Appraisal reviews serve many important purposes. Sometimes the appraisal review process is more time consuming and requires research and analysis well beyond the original assignment, while other times the process is smooth with no problems. One of the difficulties that reviewers face in appraisal practice is recognizing that it is the work product being reviewed, and not the appraiser. Additionally, what the reviewer is being asked to do varies from assignment to assignment.
USPAP defines appraisal review as:
The act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.
Why are appraisal reviews needed?
Here are six reasons why appraisal reviews are useful and necessary:
- A professional review of an appraiser’s work often makes sense as a prudent business practice for users of appraisal services. It is not unusual for clients in other professions to seek second opinions, so the appraisal profession is no different.
- An appraisal review serves as a tool in measuring the credibility of the report by determining whether it supports a relevant development process. The review serves as a test of reasonableness to see if the methods and techniques used are appropriate to the assignment.
- An appraisal review can reinforce a client’s confidence in the appraisal report. The reviewer ascertains whether appropriate data has been gathered and examined, if the data has been analyzed logically, and whether the conclusions are consistent with the information presented in the report.
- A review can help a lending institution client manage risk. Because appraisal reports are used in a business decision on the part of the client, an appraisal review lends a degree of due diligence to the process. Descriptive portions of a report can alert the lender to any additional risks associated with the property, while the value conclusions lend credence to the business decision.
- Appraisal reviews are helpful in supporting litigation and dispute resolution matters. Often, more than one appraisal report is prepared in these instances. Appraisal reviews lend credibility to conclusions of each, or demonstrate shortcomings.
- Appraisal reviews are used to assess work products of appraisers for clients who have little knowledge of appraisal and/or have no internal appraisal capabilities.
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Types of appraisal review reports
The type of appraisal review reports are generally dictated by the client, based on discussion with the appraiser. The four most common report types include:
- Form reports
- Fannie Mae 2000 (Freddie Mac 1032): One-Unit Residential Appraisal Field Review Report is the most commonly requested type of report for quality control and compliance for single-unit properties.
- Fannie Mae 2000A (Freddie Mac 1072): Two-to-Four Unit Residential Field Review Form is used for small residential income properties.
- Forms for other property types are more numerous and less standardized than residential forms. Some client groups have developed their own forms to meet their specific needs.
- Software providers offer a variety of residential and commercial review forms for various types of appraisal reviews.
- All forms should be checked for USPAP compliance and supplemented when necessary.
- Narrative reports
- Reviewer generally creates his or her own format, although there are some software providers who offer narrative report formats.
- Content must comply with appropriate USPAP Standards.
- Narrative reports must meet the needs of the client and any other intended users.
- Oral reports
- Used when client does not require a written report. Often used in court testimony or when a reviewer is being deposed.
- Reviewer must develop the appraisal review opinion prior to delivering the oral report. A reviewer should not be expected to provide an opinion about another appraiser’s work on the spot.
- Reviewer must make sure the appraisal review has been properly developed and that a supporting workfile in compliance with USPAP is in place prior to issuing an oral report.
The need for appraisal reviews has increased in recent years for a variety of reasons. Ready to sharpen your review skills? Enroll in our CE course: Evaluating Today’s Residential Appraisal: Reliable Review.
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