Appraisers' Free Forum

Example conversation:

Caller: "We need an enhanced field review of a property in your area. What's your fee and turn time?"

Me: "Enhanced field review? I've never heard of that product. Could you tell me what you want done?"

Caller: "Well, it's just a field review with two extra comps."

Me: "Please excuse my density, but I'm afraid I still don't understand. You say you want a review, and that's where I develop an opinion of the quality of another appraiser's work. Why would I need extra comps to make such a determination?"

Caller: "Well, when you come up with the new value, they want two extra comps."

Me: "A review does not involve developing a new opinion of value. It just tells you that I think this report is OK, or that it's not OK and why. Now, the fee for that service ranges anywhere from $150 to $900 or more, depending on just how detailed an analysis you need. If you want me to develop an opinion of value, then that's an appraisal. Those range from $350 for a current appraisal of a non-complex single-family residence. So if you want a basic desk review and a current appraisal, it would cost $500. If, however, you needed a full-blown courtroom ready forensic review and a retrospective appraisal of a non-complex single-family unit, your review would be about $900, and the appraisal would be another $500 if it's less than three years retrospective. So the whole fee would be a total of $1,400 for the whole package."

Caller: OK. Thanks. <click>

We need to start restoring a bright line between appraisal and review. The caller above was of course referring to the Fannie Form 2000, and he thinks that a review gets him an appraisal because of the way the form is laid out. And too many of us have fallen into form-speak, both by clients who deliberately try to bamboozle us, and through our own misconceptions of the review process.

IMO, we should NOT be concurring or agreeing or disagreeing with the opinion of value in a review. ALL a review is supposed to do is to develop an opinion of the quality of another appraiser's work. Here's an example of my analysis of a faulty sales comparison analysis.

The report lists three sales located between one and two miles from the subject. I located three proximate and similar sales which sold within the past six months, and which were located within 3/4 mile of the subject. One of these was on the same street. In my opinion, the sales comparison analysis shown in the report under review is not credible, because it did not analyze the most proximate, recent and similar comparables.

...and in the reconciliation section...

The report under review states that the sales comparison approach was the only approach developed. I have found the report's sales comparison analysis not to be credible. Since the opinion of value stated in the report relies on an approach which is not credible, in my opinion the report under review is not credible.

And that's all you get, because that's all you ordered. The opinion of value need not be examined. It's an opinion, after all. All a reviewer is looking for is whether or not the opinion is adequately supported. We need not even address the actual value opinion except in the context of the faulty analysis.

Maybe GP and Denis can chime in with more.

Jim Plante wrote:Maybe GP and Denis can chime in with more.

I'll chime in with more, but I don't know if it is helpful.

SR-3 is a hybrid. It has attached "review" (quality of another's work) with "appraisal" forming an opinion of value. The link between the two is the ability of the reviewer to incorporate those parts of the original report deemed credible and reliable in forming a new opinion of value.

Let's take a look from a practical standpoint. And I think looking at things practically is a good idea, since USPAP is supposed to facilitate good and standard appraisal practices that both provider and user can rely on.

I think there is a practical purpose for a lender to want a quality and value confirmation of an appraisal.
The quality confirmation goes to the competency of the specific report which can be used to infer the competency of the report writer. Enough poor-quality reports, and regardless of the veracity of the value, the reporting process is not credible. In a due-diligence environment, the author of such reports would be ultimately excluded from the "approved list". And, I worked for a bank that used this type of process.

Obviously, the lender wants to know if the value on appraisal report X can be verified by reviewer Denis. The lender, however, cannot, on its own initiative, recreate the original appraisal process (especially when working with outside agents, such as loan brokers); the lender can ask for a new appraisal, but the lender doesn't control that process; the outside broker does. The lender can control the review process, and chooses to do so (in this train of thought, anyway).

Now, here's where the linkage occurs that makes some sense to me:
If an appraisal's quality is deemed "acceptable" in the review, how unreasonable is it to use that acceptable quality appraisal to perform a second valuation on the subject incorporating data from the first and with EAs that stipulate exactly what assumptions are being made?
My answer is it is not unreasonable at all. In fact, my answer is that it makes good sense to be able to make quality judgments and value verification in this non-complicated way.
If the original appraisal is of marginal-to-poor quality, then perhaps no review value can be independently opined using it as a basis; that's ok. In that case, the answer is to obtain a new appraisal from an independent source.

So, in my scheme of things, the quality review with reviewer's value isn't a significant issue.
Always the review must make a quality rating.
Usually a lending client requests the reviewer's independent valuation (which may be expressed as a simple "value is reasonable and supported").
Sometimes the quality of the original is too poor for the reviewer to form an independent valuation, when this occurs, the process stops and a new appraisal.

Jim, nothing earth-shattering here for you, I know.

We need to start restoring a bright line between appraisal and review.

USPAP will have to be rewritten because it establishes the link that crosses that line.

IMO, we should NOT be concurring or agreeing or disagreeing with the opinion of value in a review. ALL a review is supposed to do is to develop an opinion of the quality of another appraiser's work.

Not if the client requires a valuation as a part of the engagement agreement.

I agree with you that there is a real difference between a (a) "review" and (b)"a review that requires an independent opinion of value by the reviewer". But most of our clients do not want (a). They want (b). And, USPAP allows them to request (b) and for me to provide it.

So, to some extent, I read your point as you don't like what the client is asking for. That's a valid position! But there's nothing wrong with what the client's asking for- even a client who is well versed and lives by "USPAP".

I'll be interested in hearing what others say?

I don't see a problem with it. A field review reported on Form 2000 is an appraisal, as in providing a value estimate, already. The extra comp thing is to "show your work" agreeing with the estimate of value reported in the original report. You would include them anyway if you disagreed.

I was with you on reviewing the results as wel as the support, unitl you said the value is reasonable. I think you can say wheterh the value is supported by the report, but once you bring in reasonavle there is an implication that you are validating the value based on your own knowledge, research or whatever independent of the appraisal. I think on review you stick to the report. If you want to go off and do some independent work # 3 allows for it, but there may be some business issues to overcome.

As you know I shy away from review. Part of that is philosophical, geo competency, judging others (which you can see causes me all sorts of probems), etc., and part of it is that the process called enhanced review is exactly what Jim says it is, clients using appraisers to provide a second opinion at 1/2 or less of the original cost. Cut rates is not good for the profession guys, even if the lenders do like it.

I have yet to do an "enhanced review" for a lender looking to make a new loan but I do quite a few field reviews with additional comps required for clients looking to make other types of decisions concerning the property. As all users of appraisal services, the ordering parties don't always have a good grasp of appraisal language and I have even had otherwise intelligent audit personnel ask for a "review plus comp check". I can only imagine the indignation that one a caused somebody not willing to dig a little deeper into the inquiring party's real need. These things are what they are, a Standard 3 review plus Standard 1 value estimation reported in compliance with Standard 2 reporting requirements. They obviously are more work than simple desk type reviews or simple appraisals and doing them for half the going rate for a simple appraisal would be ridiculous. Even in the odd occurance (real odd considering the nature of the files involved) that I have personally agreed with the report, the SOW calls for the additional comps so you end up gridding out 5 or 6 sales, the original 3 which happened to the best available (rare but it happens) plus the additional sales.

IMO, we should NOT be concurring or agreeing or disagreeing with the opinion of value in a review. ALL a review is supposed to do is to develop an opinion of the quality of another appraiser's work.

I have posted before, I wouldn’t begin to know how to agree or disagree with an appraisal. If anyone wants to try to explain that one, I'll listen, but not quietly.

The report lists three sales located between one and two miles from the subject. I located three proximate and similar sales which sold within the past six months, and which were located within 3/4 mile of the subject. One of these was on the same street. In my opinion, the sales comparison analysis shown in the report under review is not credible, because it did not analyze the most proximate, recent and similar comparables.

I don’t think you avoided doing a second appraisal. I think you just avoided reporting the results. That type of review is what I call a comparative analysis. You repeated the appraisal process to compare your process to the one undertaken in the reviewed appraisal.

We need not even address the actual value opinion except in the context of the faulty analysis.

It would be rare to find a client that wants a review to check the reasonableness of the process without confirming the reasonableness of the result. Can you imagine the client ordering a second appraisal, getting very similar results, and demanding you refund your fee for a "misldeading" review.

I don’t think you avoided doing a second appraisal. I think you just avoided reporting the results. That type of review is what I call a comparative analysis. You repeated the appraisal process to compare your process to the one undertaken in the reviewed appraisal.

An appraisal is an opinion of value. Where's the opinion? What's the value expressed in the quote? I think you read more than I wrote.

It would be rare to find a client that wants a review to check the reasonableness of the process without confirming the reasonableness of the result. Can you imagine the client ordering a second appraisal, getting very similar results, and demanding you refund your fee for a "misldeading" review.

I can certainly imagine my reaction to such a request, and it wouldn't be pretty.

An appraisal is an opinion of value. Where's the opinion? What's the value expressed in the quote? I think you read more than I wrote.

An appraisal is the process of development, as well as the final opinion. You went through a development process, a comp search, known in some instances as a "comp check." You compared your comp check to the other person's comp check.

I tend to agree with Denis. Even if there were no link in Std 3. Review clients are asking about reliability. Absent internal inconsistency or fact errors, the only way to determine reliability is to do a "comp check."

But I never developed an opinion of value. I merely looked for similar, proximate, and recently sold properties, just like the blurb said. Certainly this is *part* of developing an opinion of value, but unless I fully develop those facts into one, I haven't committed an appraisal.

By definition, an appraisal is either the act or process of developing an opinion of value; or, simply, an opinion of value (Dictionary of Real Estate Appraisal, 4th Ed.) So if I don't develop an opinion of value, but merely develop an opinion about the quality of the comps used, I have not performed an appraisal.

But I never developed an opinion of value. I merely looked for similar, proximate, and recently sold properties, just like the blurb said. Certainly this is *part* of developing an opinion of value

Oh, so you're only slightly pregnant. Don't we have a consensus, by way of ASB QA, that comp prices establish a range opinion?

Where'd you see any prices in my post? I wrote only about proximity, similarity, and recency.

Jim Plante wrote:Where'd you see any prices in my post? I wrote only about proximity, similarity, and recency.

I didn't see them in your post. That is why I opened with the comment that the appraisal was developed, but not reported.

If it wasn't reported, then how would you prove that I did one? And, to veer slightly off point, if one develops, but does not report, does it make a sound?

How can you develop an opinion of how accurate the other appraisers value is without developing, even if unreported, a value of your own?