What would you do when asked to review an evaluation?

[Willie]

Borrower receives his appraisal from Mortgage Banker X in 1/02 and home appraises for $240,000. I do not know this appraiser. Borrower goes to bank Z for a home equity loan 9/02. Bank orders an evaluation from Appraiser, who has a good reputation, and the evaluation comes in @$180,000. They ask me if I will review both the Appraisal & Eval. I say to them maybe the Appraiser who did the Eval. should be contacted and they might come up something different after performing a full inspection and appraisal. Bank says that they asked the appraiser and he/she "feel just fine @$180,000. I ask the bank if I could do a full appraisal. They say they would rather not get full appraisals because if they go down that road, they will be ordering multiple appraisals after every disagreement between their customers and the bank. I then tell them I could actually agree with both the first appraisal, and the later evaluation. They say if I don't want to get in the middle, they will understand. What should I do?

 

[Tom Hildebrandt]

William

May I ask a rhetorical question?

What exactly is the difference, conceptually, between an appraiser doing an appraisal and an appraiser doing an evaluation?

I would opine that they are, by USPAP definition, both appraisals. They are expressions of an opinion of value by an appraiser. The essential difference is the scope of work performed. This is noted in both the development of the opinion (Standard 1) and in the reporting of the analysis (Standard 2). You acknowledged to that in your post noting that the "appraisal" was a more thorough investigation into the relevant property characteristics, and the evaluation was something less. The reporting requirements also may change. The URAR is a summary report, ie, a summary of the analysis. The typical "evaluation" is usually in a Restricted Use format, ie, just the conclusions are reported.

No question that you can do a review of the "appraisal", the problem is that usually there is not sufficient information in a Restricted Use report for the reviewer to understand the underlying analysis. To do a review on such a report, you must be able to interview the appraiser and/or review the work file. Since in typical lending work the appraiser is not usually authorized to contact the appraiser or to review the workfile, most reviewers would conclude that they can not competently review a Restricted Use report (or "evaluation").

This is not necessarily locked in stone, the time honored appraisal rule of "it depends" come into play. If there is sufficient information in the "evaluation" for you to meet the needs of the review, you can review the work. It depends on what the user of the review wants as your end product. If the user of your review merely wants to know which value you think is the most appropriate, you could review the "appraisal" in your standard manner, review the "evaluation" for USPAP compliance with the reporting requirements for a Restricted Use report, search the market for any other data you felt needed to form your own independent opinion of value, concluding that one or the other value was most appropriate or provide your own new opinion.

It would not be appropriate for you to say the "Restricted Use" reports value conclusion was wrong if you disagreed with the value. You did not have enough information to make any such judgement about the analysis. You could state, if the facts warranted the opinion, that the "evaluation" did not meet the reporting requirements of USPAP Standard 2. As an example, you could say that the "evaluation" failed to state the definition of market value, or the "evaluation" failed to report the highest and best use, but you could not conclude the appraiser overvalued the property. Why? The latter is an issue of development, and you do not know whether the development was right or wrong. All you know is that you disagree with the conclusion. After all, two people can disagree on value and both still have done credible jobs in the development.

Does this help? Or did I take a simple question and make the problem too hard?

Regards

Tom Hildebrandt GAA

 

[graindart]

What do you mean by "evaluation"?

Just my opinion, but I wouldn't want in on this one at all. What I see happening if one were to accept the reviewing of the appraisal and the "evaluation" is a whole lot more work than you're likely to be compensated for. When you review it, one of the appraisers is probably going to get a call from the bank, and the bank will more than likely mention your name to the unlikely appraiser, which will probably end up causing you more headaches from trying to defend your reviews without probably even having been in the subject personally. So unless the bank were offering me $1000+, it probably wouldn't be worth the headaches you're going to have to endure.

 

[Dale Smalley]

I do these all day as administrative reviews. In effect you are an advocate for the bank. Review the appraisal and eval (usally a BPO) and identify why they are different. Choice of comps, condition, home owner vs investor.... and come up with a real number based on what you found. You can also pull comps, buy an avm, check listings on Realtor.com whatever you can find. There has to be a reason for the 60k swing. They want you to figure it out.

 

[Tom Hildebrandt]

Dale

I agree that you can develop your own opinion, but I wanted to discuss the issue of an "administrative review" and the idea of advocacy.

If you are an appraiser, working as an appraiser, regardless of whether under contract or employment. and you have an obligation either by law (regulated by state or feds), consent or agreement with the client, or by a voluntary association with a trade organization, you can not provide an opinion on another appraisers work product outside of the requirements of USPAP Standard Three. You also can not be an advocate, you must be impartial, objective and independent.

Now, a lot of appraisers work, as apparently you do, for banks doing what are refered to as administrative reviews. In my opinion, USPAP would only allow that if your state did not have mandatory licensing, the review was not required under Title 11, and you were not a member of a trade organization that required its member to comply with USPAP. I do not think it is difficult for an administrative review to be made USPAP compliant, usually it means just having the workfile, have a signed and dated certification, and a generic cover letter describing the intended use of the client, and filling in the blanks about the description of the report. I know several folks who with simple changes in their in house forms to become USPAP compliant. I know this seem nitpicky and a bit strident, but I believe this is what USPAP requires.

What we are after as an appraisal profession, is for us to recognize the professional standard, USPAP. When we find ways to opt out, it dilutes the purpose of becoming professionals.

Just my thoughts, this appraisal review issue is a hot button for me. The NCAB believes an appraiser can opt out of USPAP just by coming to an agreement with a client that a review was not intended ot be USPAP compliant. I think this is a bad public policy, imagine if an appraiser could opt out of USPAP on an appraisal for a loan if he and the client agree its ok, regardless of what the law or rules were.

At any rate, thanks for your kind words over the years (yep its been years) regarding my case.

Best regards to a fellow professional

Tom Hildebrandt GAA

 

[Dale Smalley]

Tom
I my most recent USPAP CE class the instructor went so far as to include this in her powerpoint presentation that yes you can do an administative review. Apparently this question is asked enough to get on the FAQ list. Additionally she used her USPAP seceret decoder ring to direct us to the paragraphs in the guide book. Really who better than an experienced appraiser to analyize all the market data and not just 3 comps by the appraiser hired by the LO. Williams client is probally so confused they dont know if the value 180k or 240k. Take this as a consulting assignment if you are worried about USPAP.

 

[Restrain]

Yes, you can review it, and yes, you might want to consider this a "consulting" job as opposed to an appraisal. And given the market, both may be right. Just consider each one in light of itself, not in light of each other.

Roger

 

[Tom Hildebrandt]

Dale

You are of course correct.

The guidance makes a subtle distinctions between appraisal reviews and administrative reviews, as well as a similar distinction between comparing two reports for differences, and comparing two reports and commenting on the relative merits of each report.

An administrative review merely checks a report for contents and math errors, it does not include comments on the quality of the data, the analysis or the conclusions. In the first instance, no judgement is applied, and no opinion is rendered. Iin the second the professional judgement of the appraiser is required and an opinion is generated on the quality of the work product. That is a profesional review, Std 3.

A similar of distinction is made in comparing two reports for differences and reviewing two reports to reconcile the differences. In the first instance an appraiser might be needed to apply judgement to dicern where the differences are, but no opinion is given relative to the quality of work. In the second instance the quality of the work and a value opinion are required, ie a Std 3 review.

What you say you are doing is reconciling the data and reaching a value conclusion. That, in my judgement is a Std 3 review. If all you are doing is checking to see if the blanks are filled in, and checking math, fine, no standard three. But express an opinion on the quality of the data, analysis or conclusions, that is Std 3 stuff.

Best regards

Tom Hildebrandt GAA

 

[bradellis]

Folks, OK- I read all the posts and I'll advise all of you to listen very closely to what Tom Hildebrandt is saying- he has it absolutely right (with the possible exception of what NCAB says about "opting out" of USPAP- because I do not know what they do or say for sure).

1. You may do an administrative review. I say this despite the pronouncement in the OREA's newsletter in CA that you cannot. Remember that an administrative review does not deal with the value opinion. The minute you get into the value part, it becomes a technical review and is covered by SR-3 (and Tom, leave out the ? about what the state boards do as it is really a different disscussion).

2. You may do a technical review on an "evaluation" IF it contains adequate data. An evaluation is not automatically a restricted report. In fact, if it is used for lending purposes, it cannot be restricted. I say that because restricted reports are for the eyes of the client only. But fed banking regs specifically state that the borrower is entitled to the data used in making the loan decision- especially if the loan is denied. If the evaluation does not contain adequate data, you would need the work file. And even the use of restricted reports is changing- so keep up to date.

3. If you do desk reviews for a bank, STD-3 applies. If you offer a different opinion of value, your basis must be in your file, certs must be on file, and this applies to your work even if you are merely choosing between the evaluation or BPO and the appraisal. You are forming a value opinion, so you are doing an appraisal.

Brad Ellis, IFA, RAA

 

[Fred]

Tom,
You are on the right track with much of what you write, and your knowledge of the land mines is exacting - but as someone asked, how do you define "evaluation"?

You write, "the ...professional judgement of the appraiser is required and an opinion is generated on the quality of the work product. That is a profesional review, Std 3."

Standard 3 goes to reviewing "appraisals," not reviewing feasibility studies, not reviwing investment analyses, and (maybe) not "evaluations" either. There are two definitions of evaluations floating around. One is the classic definition about "nature, quality and utility," but not value, of a defined property. The other is a federal banking agency definition, which does produce a value conclusion. The latter is referenced in AO-13.

Seems simple to me. If the state is going to allow that an evaluation is not an appraisal, then reviewing does not come under SR-3.