Disclosure Example: Jurisdictional Exception Rule

Disclosure Example: Jurisdictional Exception RuleThe JURISDICTIONAL EXCEPTION RULE is intended as a “saving clause” which preserves the balance of USPAP if a specific law or regulation precludes compliance with a part or parts of USPAP. In an appraisal assignment, if a law precludes you from complying with one part of USPAP, you would employ a jurisdictional exception. However, you cannot simply disregard the rest of USPAP. You must comply with the parts of USPAP that are still in effect.

In real-life appraisal practice, there are very few jurisdictional exceptions. But let’s take a look at an example scenario in which the JURISDICTIONAL EXCEPTION RULE would come into play.

Example scenario

Sue is appraising a property that is being condemned for a federal highway project. Her appraisal is subject to the requirements of her state’s Department of Transportation (DOT). Section 42, Subsection 1 of the DOT Appraisal Manual states, “A market value opinion developed under these requirements may not be linked to a specific exposure time.”

Sue is aware that USPAP, specifically the Comment to Standards Rule 1-2(c), requires an appraiser to develop an opinion of reasonable exposure time when exposure time is a component of the value definition.

In this situation the DOT Appraisal Manual, as a lawfully-promulgated regulation, takes precedence over USPAP. This would preclude Sue from complying with Standards Rule 1-2(c).

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USPAP disclosure requirements

The JURISDICTIONAL EXCEPTION RULE requires four specific action steps by the appraiser when an assignment involves jurisdictional exception. Two of these steps (#3 and #4) require disclosure or citation.

According to the rule, as stated in the Uniform Standards of Professional Appraisal Practice 2018-2019 by The Appraisal Foundation, an appraiser must:

  1. identify the law or regulation that precludes compliance with USPAP;
  2. comply with that law or regulation;
  3. clearly and conspicuously disclose in the report the part of USPAP that is voided by that law or regulation; and
  4. cite in the report the law or regulation requiring this exception to USPAP compliance.

Many appraisers cite the JURISDICTIONAL EXCEPTION RULE in their reports in a vague, general manner (e.g., “This assignment is subject to the JURISDICTIONAL EXCEPTION RULE”). USPAP makes it clear that this type of generic acknowledgement is insufficient when an appraisal assignment involves jurisdictional exception.

Disclosure statement example

Continuing with the example above, in her appraisal report, Sue must:

  • Disclose the part of USPAP that is voided by the law or regulation
  • Cite the regulation or law requiring the exception to USPAP

Sue’s report might contain a paragraph similar to this:

This appraisal assignment involves jurisdictional exception. Specifically, the appraiser is prohibited from compliance with Standards Rule 1-2(c), which requires that an opinion of reasonable exposure time be developed when exposure time is a component of the definition of value used. The State DOT Appraisal Manual, Section 42, Subsection 1 prohibits linking a specific exposure time to a market value opinion.

Sue has met both of her disclosure requirements in one simple paragraph. She stated the part of USPAP that is voided, and she cited the regulation that is the source of the jurisdictional exception.

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