Real Estate Appraisers are human and they do make mistakes. Not all Appraisers were created equal. Some Appraisers have more formal appraisal education than others, some have more appraisal experience than others, some are more dedicated to their craft than others and some properties are more difficult to appraise than others. For these reasons, formal Appraisal Reviews are necessary on all Appraisals in my opinion. Further we must ask ourselves the same questions about the Appraisal Review that we ask about the Appraisal Report, is it credible and can it be trusted? Below you will find the criterion that I use to evaluate the Appraisal Review.
First a refresher is in order on the types of Appraisal Reviews available. There are two generally accepted Uniform Standards of Professional Appraisal Practice (USPAP) compliant types of Appraisal Reviews, Desk Reviews and Field Reviews. There are many other less comprehensive formats used that do not conform to USPAP and they should be avoided. Desk Reviews are the most common and require less time and effort since they are prepared in the office and do not require research. The Desk Review assumes that all data within the Appraisal is accurate and the best available, while the focus is on the construction of the Appraisal. The Field Review is more complex, as it typically requires a property inspection of the subject and the comparable sales as well. It also involves confirming the data in the Appraisal and searching for other relevant data that may not have been used in the Appraisal.
To put it simply, the Desk Review is a less detail Appraisal Review than the more complex Field Review. In our company we typically perform a Desk Review on all Appraisals. If the Desk Review discloses that the Appraisal may require more scrutiny, we then consider moving to the more expensive and more comprehensive Field Review. Without a scientific sampling, I would venture to opine that 98% of all Real Estate Appraisal Reviews are Desk Reviews.
Who is qualified to perform an Appraisal Review? In the industry it is generally accepted that an Appraisal Review should be USPAP compliant and that the Review should be prepared by a State Certified Real Estate Appraiser. Some users of Appraisals employ non-appraisers to perform what are referred to as Quality Control Reviews or QC Reviews. These QC Reviews can be prepared by anyone and can be in most any format. While QC Reviews are used by many financial institutions and appraisal management companies, they do not hold the same clout as the USPAP compliant Appraisal Review. It is generally acceptable to have non-certified staff members perform a cursory review of an Appraisal already subjected to a USPAP compliant Appraisal Review, however the heavy lifting should be left to the State Certified Real Estate Appraiser. He or she should have a certification level that meets or exceeds that of the Appraiser, if the Appraisal and the Appraisal Review are to be trusted.
Assuming the proper format and that a qualified professional has been selected to perform the Appraisal Review, a checklist of other issues that contribute to the most trusted and credible Appraisal Review is offered. Much of this is subjective and is usually evaluated on a case by case basis by those using Appraisals and Appraisal Reviews.
- Material Issues – Primary emphasis should be focused on the aspects within the Appraisal that are material to the overall goal of the Appraisal. Some Appraisal Reviewers singularly focus on dotting the i’s and crossing t’s, with too little attention devoted to issues material to evaluation process. As an Appraisal Reviewer, I am more willing to excuse small non-consequential mistakes involving spelling, grammar, etc., than I am issues that materially affect the development of the Appraisal.
- Clarity and Specifics – The Reviewer should hold the Appraiser accountable for explaining the methodology used, his or her reasoning and the facts of the Appraisal.
- Inconsistencies – The best Reviewer will search for inconsistencies within the Appraisal Report as a tool for spotting valuation short comings. This is especially true of the Desk Review, where the Reviewer has little data to go on, other than what is written in the Appraisal Report.
- USPAP Compliance – A checklist should be used to insure that all USPAP requirements are addressed within the Appraisal Report.
- Value Conclusion Support – This is probably the most critical and most often neglected issue within Appraisal Reviews. The Appraisal can look professionally prepared, however if there is insufficient support for the final value conclusion all credibility is lost.
In conclusion it is my opinion that many Appraisal Reviewer’s focus far too much on technical matters in developing and reporting the Appraisal Review, and not nearly enough on the practical side. The best Reviewer will focus on issues of materiality, reasoning, consistency, and how well the value conclusion is supported. Of course, correct grammar is important, required disclosures should be properly noted and technical appraisal regulations should be followed. However, all of this is of little consequence if the comparable data used to support the value conclusion is flawed or not comparable to the subject property.
So to answer the question, yes the Real Estate Appraisal Review can be trusted, provided it is properly performed by a qualified Reviewer using sound logic.
Charlie Elliott, MAI, ASA, SRA, a Certified General Appraiser is the founder of ELLIOTT & Company Appraisers. Elliott & Company is an Appraisal Management Company specializing in complex title claim valuations for the title insurance industry. Mr. Elliott is not an attorney and nothing contained herein should be construed as a legal opinion or legal advice. All statements and opinions contained herein are those developed by Mr. Elliott given his three decades of education, training and experience as a complex property appraiser.