Residential Appraisal Review
2nd edition updates
January 1, 2014
Chapter 1
Page 2
Appraisal Review Defined
Entire Discussion
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Appraisal Review Defined
Sometimes, the concept of an appraisal review, if not truly understood and unless correctly defined, can become somewhat distorted. 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. (USPAP 2014-2015 Edition)
The focus of this course will be on reviewing appraisals (and/or their components) performed by other appraisers as part of an appraisal assignment. However, as can be seen in the definition, a review assignment may be the review of specific elements, or all elements, of an appraisal review assignment. Even the review of a review of a review could be the subject of an appraisal review assignment! Appraisers who provide appraisal review services are referred to as “reviewers.”
An appraisal review, in its purest form and consistent with this definition, does not include the reviewer developing and communicating whether he agrees or disagrees with the opinions or conclusions found in the work he is reviewing. 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.
The SCOPE OF WORK RULE of USPAP requires in an appraisal review (as well as appraisal assignments) that an appraiser must (among other obligations) identify the problem to be solved and determine and perform the scope of work necessary to develop credible assignment results. Recognition of specifically what the expectations are of the reviewer by the client is made during problem identification, and then included in the scope of work determined necessary during the scope of work decision.
The practice of agreeing or disagreeing with value opinions found in the work being reviewed is often within the scope of many appraisal review assignments.
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Bias
First Paragraph
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(USPAP 2014-2015 Edition)
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Being Competent
Fourth Paragraph
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(USPAP 2014-2015 Edition)
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Acquiring Competency
Last Line
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(USPAP 2014-2015 Edition)
Chapter 2
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Introduction
Last Line
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Italicized USPAP references in this chapter are based on the 2014-2015 Edition
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Appraisal Review and STANDARD 3
Entire Discussion
Appraisal Review and STANDARD 3
STANDARD 3 of USPAP is a dual-performance Standard, setting forth the general obligations of an appraiser performing an appraisal review respective to both development and reporting. The introduction to STANDARD 3 is similar in spirit to the introduction of other performance standards applicable to appraisal. Since STANDARD 3 is a dual Standard, the introduction reflects certain overall obligations for both development and reporting:
In developing an appraisal review assignment, an appraiser acting as a reviewer must identify the problem to be solved, determine the scope of work necessary to solve the problem, and correctly complete research and analyses necessary to produce a credible appraisal review. In reporting the results of an appraisal review assignment, an appraiser acting as a reviewer must communicate each analysis, opinion, and conclusion in a manner that is not misleading. (Bold added for emphasis.)
The Comment in the introduction distinguishes the two aspects of development and reporting as well:
Comment: STANDARD 3 is directed toward the substantive aspects of developing a credible opinion of the quality of another appraiser’s work that was performed as part of an appraisal or appraisal review assignment.
STANDARD 3 also addresses the content and level of information required in a report that communicates the results of an appraisal review assignment. STANDARD 3 does not dictate the form, format, or style of Appraisal Review Reports. The substantive content of a report determines its compliance.
In this Standard, the term “reviewer” is used to refer to an appraiser performing an appraisal review.
The first paragraph of the Comment emphasizes that a review opinion may be developed for an appraisal or appraisal review assignment. Admittedly, the subject of a review assignment most often is the review of an appraisal performed by another appraiser, or its elements. However, STANDARD 3 also applies to a review of all or part of a review assignment.
The second paragraph of the Comment addresses reporting within a review assignment. The content is similar to other reporting standards in that the Comment clarifies that STANDARD 3 does not dictate the form, style, or format for a report. Also, there are no reporting options for Appraisal Review Reports, for example, such as those found for Real Property Appraisal Reports (Appraisal Report and Restricted Appraisal Report). All reports communicating the results of an appraisal review are identified as “Appraisal Review Reports,” and each individual report’s content determines its compliance with the standard.
Finally, the Comment clarifies that the term “reviewer” is used within the Standard to identify the appraiser that is performing an appraisal review assignment.
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Standards Rule 3-1
First Paragraph
Standards Rule 3-1
Standards Rule 3-1(a) contains requirements consistent with the COMPETENCY RULE. It mirrors the general competency obligations for development in a real property appraisal (SR 1-1); and is similar to other corresponding development Standards for mass appraisal, personal property appraisal, and business and intangible asset appraisal (SR 6-1, 7-1, and 9-1):
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USPAP Advice
First Paragraph
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(FAQ 293)
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USPAP Advice
Beginning with Third Paragraph
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That being said, certain states may have differing requirements regarding whether a reviewer needs to be licensed or certified in the state where the subject property is located. Even though USPAP does not address licensing and certification requirements, the ASB included a FAQ titled: “Must a Review Appraiser be Licensed or Certified in the State Jurisdiction Where the Subject Property is Located?” In the FAQ, the ASB deferred to the Appraisal Subcommittee (ASC), Policy Statement 5, for federally related transactions that states:
“Included in ASC Policy Statement 5 is the ASC’s position on when an out-of-state review appraiser must obtain a credential for purposes of performing a technical review. The ASC has concluded that for federally related transactions, so long as the review appraiser does not perform the technical review in the state within which the property is located, and so long as the review appraiser is certified or licensed by another state, that appraiser need not be registered for temporary practice or otherwise credentialed by the state agency where the subject property is located. With that said, state law may be more restrictive than federal law and may require a temporary practice permit or other credential. It is therefore imperative to consult with the state where the property is located.” (Excerpted from FAQ 301, USPAP 2012-2013 Edition)
The ASC response in the USPAP FAQ is vague since it does not reference a particular scope of work. The advice uses the term “technical review” that has not been defined; and, therefore, provides a good example of how such a term can be confusing when not adequately explained. A “technical review” is typically considered to be extensive. It can only be surmised, based on the advice from the FAQ in the previous example (FAQ 294), that the term “technical review,” used in this context, is referencing a scope of work that would require geographic competency.
Indeed, some states have specific requirements related to geographic competency, while others may not. Therefore, recognition of laws and regulations applicable to an assignment is an important step during problem identification for a review assignment. Recognition of and compliance with applicable laws and regulations is required by the COMPETENCY RULE.
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Purpose
Entire Discussion
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Purpose
Standards Rule 3-2(c) establishes an appraiser’s obligation in identifying the purpose of the appraisal review; and indicating whether the appraisal review assignment includes the reviewer developing his own:
- Opinion of value; or
- Review opinion, related to the work being reviewed.
In developing an appraisal review, the reviewer must:
(c) identify the purpose of the appraisal review, including whether the assignment includes the development of the reviewer’s own opinion of value or review opinion related to the work under review
Comment: The purpose of an appraisal review assignment relates to the reviewer’s objective; examples include, without limitation, to determine if the results of the work under review are credible for the intended user’s intended use, or to evaluate compliance with relevant USPAP requirements, client requirements, or applicable regulations.
In the review of an appraisal assignment, the reviewer may provide an opinion of value for the property that is the subject of the work under review.
In the review of an appraisal review assignment, the reviewer may provide an opinion of quality for the work that is the subject of the appraisal review assignment.
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Work Under Review and Relevant Characteristics
Comment
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Comment: The subject of an appraisal review assignment may be all or part of a report, a workfile, or a combination of these; and may be related to an appraisal or appraisal review assignment.
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Standards Rule 3-3 (c)
Entire Discussion
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Standards Rule 3-3(c)
Standards Rule 3-3(c) discusses the development requirements that apply when a reviewer provides his or her own opinion of value or review opinion that is the subject of the appraisal assignment:
(c) When the scope of work includes the reviewer developing his or her own opinion of value or reviewopinion, the reviewer must comply with theStandard applicable to the development of that opinion.
(i) The requirements of STANDARDS 1, 6, 7, and/or 9 apply to the reviewer’s opinion ofvalue for the property that is the subject of the appraisal review assignment.
(ii) The requirements of STANDARD 3 apply to the reviewer’s opinion of quality for thework that is the subject of the appraisal review assignment.
The Comment to Standards Rule 3-3(c) indicates what services the requirements apply to.
Comment: These requirements apply to:
- The reviewer’s own opinion of value when the subject of the review is the product of an appraisal assignment; or
- The reviewer’s own opinion regarding the work reviewed by another when the subject of the review is the product of an appraisal review assignment.
These requirements apply whether the reviewer’s own opinion:
- concurs with the opinions and conclusions in the work under review; or
- differs from the opinion and conclusions in the work under review.
When the appraisal review scope of work includes the reviewer developing his or her own opinion of value or review opinion, the following apply:
The reviewer’s scope of work in developing his or her own opinion of value or review opinion may be different from that of the work under review.
The effective date of the appraisal or appraisal review opinions and conclusions may be the same or different from the effective date of the work under review.
The reviewer is not required to replicate the steps completed by the original appraiser. Those items in the work under review that the reviewer concludes are credible can be extended to the reviewer’s development process on the basis of an extraordinary assumption. Those items not deemed to be credible must be replaced with information or analysis developed in conformance with STANDARD 1, 3, 6, 7, or 9, as applicable, to produce credible assignment results.
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Overview of Advisory Opinion 20
Second Paragraph
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Also amplified is the obligation for the reviewer to develop his own value opinion in compliance with the appropriate development standard. When the subject of the assignment is an appraisal of real property, the applicable development standard is STANDARD 1. STANDARDS 6, 7, and 9 are applicable to mass appraisal, personal property appraisal, and business appraisal, respectively.
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Standards Rule 3-4
Second Paragraph
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Comment: An Appraisal Review Report communicates the results of an appraisal review, which can have as its subject another appraiser’s work in an appraisal or appraisal review assignment.
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Standards Rule 3-5(i)
Entire Discussion
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Standards Rule 3-5(i):
Standards Rule 3-5(i) is applicable whenever the scope of work in the review assignment includes the reviewer’s development of his ownvalue opinion or review opinion for the subject of the review assignment:
(i) when the scope of work includes the reviewer’s development of an opinion of value or review opinion related to the work under review, thereviewer must:
(i) state which information, analyses, opinions, and conclusions in the work under reviewthat the reviewer accepted as credible and used in developing the reviewer’s opinion andconclusions;
(ii) at a minimum, summarize any additional information relied on and the reasoning forthe reviewer’s opinion of value or review opinion related to the work under review;
(iii) clearly and conspicuously:
state all extraordinary assumptions and hypothetical conditions connected with the reviewer’s opinion of value or review opinion related to the work under review; and
state that their use might have affected the assignment results.
Comment: The reviewer may include his or her own opinion of value or review opinion related to the work under review within the appraisal review report itself without preparing a separate report. However, data and analyses provided by the reviewer to support a different opinion or conclusion must match, at a minimum, except for the certification requirements, the reporting requirements for a(n):
- Appraisal Report for a real property appraisal (Standards Rule 2-2(a));
- Appraisal Report for a personal property appraisal (Standards Rule 8-2(a));
- Appraisal Review Report for an appraisal review (Standards Rule 3-5);
- Mass Appraisal Report for mass appraisal (Standards Rule 6-8); and
- Appraisal Report for business appraisal (Standards Rule 10-2(a)).
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Overview of Advisory Opinion 20
About Reviewer’s Own Opinions
Fourth Bullet Point
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Changes to the report content by the reviewer to support a different value conclusion must match, at a minimum, the reporting requirements for an Appraisal Report, when the subject of a review is a real property appraisal.
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Overview of Advisory Opinion 20
For Reviews That Include the Reviewer’s Own Opinions
First Paragraph
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This section of AO-20 points out:
The appraisal-related content of the appraisal review report, in combination with the content of the original work under review that the reviewer concludes is in compliance with the Standards applicable to that work, must at least match the report content required for an Appraisal Report.
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Standards Rule 3-6
Entire Discussion
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Standards Rule 3-6
Standards Rule 3-6 presents the certification requirements for an Appraisal Review Report (similar to the certification requirements found in STANDARD 2 for a real property appraisal report):
Each written Appraisal Review Report must contain a signed certification that is similar in content to thefollowing form:
I certify that, to the best of my knowledge and belief:
— the statements of fact contained in this report are true and correct.
— the reported analyses, opinions, and conclusions are limited only by the reportedassumptions and limiting conditions and are my personal, impartial, and unbiasedprofessional analyses, opinions, and conclusions.
— I have no (or the specified) present or prospective interest in the property that is thesubject of the work under review and no (or the specified) personal interest withrespect to the parties involved.
— I have performed no (or the specified) other services, as an appraiser or in any other capacity, regarding the property that is the subject of the work under review within the three-year period immediately preceding acceptance of this assignment.
— I have no bias with respect to the property that is the subject of the work under reviewor to the parties involved with this assignment.
— my engagement in this assignment was not contingent upon developing or reportingpredetermined results.
— my compensation is not contingent on an action or event resulting from the analyses,opinions, or conclusions in this review or from its use.
— my compensation for completing this assignment is not contingent upon thedevelopment or reporting of predetermined assignment results or assignment resultsthat favors the cause of the client, the attainment of a stipulated result, or theoccurrence of a subsequent event directly related to the intended use of this appraisalreview.
— my analyses, opinions, and conclusions were developed and this review report wasprepared in conformity with the Uniform Standards of Professional Appraisal Practice.
— I have (or have not) made a personal inspection of the subject of the work underreview. (If more than one person signs this certification, the certification must clearlyspecify which individuals did and which individuals did not make a personalinspection of the subject of the work under review.) (For reviews of a business orintangible asset appraisal assignment, the inspection portion of the certification is notapplicable.)