Appraisal reviews in real estate serve many important purposes. Sometimes the review process is more time consuming and requires research and analysis well beyond the original appraisal assignment, while other times the process is very smooth. If you are a professional appraiser, your work will be reviewed from time to time. It may be helpful to remember that it is your work product—not you—that is being reviewed.
In this article, we look at the definition of an appraisal review, why reviews are needed, the most common types of review reports, and who can perform one.
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Table of contents
- What is an appraisal review?
- Fact-checking vs appraisal review
- Types of appraisal review reports
- Why are appraisal reviews needed?
- Who requests a property appraisal review?
- Who can review a property appraisal?
What is an appraisal review?
An appraisal review in real estate is when one appraiser reviews the work of another. USPAP defines appraisal review as, “The act or process of developing an opinion about the quality of another appraiser’s work (i.e., a report, part of a report, a workfile, or some combination of these), that was performed as part of an appraisal or appraisal review assignment.”
Why are appraisal reviews needed?
Why does a second person need to review an appraisal report? After all, a professional appraiser has already given their expert opinion on the property’s value. Isn’t that enough?
The truth is, ensuring quality is never a one-person job. It results from careful, diligent efforts. After two major financial crises—the Savings and Loan crisis in the 1970s and the Subprime Mortgage crisis of 2007-2008—various stakeholders became increasingly concerned about the credibility of property valuations, both commercial and residential. Regulatory policies and procedures were established to create effective appraisal review programs that ensure appraiser independence and assess the quality and credibility of appraisals and evaluations.
Appraisal review serves as a process to double-check appraisals, helping to uphold the integrity and quality of property valuations.
Fact-checking vs. appraisal review
Fact-checking differs from appraisal review. It involves verifying factual data such as the subject’s history, listing status, and physical characteristics, as well as ensuring that client-specific requirements are met, like including E&O declarations or original photos of rental comparables. This process, often called a QC (Quality Control) or administrative review, can be performed by non-appraisers and is distinct from a formal appraisal review.
An appraisal review must be conducted by a credentialed appraiser and should involve evaluating work produced by another appraiser. Additionally, an appraisal review requires a client. Simply giving feedback to a colleague or trainee does not qualify as an appraisal review. Clients can include lenders, investors, sellers seeking a viable list price, attorneys in dispute resolution, and anyone else needing to assess the reliability of an appraiser’s work.
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, and the appraisal profession is no different.
Types of appraisal review reports
In appraisal reviews, as with any appraisal assignment, the intended use and intended user are key factors in defining the scope of work and reporting results. The review should be customized to address the needs of the intended user and comply with applicable USPAP Standards. Just like appraisals, appraisal reviews can vary significantly and may be presented orally or in writing.
Most clients will request a written review report, which may be communicated as a narrative report or as a review report form. Whichever format used, USPAP STANDARD 4 is a perfect checklist to use for ensuring that all of the necessary information is communicated. Of course, the review report must not be misleading and it must be sufficient to meet the needs of the intended user.
Form reports
In the near future, the traditional mortgage lending appraisal review forms will be replaced by the dynamic URAR (Uniform Residential Appraisal Report). For now, the Fannie Mae 2000 (Freddie Mac 1032): One-Unit Residential Appraisal Field Review Report is the most commonly used form for single-unit properties in mortgage lending and compliance. For small residential income properties, the Fannie Mae 2000A (Freddie Mac 1072): Two-to-Four Unit Residential Field Review Form is frequently utilized. Additionally, the NARA/MU 2006 Desktop Review form is another option for reporting appraisal reviews.
Forms for non-lending appraisal review are more varied and less standardized. Some client groups have created their own forms to address their specific requirements. Appraisal software providers also offer a range of residential and commercial review forms tailored to different types of appraisal reviews.
It’s essential to ensure that all forms comply with USPAP standards and to supplement them as needed.
Checklists
Checklists are often confused with appraisal review reports, but they are not the same. Typically used for administrative or quality control purposes, checklists do not constitute a formal appraisal review report. However, review appraisers frequently use checklists as a tool to guide them through the appraisal review process.
Narrative reports
For non-residential or non-lending appraisal review assignments, you may use a narrative report or a hybrid report, which combines template and narrative sections. Narrative reports offer greater flexibility in creating a comprehensive and effective review report.
With narrative reports, the reviewer generally creates his or her own format. Although, there are some software providers who offer narrative report formats.
Oral reports
Oral reports are used when the client does not require a written report. These are often used in court testimony or when a reviewer is being deposed. The 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. They must make sure the review has been properly developed and that a supporting workfile in compliance with USPAP is in place prior to issuing an oral report.
After expert-witness testimony, the signed certification should go in the reviewer’s workfile along with a written summary of the testimony. (A written transcript is even better.)
Why are appraisal reviews needed?
Real estate appraisal reviews are useful and necessary because they can they serve as a tool for:
Providing a second opinion
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, and the appraisal profession is no different.
Measuring credibility
A review serves as a tool for measuring the appraisal report’s credibility by determining if 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.
Boosting client confidence
A 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.
Managing risk
A review can help a lending institution client manage risk. The lender has a fiduciary responsibility to its stakeholders and investors to justify loan guarantees based on collateral value. The review is a safety net as the collateral was appraised by a professional and subsequently reviewed by a second appraiser. The review process advises whether the appraisal or evaluation is acceptable for prudent lending purposes
Meeting mandatory requirements
Mandatory requirements by the Federal Agencies, government sponsored entities, insurers, mortgage insurance carriers, and other interested parties or intended users of the valuation expect a quality review of the appraisal or evaluation ranging from administrative reviews to appraisal reviews depending on risk and the intended use of the review.
Litigation support
Appraisal reviews play a crucial role in litigation and dispute resolution, including civil actions and condemnation cases. In these situations, appraisal reviews help enhance the credibility of the work under review’s conclusions or may challenge them.
Who requests a property appraisal review?
The client base for appraisal reviews is vast and diverse, encompassing a wide range of sectors and needs.
- Lenders rely on reviews to ensure the accuracy and reliability of appraisals before making lending decisions.
- Investors use them to evaluate the value and risk of potential investments.
- Attorneys order reviews to support legal matters involving property valuation, including disputes and condemnation cases.
- Insurance companies use them for verifying property values in underwriting and claims.
- Government agencies may request reviews for regulatory purposes, tax purposes, or right-of-way acquisitions.
Additionally, property owners and buyers/sellers may turn to appraisal reviews for a second opinion surrounding complex transactions. This broad spectrum of clients underscores the critical role appraisal reviews play across various situations.
Who can review a property appraisal?
Appraisal review demands a high level of competency in evaluating and assessing the credibility of another appraiser’s work. As such, individuals engaging in appraisal reviews must have prior experience as an appraiser and demonstrate the necessary skill set. Typically, this requires a minimum of 3 to 5 years of experience as a certified residential appraiser or certified general appraiser.
Learn more about completing appraisal reviews with our CE courses
Are you interested in performing reviews? Grow your knowledge with our continuing education courses. Enroll in our appraisal review courses, including “Evaluating Today’s Residential Appraisal: Reliable Review,” “Introduction to Commercial Appraisal Review,” and “Evaluating a report for USPAP Compliance.”
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