Appraisers frequently have their work reviewed, especially when an appraisal’s intended use is for financing. Reviewing appraisals is routinely part of the job description for appraisers employed by lending institutions. But the scope of work for review assignments varies significantly, and sometimes reviews are performed by non-appraisers. Both appraisers and their clients need to clearly understand when a review assignment is, in fact, an appraisal and whether an appraiser can conduct an accurate appraisal review.
How a Review Becomes an Appraisal: Eliminating Potential Confusion
The Uniform Standards of Appraisal Practice define ‘appraisal’ as an opinion of value or the act or process of developing an opinion of value. Any time an appraiser gives a value opinion, they have performed an appraisal. By contrast, an ‘appraisal review’ is defined 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. The critical difference between the two activities is the subject of the appraiser’s assignment: is the subject real property or another appraiser’s work?
Another vital element of both definitions is recognizing who is providing the appraisal service. In both cases, the practitioner is assumed to be an appraiser. Unless laws or regulations in a specific situation require otherwise, someone who is not an appraiser is not expected to comply with appraisal standards. If a value opinion or review is done by a broker, a lender, or an attorney, USPAP doesn’t apply.
Appraisers’ Roles in Both Assignments
Appraisers provide appraisal reviews for various purposes. An appraisal review may examine an appraisal’s compliance with standards and guidelines, verify its accuracy and completeness, or assess its analysis. The review appraiser can express opinions and conclusions about all of these in an appraisal review.
When the review appraiser goes on to state a value opinion for the subject of the original appraisal, the review appraiser has, by definition, performed a second appraisal. This is true even when the review appraiser simply concurs with the first appraiser’s value opinion. Providing a value opinion within an appraisal review assignment is USPAP-acceptable as long as the review appraiser fulfills appraisal development standards. This, in effect, becomes a two-part assignment consisting, firstly, the review appraiser’s conclusions about another appraiser’s work and, secondly, the review appraiser’s own value opinion.
When a review appraiser develops a value conclusion, they need to clearly describe the scope of their own appraisal. The scope could include assuming all the information provided by the original appraiser, considering the original information but with corrections, or providing new data and analysis. The review appraiser should include, by reference, the portions of the initial appraisal that they have used in developing their separate value opinion.
Identify the Service Needed First
The term ‘appraisal review’ has a specific meaning to appraisers. But clients and other intended users may use different terminology and expect the review to provide a value conclusion. The best way to avoid misunderstandings is for the appraiser and the client to define the scope of work explicitly before such a task begins. Appraisers can provide a broad spectrum of review services, from a simple reading for accuracy to a separate value opinion developed after reviewing another’s work. Should an appraiser comprehensibly identify the service provided and then execute that duty in compliance with professional standards, there should be no issue with satisfying a client’s intended use.