In 1989 the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) legislation was enacted by Congress. The Title XI appraisal requirements of FIRREA only apply to real estate and/or real property and established education and experience requirements for licensing/certification of all real estate appraisers who perform appraisals for a federally related real estate transaction. This act also created the Appraisal Subcommittee and mandated the use of the USPAP for all real estate and/or real property appraisals involved in federally related transactions.

Further Federal regulation of real estate and real property appraisers and appraisals came in 1991, when the Office of Management and Budget's (OMB) Circular A-129 became effective. This circular mandated the use of state licensed or certified real estate appraisers for all federal actions by Federal agencies under the OMB's jurisdiction.

The current, 1998, USPAP defines three levels of scope for appraisals, three effective appraisal dates, and three methods of presenting the results of an appraisal. A Complete Appraisal is the act or process of estimating value or an estimate of value performed in accordance with all of the requirements of USPAP Standard 1. A Limited Appraisal is the act or process of estimating value or an estimate of value that departs in some fashion from USPAP Standard 1. A Hypothetical Appraisal is the act or process of estimating value or an estimate of value under an assumption of some hypothetical condition that is clearly required for legal purposes, for purposes of reasonable analysis, or for purposes of comparison and which would not be misleading.

Two dates are essential to an appraisal report. USPAP requires that each report specify the effective date of the appraisal and the report date. The effective date of the appraisal establishes the time context for the appraisal . Three effective dates may be used according to the purpose, function and intended use of the appraisal. Current appraisals or analyses occur when the effective date of the appraisal is contemporaneous with the date of the report. Current is usually considered to be the date of examination of the property for an appraisal engagement. Retrospective appraisals or analyses indicate that the effective date of the appraisal is prior to (in the past) the date of the report. Retrospective appraisals or analyses may be required for property, estate or other tax matters, condemnation proceedings, suits to recover damages and similar situations. Prospective appraisals or analyses indicate that the effective date of the appraisal is subsequent (in the future) to the date of the report. Prospective appraisals or analyses may be required for valuations or analyses of property or business interests related to proposed developments, as the basis for value at the end of a cash flow period, and for other reasons. A prospective appraisal cannot be based on a hypothetical condition.

Each written real property appraisal report must be prepared under one of the following three options as defined in USPAP Standard 2: Self-Contained Appraisal Report, Summary Appraisal Report or Restricted Appraisal Report. The essential difference among the three options is in the use of the terms describe, summarize, and state respectively. Describe is used to connote a comprehensive level of detail in the presentation of information. Summarize is used to connote a more concise presentation of information. State is used to connote the minimal presentation of information.

While the USPAP does not specifically address the appraisal of mineral properties or the valuation of mining companies, mineral rights are normally considered to be a part of the "bundle-of-sticks" that comprise real property. The USPAP does indicate that mineral rights may be considered an intangible property associated with a business. It is this web site author's professional opinion that all income producing real property has a business of some kind associated with it. It also appears to be that income generated primarily from the use of real estate and/or real property has traditionally been valued as real property and not as a business enterprise. Most property tax regimes also consider mineral property to be real estate in the same manner as an apartment or office building. Therefore this author is of the opinion that mineral rights and/or other mineral interests should normally be valued and reported under USPAP Standards 1 and 2. If the mining business enterprise itself is to be appraised it should be valued and reported under USPAP Standards 9 and 10.

Discuss your mineral property appraisal, mining business valuation, or other mineral industry related concerns with Mineral Business Appraisal:
Michael R. Cartwright  michael@minval.com
Five Claret Court, Reno, NV  89512-4744
Tel/Fax: 775-322-9028

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