Appraisal Review: A Necessary Evil or A Profit Center?

The term “appraisal review”, is likely to elicit annoyed groans from the appraisal community. Why is it that appraisers have a negative view?

The world of appraisal includes all levels of review – from routine, daily review of residential reports by an AMC or client, to an appraisal review assignment on a fee basis. Fee assignments could require a simple fact-check of another appraiser’s report as a “desktop”, or a field review based on a drive-by appraiser’s opinion.

The Uniform Standards of Professional Appraisal Practice describes an appraisal review as,

“The act or process of developing an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment; of or pertaining to an opinion about the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment. “

With regards to USPAP, Standard 3 gives complete guidance on appraisal reviews.

TIP: Consider checking out the Frequently Asked Questions section at the rear of the USPAP bound document. Questions 305 through 329 all deal with appraisal review!

Let’s take a look at some of the types of appraisal review:

Review by an AMC or your client

This is a daily occurrence. Your residential report is reviewed by staff at a bank or other direct lender, or by an AMC. They may ask for “revisions” of your report. This type of review is often blamed for some of the delays in appraisal reports today. These “revision requests” are a hot topic among appraisers. They often complain that the requests are unnecessary, automated, and not applicable, or cite requests on topics already covered in the report. Did they even read your report?

Commercial appraiser’s work is often reviewed on a desktop basis to provide an opinion as to the adequate support of value within the original appraiser’s report. The level of this review may be determined by the amount of money involved in a loan or the loan to value ratio based on the opinion of value.

Review by Fannie Mae or Freddie Mac

With thousands of appraisal reports being done every year to support loans that are sold to the GSE’s, opinions vary on how many reports are randomly selected for desktop reviews. What is known is that a negative review, or series of them, can result in suspension or reprimand to an appraiser.

Internal review within an appraisal company

In large appraisal companies, reports may be submitted to another appraiser or review staff member as a part of quality control. Have you ever taken a look at a report you did years ago and found errors and typos? An internal review can provide a second set of eyes to catch errors before reports go out to the client.

Desktop or field review assignments as paid work

For residential reports, Form 2000 is the commonly used report form for fee review assignments. Utilized by lender clients and others, it can be used in two ways:

1. To provide an opinion as to the quality of another’s report

AND/OR

2. To provide an opinion of value, including new comparables if necessary

If the review assignments asks for both, and the review appraiser does not concur with the original appraiser’s choice of comparable sales, the process then involves inclusion, and adjustment, of sales chosen by the review appraiser. It is for this reason that appraisers complain of low fees for review assignments – considering the work entailed in this comparables replacement. This typically includes taking comparable photos of the original report’s comparables, as well as any new ones selected. A common complaint by appraisers is that fees are not commensurate with the scope of work required by these assignments.

A word of caution to appraisers using Form 2000 – use Standard 3 as a check-list for completeness, as the form, by itself, is not USPAP compliant.

There is an upside to review assignments – it gives practicing appraisers the opportunity to see what other appraisers do and how they do it. Since appraisal training includes modeling other appraisers’ work, the review process can provide the same advantages to a practicing appraiser.

Perhaps it’s time to take a second look at appraisal review! Understanding who is reviewing your reports and why it’s being done will give you a greater understanding of what clients are looking for in reports today. Who knows… it could give you a welcome income stream on your terms with the right client.