What Is an Appraisal Review in Real Estate?

Property valuation plays a significant role in real estate transactions, influencing decisions for buyers, sellers, and financial institutions. Accurate and reliable assessments of property worth are fundamental for mortgage lending, investment analysis, and other real estate activities. Ensuring the integrity of these assessments helps foster confidence across the real estate market.

Defining Appraisal Review

An appraisal review involves an independent evaluation of an existing appraisal report to assess its quality, credibility, and adherence to established standards. This process serves as a check and balance, confirming the accuracy and integrity of another appraiser’s work. The Uniform Standards of Professional Appraisal Practice (USPAP) defines an appraisal review as developing an opinion about the quality of another appraiser’s work, including their report or work file.

The primary purpose is to ensure the original appraisal complies with professional standards, such as USPAP, and regulatory requirements like those from the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Reviews are undertaken for quality control, risk management for lenders, and regulatory compliance. They help identify potential errors, inconsistencies, or biases within the original report, mitigating financial risks for stakeholders. An appraisal review scrutinizes the original appraiser’s work, rather than forming a new opinion of value from the ground up.

The Appraisal Reviewer

Appraisal reviewers are experienced real estate appraisers, often holding state certification or licensure. They possess a comprehensive understanding of appraisal theory, valuation methodologies, and the regulatory framework governing property assessments. This expertise allows them to evaluate another appraiser’s work.

Reviewers must maintain independence and objectivity for an unbiased assessment of the original appraisal report. This ethical requirement helps uphold public trust. Many reviewers also undergo specialized training or have specific experience in conducting reviews. The reviewing appraiser usually holds a credential equal to or higher than that of the original appraiser.

The Review Process

The appraisal review process involves a systematic examination of components within the original appraisal report. The reviewer assesses the completeness and accuracy of the data presented, verifying factual information such as property history and physical characteristics. They also evaluate the appropriateness of valuation methodologies employed, which can include the sales comparison, income, or cost approach. The review determines if the original appraiser’s assumptions and conclusions are reasonable and well-supported by the evidence provided.

Compliance with professional standards, such as USPAP, and client-specific requirements are thoroughly checked. The reviewer examines the clarity, consistency, and credibility of the appraisal report to ensure it provides sufficient information for its intended users. Most appraisal reviews are conducted as “desk reviews,” where the reviewer analyzes the report and supporting documents from their office. This type of review focuses on the technical methodology and compliance of the appraisal, evaluating property analysis, data compilation, and value calculations. In some cases, the reviewer may communicate with the original appraiser to seek clarification or request additional information to resolve identified issues.

Comparing Appraisal Review and New Appraisal

An appraisal and an appraisal review serve distinct purposes within real estate valuation. An original appraisal develops an independent opinion of value for a specific property as of a particular date. This involves data collection, market analysis, and applying recognized valuation approaches to arrive at a value conclusion. The appraiser physically inspects the property and researches comparable sales.

In contrast, an appraisal review focuses on evaluating the quality, credibility, and compliance of an existing appraisal report. It does not typically involve the reviewer forming a new, independent opinion of value for the property. Instead, the review assesses the reliability and support for the value conclusion in the original report. An appraisal review functions as a quality control measure for an appraisal, rather than a substitute for it. The outcome of a review is an assessment of whether the existing value conclusion is credible and well-supported, not a new value determination.

Results of an Appraisal Review

The conclusions from an appraisal review can vary depending on the findings. One outcome is the acceptance of the original appraisal, indicating it is credible, adequately supported, and compliant with relevant standards. This signifies the report is suitable for its intended use.

Conversely, a review may identify minor deficiencies or areas requiring additional explanation or support. In such instances, the appraisal is not fully accepted until necessary revisions or clarifications are provided. If the review uncovers significant deficiencies that render the original appraisal unreliable or non-compliant, it may lead to the rejection of the report. This often necessitates commissioning a new appraisal. The findings and recommendations of the appraisal review are formally documented in a review report, providing a clear record of the assessment.