of similar quality to subject property Documented: productivity, pedigrees, selling prices of Documented: productivity, pedigrees, selling prices of

offspring / herd matesoffspring / herd mates

Very Important: adjustments made to bring sales Very Important: adjustments made to bring sales comparables into alignment with subject comparables into alignment with subject propertyproperty Often not includedOften not included If not included, then don’t have a self-contained If not included, then don’t have a self-contained

appraisal reportappraisal report

Use of Appropriate Characteristics Use of Appropriate Characteristics that Influence Valuethat Influence Value

Potential CharacteristicsPotential CharacteristicsAge, sex, breed, productivity measures (milk Age, sex, breed, productivity measures (milk

production)production)

Excluding important characteristics can Excluding important characteristics can caste doubt on the validity of the appraisalcaste doubt on the validity of the appraisalDepreciation (impact of age) in breeding Depreciation (impact of age) in breeding

(milk) animals should be incorporated in value(milk) animals should be incorporated in valueIf not, must state why and have supporting If not, must state why and have supporting

evidenceevidence

SummarySummaryA Good Appraisal ReportA Good Appraisal Report

Has good description of animal / herd so others Has good description of animal / herd so others can judge relative qualitycan judge relative qualityDiscusses comparables used and why they are Discusses comparables used and why they are appropriate comparablesappropriate comparablesIncludes key parameters that influence valueIncludes key parameters that influence value Age, sex, breed, productivity, etc.Age, sex, breed, productivity, etc.

Has detailed discussion on how value was Has detailed discussion on how value was determined so others can pass judgment determined so others can pass judgment reasonableness of valuereasonableness of valueFinally it leads you value, not simply tells you Finally it leads you value, not simply tells you valuevalue

Documents

Good Appraisal Reports Stephen L. Ott, Ph.D. Appraisal, Compensation and Indemnity Specialist