Standard 3 of USPAP defines review appraising as developing a credible opinion about the adequacy of another appraiser’s work and governs the conduct of appraisers acting as reviewers. In this context, an appraiser acting as a reviewer must be and act competently and perform objectively, independently, impartially, without bias or accommodation of personal interests.
As the regulatory framework continues to emphasize appraisal quality in lending transactions, financial institutions are highly motivated to have their appraisals reviewed comprehensively. Many institutions will employ “third party,” i.e., outside reviewers. Some institutions will use a combination of in-house and outside reviews. Larger institutions will have their own review staff.
In addition to financial institution work, reviews are required for a vast amount of appraisal work, whether done for attorneys or various governmental agencies. In all respects, the review function is an integral part of the appraisal process and a growth industry.
In terms of financial institution reviewing and the “compliance” aspect of this type review, reviewing skills vary widely, ranging from in-house “checklist” processors to highly seasoned individuals with years of reviewing experience and the ability to conduct the appraisal review efficiently and competently.
As in all things, there are those who don’t know and know it, those who know, and those who don’t know that they don’t know. The latter can represent a dangerous combination of hubris and incompetence.
Good reviewers understand the relationship of USPAP, FIRREA, and FNMA requirements to the appraisal process. Good reviewers understand there are absolute requirements, and requirements that have situational relevance. USPAP itself presents a minimum set of requirements and there is a certain flexibility accorded to appraisers applying these requirements in the review process.
Interpersonal skills are required to communicate effectively with appraisers and their clients. Technically skilled reviewers often underestimate how much a good bedside manner helps in ultimately getting good appraisals, and in getting clients to understand that appraisal results cannot be directed by them.
There is a class of reviewers who seem to think that clients are paying them to find fault with every appraisal. Consequently, there is a lack of objectivity, and perhaps even bias, in approaching the review of an appraisal. There results an imbalanced perception of what is a significant problem in an appraisal report and what is not. This type of approach may often be a cover up of a poor or defective understanding of the appraisal, the review process, or both.
The review process provides important checks and balances on the appraisal development and reporting process. Appraisal reviews give clients who may not be very knowledgeable about today’s complex appraisals, or who may not have the ability or resources to work them, opinions of the quality, context, reasoning processes, and conclusions of the work appraisers present. Appraisal reviews provide a very important check for conformity of appraisal reports with various federal, state, and industry requirements, and standards for report writing and presentation.
The review process benefits clients and appraisers both. The reviewer functions as the buffer between a client, who may have the expectation of a favorable result, and, the appraiser, who becomes highly defensive regarding the opinion and support expressed in an appraisal.
Handling review issues efficiently and sensitively is a major part of being an effective reviewer. Insensitive, if not outright boorish, behavior in the review process can alienate both appraisers and clients. This misses the point of reviewing, which is to ensure that an appraisal and report meet applicable requirements and that the appraisal analysis and conclusions are logical and supported.
The role of reviewers in almost all areas of appraisal practice will continue to gain importance. Not only does the review process identify areas of weakness in an appraisal and enable them to be revised, but the review process also lends further credence to areas of strength in an appraisal.
The review process will continue to evolve and practitioners will continue to refine their skill sets. Greater focus on reviewer competency and the adequacy of the review process will continue. Note the continuing changes to Standard 3 of USPAP to meet the needs of appraisers and appraisal users.
The best reviewers are educators who take their dual role, interacting with clients and appraisers, as a serious and important endeavor. As the appraisal process and appraisal requirements continue to grow to achieve higher levels of sophistication in complex market, the review process will continue to play a fundamental role in the appraisal process. To this end, reviewers always need to be mindful of the analytical, educational, and human interfaces they represent and the public trust they serve.
Bill Pastuszek, MAI, ASA, MRA, heads Shepherd Associates, Newton, Mass.