Appraisal Review
An appraisal review is a commentary provided by one appraiser on the appraisal report created by another appraiser. This review process is an essential component to ensure the quality, accuracy, and compliance of the appraisal report with established standards such as the Uniform Standards of Professional Appraisal Practice (USPAP). The main objective is to verify that the original appraisal meets all the necessary regulatory, legal, and ethical requirements.
Key Components of Appraisal Review:
- Verification of Data: Checking the accuracy and completeness of the data used in the original appraisal.
- Compliance Check: Ensuring that the report complies with USPAP or other relevant standards.
- Methodological Analysis: Evaluating whether the methods and techniques applied are appropriate for the assignment.
- Quality Control: Identifying and correcting any errors or inconsistencies in the appraisal.
Examples
- Residential Property Review: An appraiser conducting a review of another appraiser’s report for a single-family home to ascertain that all valuation methods, such as comparable sales analysis, are correctly implemented and justified.
- Commercial Property Review: Reviewing an appraisal report for an office building ensures the income approach, cost approach, and market comparisons are accurately utilized and comply with USPAP.
- Internal Compliance Check: A financial institution employs appraisers to review appraisal reports on properties backing loans to ensure collateral valuations adhere to internal and regulatory standards.
Frequently Asked Questions
Q1: Who can perform an appraisal review?
A1: Typically, a qualified appraiser with adequate experience and credentials can perform an appraisal review. They must be certified and familiar with USPAP standards.
Q2: What is USPAP?
A2: The Uniform Standards of Professional Appraisal Practice (USPAP) is the set of quality control standards created by The Appraisal Foundation. It outlines ethical and performance standards for appraisers in the U.S.
Q3: Are appraisal reviews mandatory?
A3: Appraisal reviews are often mandatory for high-value or high-risk properties, such as in mortgage lending, financial reporting, litigation, and underwriting contexts.
Q4: What is the difference between an appraisal and an appraisal review?
A4: An appraisal evaluates the market value of a property, while an appraisal review assesses the quality, accuracy, and compliance of an appraisal report prepared by another appraiser.
- Appraisal: A professional assessment of a property’s market value based on various valuation methods.
- USPAP (Uniform Standards of Professional Appraisal Practice): Established standards on quality control, ethical behavior, and documentation for appraisals.
- Market Value: The estimated amount per which a property should exchange on the date of valuation.
- Valuation Methods: Techniques used to determine the value of a property, including the sales comparison approach, cost approach, and income approach.
- Fair Market Value (FMV): An estimate of the market value of a property assuming a transaction between a willing buyer and a willing seller.
Online Resources
- The Appraisal Foundation – USPAP
- International Valuation Standards Council (IVSC)
- Appraisal Institute
Suggested Books for Further Studies
- “The Appraisal of Real Estate,” by Appraisal Institute
- “Real Estate Valuation: Principles and Applications,” by Kenneth M. Lusht
- “USPAP 2022-2023 Edition,” by The Appraisal Foundation
Fundamentals of Appraisal Review: Real Estate Basics Quiz
### What is the primary goal of an appraisal review?
- [x] To ensure the appraisal report meets quality and compliance standards
- [ ] To increase the appraised value of the property
- [ ] To create a new appraisal report
- [ ] To replace original appraisal data with new data
> **Explanation:** The primary goal of an appraisal review is to ensure the appraisal report meets quality standards and complies with relevant regulations and ethical guidelines, typically those outlined by USPAP.
### What standards govern the practice of appraisal review in the United States?
- [ ] Generally Accepted Accounting Principles (GAAP)
- [ ] International Financial Reporting Standards (IFRS)
- [x] Uniform Standards of Professional Appraisal Practice (USPAP)
- [ ] American Society of Appraisers Standards
> **Explanation:** The Uniform Standards of Professional Appraisal Practice (USPAP) govern the practice of appraisal review in the United States, providing guidelines for ethical behavior and the methodology of appraisers.
### Can an appraiser perform a review of their own report?
- [ ] Yes, it is a standard practice.
- [x] No, reviews must be conducted by another qualified appraiser.
- [ ] Only under special circumstances.
- [ ] Yes, but only for commercial properties.
> **Explanation:** Appraisal reviews must be conducted by an independent and qualified appraiser to ensure objectivity and unbiased evaluation of the original appraisal report.
### Which approach is not typically verified during an appraisal review?
- [ ] Sales Comparison Approach
- [x] Management Approach
- [ ] Income Approach
- [ ] Cost Approach
> **Explanation:** The Management Approach is not a recognized method in real estate appraisal. Commonly verified approaches during an appraisal review include the Sales Comparison, Income, and Cost Approaches.
### What type of property may require a mandatory appraisal review?
- [x] High-value or high-risk properties
- [ ] Newly constructed residential homes
- [ ] Properties under $100,000
- [ ] Empty lots
> **Explanation:** High-value or high-risk properties often require mandatory appraisal reviews to ensure valuation accuracy, particularly in contexts like mortgage lending and financial reporting.
### Who established the USPAP standards?
- [ ] International Valuation Standards Council (IVSC)
- [ ] National Association of Realtors (NAR)
- [x] The Appraisal Foundation
- [ ] American Society of Appraisers
> **Explanation:** The Appraisal Foundation is responsible for establishing the USPAP standards that serve as the quality control and ethical guidelines for appraisal practices in the United States.
### What is generally not included in an appraisal review?
- [ ] Verification of data
- [ ] Compliance check
- [ ] Methodological analysis
- [x] Property inspection
> **Explanation:** An appraisal review typically does not include a property inspection. Instead, it focuses on verifying data, checking compliance, and analyzing the methods used in the original appraisal report.
### When evaluating an appraisal report, what is the relative importance of compliance with standards?
- [ ] Somewhat important
- [x] Very important
- [ ] Not important
- [ ] Least important
> **Explanation:** Compliance with standards like USPAP is very important, ensuring that the appraisal report adheres to professional, regulatory, and ethical requirements.
### In a commercial property appraisal review, which method is often scrutinized?
- [ ] Comparable cars sales
- [ ] Residential trends
- [x] Income approach
- [ ] Employee payroll data
> **Explanation:** In commercial property appraisal reviews, the Income Approach is often scrutinized as it involves analyzing the property's ability to generate income, which is crucial for accurate valuation.
### What does quality control in an appraisal review aim for?
- [ ] Increase in property tax
- [ ] Lowering appraisal costs
- [x] Identifying and correcting errors in the appraisal
- [ ] Raising property prices
> **Explanation:** Quality control in an appraisal review aims to identify and correct any errors or inconsistencies in the appraisal report to ensure its accuracy and reliability.
Thank you for delving into the world of appraisal reviews. Enhance your understanding further through our quiz and suggested readings to master the intricacies of real estate valuation and review.
