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Welcome to{Organization} An Appraisal Continuing Education Course • Residential Appraisal Review

Residential Appraisal Review Your Instructor Today is Instructor Name@email.edu

Chapter 1 Introduction to Appraisal Review

Chapter Objectives • Upon completion of this chapter, the participant will be able to: • Define appraisal review • Discuss characteristics of an appraisal review • Explain professional standards involved • Describe competency and scope of work • Discuss communication skills necessary for appraisal review reporting • Recognize attributes of a positive appraisal review conclusion

Appraisal Review Defined • As defined by USPAP, an appraisal review is: • 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 • Appraisers who provide appraisal review services are referred to as a reviewer

Appraisal Review Defined continued • In some review assignments, the scope of work will be limited to developing and communicating an opinion of the quality of the work being reviewed • However, in other assignments, the reviewer’s scope of work will be extended to include the reviewer’s own opinion of value

Appraisal Review Defined continued • The SCOPE OF WORK RULE of USPAP requires the appraiser to • Identify the problem to be solved • Determine and perform the scope of work necessary to develop credible assignment results • The practice of agreeing or disagreeing with value opinions found in the work being reviewed is often within the scope

Appraisal Review Defined continued • Example: • Appraisal review performed for mortgage industry participants and reported on common industry appraisal forms • Preprinted scope of work includes the reviewer expressing his agreement or disagreement of the value opinion stated in the appraisal being reviewed

Appraisal Review Defined continued • Note: • The term “appraisal review” does not address a supervisory appraiser’s critique of a trainee’s or assistant’s work

Subject of an Appraisal Review • The subject of an appraisal review may be: • All or part of a report • A workfile • A combination of all or part of a report, and a workfile • The specifics of the components the reviewer are being asked to review is also determined during problem identification

Uses of an Appraisal Review • Appraisal reviews are typically performed for use by mortgage industry participants as part of their quality assurance process • Other uses of appraisal reviews include: • Legal decisions and litigation • Insurance settlements • Eminent domain • Tax issues • Internal quality control (as an outside party) for an appraisal firm

Uses of an Appraisal Review continued • For appraisal reviews requested by mortgage lenders and related entities, the scope of work may include a broad set of tasks for the reviewer including: • Reviewing the quality, completeness, adequacy, and reasonableness of the entire development and reporting process • Forming his own opinions and conclusions regarding the value opinion found in the original work being reviewed

Uses of an Appraisal Review continued • In some assignments, the scope of work may be to: • Affirm an appraisal report is understandable and meaningful and opinions and conclusions are credible • Communicate opinion of the adequacy of an appraisal report to a specific intended use and an intended user

Uses of an Appraisal Review continued • In some assignments, the scope of work may be to: • Review appropriateness of valuation approaches, reasonableness of data used, and mathematical accuracy • Verify adjustments, depreciation, etc. in the sales comparison approach (and/or rates of capitalization, etc. in the income approach) are reasonable

Uses of an Appraisal Review continued • In some assignments, the scope of work may be to: • Ensure compliance of the appraisal with USPAP, any other regulatory requirements, or assignment conditions

Reviews and Good Reviewers • A residential appraiser is typically a practicing appraiser who offers appraisal review services as an independent thirdparty to other parties desiring an opinion of all or part of an appraisal performed by another

Reviews and Good Reviewers continued • Occasionally, an appraiser who had his work reviewed will express anger or frustration with the reviewer or the review process • In some cases, the reviewer may have rightfully noted inadequacies and deficiencies of the appraiser’s work • In such a case, the appraiser would be best served by accepting the reviewer’s findings constructively and learning from the process

Reviews and Good Reviewers continued • Possibly, if the appraiser is particularly antagonized by a reviewer’s findings, the frustration may be due to the style or tone of the review • In such circumstances, the appraiser may more readily accept the reviewer’s findings if the reviewer had been more tactful or careful in communicating the review opinions and conclusions.

Reviews and Good Reviewers continued • One of the more valuable traits of a good reviewer is the ability to communicate in a manner that is thorough and effective while at the same time not generating unnecessary or unintended contempt

Positive Characteristics • Include but are not limited to: • High ethical standards • Competency to perform assignment • Determination of appropriate scope of work • Understanding of professional standards • Recognition of assignment conditions • Strong and effective communication skills

Ethics • Appraisers, when performing an appraisal assignment, must approach each assignment in a manner that is independent, impartial, and objective • An appraiser acting as a reviewer performing an appraisal review has the same obligation • The Conduct section of the ETHICS RULE of USPAP prohibits bias in appraisal practice

Bias • USPAP defines bias as: • a preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment

Reviewer’s Perspective • Reviewers should commence each appraisal assignment with the expectation that the appraiser’s work being reviewed will be acceptable and credible • Reviewers should NOT think of themselves as the “appraisal patrol” with the goal of being critical of every element • Reviewers must be mindful that not all appraisers will do things exactly the same

Competency • The COMPETENCY RULE addresses: • Being competent • Acquiring competency • And what to do if the necessary degree of competency cannot be obtained

Competency continued • Competency requires: • 1. the ability to properly identify the problem to be addressed; and • 2. the knowledge and experience to complete the assignment competently; and • 3. recognition of, and compliance with, laws and regulations that apply to the appraiser or to the assignment.

Competency continued • Competency factors include: • Familiarity with a specific type of property • A market • A geographic area • An intended use • Specific laws and regulations • An analytical method • (USPAP 2014-2015 Edition)

Scope of Work • The SCOPE OF WORK RULE presents the obligation for an appraiser to: • Identify the problem to be solved • Determine and perform the scope of work necessary to develop credible assignment results

Scope of Work continued • Elements of the Scope of Work decision include: • The extent to which the property is identified • The extent to which tangible property is inspected • The type and extent of data researched • The type and extent of analyses applied to arrive at opinions or conclusions

Scope of Work continued • Appraisers have: • Broad flexibility in determining scope of work • Significant responsibility in determining if the scope of work is appropriate for the assignment • Credibility of assignment results is measured in context of the intended use of the appraiser’s opinions and conclusions.

Scope of Work in Assignment • Reviewer must • Identify factors for which competency is necessary in the review assignment • Be competent to decide and execute the appropriate scope of work • Recognize and comply with laws and regulations that apply to the appraiser or assignment • Recognize if scope of work in the original assignment is acceptable when the reviewer is forming an opinion of the quality of the original appraiser’s scope of work decision and execution

Scope of Work in Assignment continued • According to the SCOPE OF WORK RULE, the scope of work in an assignment is acceptable : • when it meets or exceeds the expectations of parties who are regularly intended users for similar assignments; and what an appraiser’s peers’ actions would be in performing the same or a similar assignment

Scope of Work in Assignment continued • Developing an opinion regarding the acceptability of the scope of work performed in the original work requires a certain level of competence on the part of the reviewer regarding the market in which the subject property is located

Acquiring Competency • The Acquiring Competency section of the COMPETENCY RULE explains the requirements for an appraiser who lacks competency but would like to accept an assignment. The appraiser must: • Disclose the lack of competency to the client prior to accepting the assignment • Take all necessary steps to competently complete the assignment, and • Describe the lack of competency in the report, including the steps taken to competently complete the assignment

Acquiring Competency continued • The Comment to this section addresses how competency can be acquired: • Competency can be acquired in various ways, including, but not limited to, personal study by the appraiser, association with an appraiser reasonably believed to have the necessary knowledge and/or experience, or retention of others who possess the necessary knowledge and/or experience • (USPAP 2014-2015 Edition)

Geographic Competency • When a reviewer must possess geographic competency in a review assignment, the remainder of the Comment is applicable: • In an assignment where geographic competency is necessary, an appraiser who is not familiar with the relevant market characteristics must acquire an understanding necessary to produce credible assignment results for the specific property type and market involved • (USPAP 2014-2015 Edition)

Lack of Competency • When an appraiser lacks the required knowledge and experience to complete the assignment competently, the appraiser must: • Notify the client • Take all necessary steps to competently complete the assignment, and • Describe the lack of competency in the report, including the steps taken to competently complete the assignment

Lack of Competency continued • The last section of the COMPETENCY RULE, Lack of Competency, describes the appraiser’s obligation to decline or withdraw from the assignment if unable to comply with the rule to complete the assignment competently

Professional Standards • Portions of USPAP applicable to appraisal review include: • DEFINITIONS • PREAMBLE • ETHICS RULE • RECORD KEEPING RULE • COMPETENCY RULE • SCOPE OF WORK RULE

Professional Standards continued • Portions of USPAP applicable to appraisal review include: • JURISDICTIONAL EXCEPTION RULE (in some assignments) • STANDARD 3 • Other performance standards (1-10) applicable to the review assignment • Statements on Appraisal Standards For example, STATEMENT 9 provides elaboration of “intended use and intended users”

USPAP Advisory Opinions and FAQs • One Advisory Opinion in particular, with which an appraiser undertaking an appraisal review should be intimately familiar, is • Advisory Opinion 20 (AO-20)

Communication Skills • Appraisal work that is fraudulent, willfully misleading, or demonstrate grossly negligent appraisal practice certainly should be addressed by a strong and direct response from the reviewer • Most appraisal reviews do not find such blatant and unethical elements during the course of an appraisal review assignment • Unacceptable elements are most commonly attributable to practices contrary to those typically considered acceptable, or human error

Communication Skills • Appraisal review reports can be written or oral; most are written • Appraisal reports should: • Demonstrate the reviewer performed a thorough review of the work being reviewed • Present the conclusions objectively • Communicate the conclusions effectively and concisely without being condescending

Deficiencies or Inadequacies • A good practice of the reviewer is to categorize the issues and make concerns of greater importance the focus of the discussion, while eliminating or abbreviating discussion of items of lesser importance • Significant issues deserve the most attention on the part of the reviewer, with insignificant issues deserving of the least attention

Significant Items • Items that might be categorized assignificant may include, but not be limited to: • Failure to apply accepted valuation methodology • Errors in mathematical calculations, affecting the value opinion • Inclusion of flawed or inaccurate data • Inappropriate or illogical reconciliation • Other obvious issues of non-compliance with professional standards

Insignificant Items • Items that might be categorized as insignificant may include: • Minor typographical, grammatical, and spelling issues • Inclusion of analysis discussion that is irrelevant • Obsolete definition references and citations • Inclusion of a valuation method that is not necessary • Minor mathematical calculations not affecting the value opinion

Deficiencies or Inadequacies continued • Examples • Minor typographical, grammatical, and spelling issues may not rise to the level of significant. However, frequent misspellings, poor grammar, or typing errors may provide insight into the overall professional performance level and ability of the appraiser whose work is being reviewed • Transposition of a number in a valuation approach that does not affect the resulting value opinion may be pointed out by the reviewer but not be the subject of a lengthy diatribe. On the other hand, numerous math errors may cause great concern regarding the credibility of the work being reviewed • .

Reviewer’s Perspective • Reviewer should focus on the “big things” • Reviewer should keep all communications professional • The level of content and detail found in a report should: • address the needs of the intended users • be based on the intended use of the report • explain industry terminology, steps taken by the reviewer, and conclusions to “new” users

Appraisal Review Reporting • Most residential appraisal reviews are communicated using standardized appraisal review reporting forms • Appraisers have the responsibility to ensure the particular form and its contents meet USPAP requirements and the needs of the clients and intended users, not the form

Appraisal Review Reporting continued • Additional information and exhibits can be necessary in many appraisal review reports • Expanded narrative commentary, which may require additional addenda, is typically necessary in order to clearly communicate to the intended user(s) • Many industry users of appraisal reviews, such as Fannie Mae and Freddie Mac, require additional explanation with certain responses on the forms

Appraisal Review Reporting continued • Tips: • For form reports, do not type in ALL CAPS—it gives the appearance of laziness • Make sure the report is clear and understandable, without being too technical or complicated • The information should flow as if telling a story, whether writing a full narrative report or completing the comment fields in a report form

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