Uniform Standards of Professional Appraisal Practice

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Uniform Standards of Professional Appraisal Practice    

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              Valuation analysts are asked to determine the value closely held by businesses or a professional practice often during a divorce (Reilly, 2017). During a business valuation, the Uniform Standards of Professional Appraisal Practice (USPAP) requires the valuation analyst   to consider the application of the asset-based approach along with other business valuation approaches to determine the valuation for the client (Reilly, 2017). The creation of these national business valuation standards was not caused by incorrect business valuation practices but from a real estate appraisal scandal back in the 1980s (Hitchner, 2017). The Appraisal Foundation, a private nonprofit educational organization, was created to establish standards for appraising houses so they were not over valued and lowered the risk to the bank if the homeowner defaulted (Hitchner, 2017). These standards are still used today by property appraisers and business valuation analysts.

            USPAP has tried to combine the standards for three different appraisal disciplines into a single set of standards, but real estate valuation, personal property valuation, and business valuation are very different. Making just one document be the standard for all three cannot be done (Hitchner, 2017).

            Standard 3 of the Uniform Standards of Professional Appraisal Practice (USPAP) applies to business valuation (Hitchner, 2017). It applies because it is important to review another appraiser’s work to ensure everything in the business valuation has been taken into consideration (Hitchner, 2017).

           Standard 9 of the USPAP may be used in a business valuation when real property of a business has been impacted by environmental contamination. This truly does affect the valuation and many times a controversial technique has to be used called contingent valuation (CVM) (Jackson, Pitts & Norwood, 2012). There is nothing in USPAP forbidding the use of CVM in any property valuation assignment and while it may be used in other fields or professions, it is not well suited to the practice and profession of real property valuation (Jackson, Pitts & Norwood, 2012). Contingent valuation recreates how a market would react to such factors as environmental contamination in establishing a sale price or value (Jackson, Pitts & Norwood, 2012). Standard 9 usually is used to place value on public goods not private goods where buyers and sellers negotiate and establish a selling price.

                                                                                                       Conclusion

These standards were established to provide an ethical basis for all business analysts that complete a business valuation. These standards have expanded and evolved but only started because many appraisers were greedy for additional money for their appraisals and were unethical, which required many banks to lose money, and some go out of business. The Bible speaks against this kind of behavior. “Do you not know that the unrighteous will not inherit the kingdom of God? Do not be deceived, neither the sexually immoral, nor idolaters, nor adulterers, nor men who practice homosexuality, nor thieves, nor the greedy, nor drunkards, nor revilers, nor swindlers will inherit the kingdom of God (1 Corinthians 6:9-10, ESV).” Unfortunately, in today’s world, many people need written standards like these to act ethically.

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