Reviewer's opinion of value

[George Hatch]

One area that I think the ASB should give some attention to is how the nature of the review assignment can be of effect on the reviewer's conclusion of value in that assignment and the manner in which reviewers are instructed to express those opinions.

Here's an example: Let's say my review assignment includes a requirement for me to either agree or disagree with the value conclusion. Further, let's say that in developing my opinion of value I come to a slightly different point value than was used in the original appraisal; in other words, if this had been my appraisal assignment to begin with I would have concluded to a slightly higher or lower value.

At this point I am faced with a bit of a dilemna. The definition of a review is to develop an opinion about the quality of the workproduct, and SR3-1g uses the phrase "appropriate and reasonable" as the basis of that opinoin.

As far as I can tell, my agree/disagree value opinion in a review assignment should be based on "appropriate and reasonable" because of the nature of the assignment. On the other hand, if my point value opinion as an appraiser is slightly different then I'm not technically in agreement even if there's nothing wrong with the original appraisal.

At this point something's gotta give. Either I'm "changing" my value opinion as an appraiser so I can agree with the original and reasonable appraisal, or I'm going to end up disagreeing with a large percentage of reasonable appraisals, even if only slightly. This would surely be interpreted by my readers as criticism of these appraisals even when it isn't. Neither of these options are good.

I can trace the root of this problem to the practice of having reviewers express their opinions as a point value and the practice of judging appraisals based on "accuracy" rather than "appropriate and reasonable". In a review capacity I don't think that either practice can be defended on an honest basis.

The solution I've been using is to express my opinion of value as a range in my reconciliation comments and then noting whether the original value falls within that range. That becomes the basis of my agree/disagree value opinion and speaks to reasonableness and credibility rather than a black/white "accuracy" judgement.

So what do you guys think? Should reviewers be expressing their value opinions in a review based solely on what they would conclude to if they had performed the original appraisal or should they be expressing it as a means of communicating the "appropriateness and reasonableness" of the workproduct? Which do you think is more appropriate in a review assignment; point value by the individual or range in values as would be expected from a random group of (competent) appraisers?

 

[Ms. Janet]

Almost without exception, my review assignments ask for me to agree or disagree with the value opinion, within a 5% range. Maybe that is the definition of "appropriateness and reasonableness of the workproduct".

 

[Fred]

Should reviewers be expressing their value opinions in a review based solely on what they would conclude to if they had performed the original appraisal or should they be expressing it as a means of communicating the "appropriateness and reasonableness" of the workproduct?

No, too limited.

Let's say my review assignment includes a requirement for me to either agree or disagree

I have one for you George. Maybe the next time the ASB addresses Std 3, they should abandon the idea of "agree" or "disagree" or "concur." What does that mean? I'd like to see you define that.

Suppose you appraised something for $735,000. As part of my review, I am supposed to develop a second opinion for comparative analysis. I come in at $734,000. Am I supposed to conclude that I "agree" or "disagree?"

 

[xm39hnu]

I come in at $734,000. Am I supposed to conclude that I "agree" or "disagree?"

I think that was George's question in the first place.

I've noted that there are a lot of times we're asked to do something that, while technically legal and not unethical, are nevertheless inappropriate to what we're supposed to be doing. "Agreeing" within a range of 5%? I don't think so. I think George's solution of showing an adjusted value range within which the appraised value falls, and stating that the value stated in the report is adequately supported, should be what we try to do.

But, George, what do you do with the one which reports the appraiser's best guess, it's within your adjusted value range, but the support is practically nonexistent? How do you express, in professional language, that the value is within your calculated range, but the report sucks?

 

[Fred]

Jim

I think that was George's question in the first place.

Yeah, but my point is not questions, it’s answers. Saying “not technically in agreement” is a different answer than the whole “agreement” thing is BS that should not be part of our standards. Not “technically” in agreement suggests there is such a thing as agreement.

An appraisal may be an opinion, but it does not take the simple declarative form of “I like vanilla” as something that can be “agreed” with.

 

[xm39hnu]

I think we're all tap-dancing around the same point: It's not the value which is being reviewed; it's the report.

I review a report backwards: What's the final opinion of value? Which approaches is it based on? Which got the most weight? Why? Do the approaches used result in a value which has adequate support? If so, why? If not, why not?

So it goes like this: Cost approach has no support for the site value. No support stated for the depreciation adjustments. Conclusion: This approach is not well enough supported to be credible.

Sales comparison approach: An examination of sales data which was available through public records on the effective date of the appraisal shows that more proximate comparable sales were available. These sales are similar to the subject, and sold within six months. Because the sales used are further away from the subject and less similar, they are not the best indicators of value. The report shows no adjustments in the grid for location, and no explanation is offered for the absence of this adjustment. The reviewer's files and prior market analyses performed for other appraisals indicate distinct locational differences for all sales as compared to the subject's location. Because of this disparity, the sales comparison approach is not credible because the most recent, similar, and proximate sales were not used in the analysis.

The report relies upon the values indicated by the cost approach and sales comparison approach. Both of these approaches are found not to be credible. The conclusion of value reached by the report lacks adequate support, and is not credible.

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Now, should I talk about numbers in there? If the number isn't supported, why do we need to go any further?

 

[George Hatch]

Okay, I'll bite. If "agree" and "disagree" were not among the options in a review, what would we be using instead? "Supported" vs "Unsupported", perhaps?

 

[CANative]

The conclusions were credible or not credible (worth of belief or not worthy of belief.)

Ranges in a review are more credible because two exact point values from two different appraisers, one using direct information and the other using indirect information is... well, not credible.

But what's a mortgage reviewer to do. Clients will not accept ranges. I do put a range in the narrative but I'm forced to put a point value in the box.

 

[George Hatch]

I wouldn't suggest the range would represent the exact opinions of only 2 appraisers; I'd suggest it would represent the reviewer's opinion of a reasonable range from most any competent appraiser working with the same information. By definition it would be broader than if the reviewer were only concerned with their own point value conclusion.

If not for the flaky verbiage on the form I'm sure most clients wouldn't have any problem with a value range and a conclusion of "reasonable" or "supported" - either one of which would still be an appraisal by the reviewer. The big trick would be to convince the master form monkeys at Fannie to back off of the idea of "accurate value" and move to something a little more ...reasonable.

 

[Brad Ellis]

George,

Could you approach this on the origination of the assignment as a SOW issue?

Brad