Appraisers frequently have their work reviewed, especially when an appraisal’s intended use is for financing. Reviewing appraisals is routinely part of the job description for appraisers employed by lending institutions. But the scope of work for review assignments varies significantly, and sometimes reviews are performed by non-appraisers. Both appraisers and their clients need to clearly understand when a review assignment is, in fact, an appraisal and whether an appraiser can conduct an accurate appraisal review.

How a Review Becomes an Appraisal: Eliminating Potential Confusion

The Uniform Standards of Appraisal Practice define ‘appraisal’ as an opinion of value or the act or process of developing an opinion of value. Any time an appraiser gives a value opinion, they have performed an appraisal. By contrast, an ‘appraisal review’ is defined as 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. The critical difference between the two activities is the subject of the appraiser’s assignment: is the subject real property or another appraiser’s work?

Another vital element of both definitions is recognizing who is providing the appraisal service. In both cases, the practitioner is assumed to be an appraiser. Unless laws or regulations in a specific situation require otherwise, someone who is not an appraiser is not expected to comply with appraisal standards. If a value opinion or review is done by a broker, a lender, or an attorney, USPAP doesn’t apply.

Appraisers’ Roles in Both Assignments

Appraisers provide appraisal reviews for various purposes. An appraisal review may examine an appraisal’s compliance with standards and guidelines, verify its accuracy and completeness, or assess its analysis. The review appraiser can express opinions and conclusions about all of these in an appraisal review.

When the review appraiser goes on to state a value opinion for the subject of the original appraisal, the review appraiser has, by definition, performed a second appraisal. This is true even when the review appraiser simply concurs with the first appraiser’s value opinion. Providing a value opinion within an appraisal review assignment is USPAP-acceptable as long as the review appraiser fulfills appraisal development standards. This, in effect, becomes a two-part assignment consisting, firstly, the review appraiser’s conclusions about another appraiser’s work and, secondly, the review appraiser’s own value opinion.

When a review appraiser develops a value conclusion, they need to clearly describe the scope of their own appraisal. The scope could include assuming all the information provided by the original appraiser, considering the original information but with corrections, or providing new data and analysis. The review appraiser should include, by reference, the portions of the initial appraisal that they have used in developing their separate value opinion.

Identify the Service Needed First

The term ‘appraisal review’ has a specific meaning to appraisers. But clients and other intended users may use different terminology and expect the review to provide a value conclusion. The best way to avoid misunderstandings is for the appraiser and the client to define the scope of work explicitly before such a task begins. Appraisers can provide a broad spectrum of review services, from a simple reading for accuracy to a separate value opinion developed after reviewing another’s work. Should an appraiser comprehensibly identify the service provided and then execute that duty in compliance with professional standards, there should be no issue with satisfying a client’s intended use.
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Appraisals of the same property by different appraisers are rarely the same. Differing value opinions are usually a result of various factors. When an appraisal user encounters contrasting value conclusions for one property, they can decide— by considering several variables — which conclusion is most reliable.

Opinion Versus Fact

By definition, an appraisal is an opinion of value, not fact. While a property’s sale price and construction cost are provable quantities, its value is an opinion of desirability to defined groups. So, appraisal conclusions, even though supported by facts, can vary among appraisers. Appraisers’ knowledge and experience often account for factual and analytical differences between value estimates.

Factual Disparities

Value opinions will be contradictory if appraisers describe a subject property differently. If two appraisers disagree on a property’s size, age, or physical components, their conclusions will be different. If appraisals’ dates of value are not identical, value conclusions may also vary. Date variations are especially common in appraisals for taxation purposes: usually, taxing authorities express value as of a specific past date, while property owners’ appraisals may be as of a current date.

Appraisers identify the type of value they are researching. While market value is most often the focus of appraisal assignments, appraisers also study other kinds of value, such as use, investment, assessment, and insurable values. Uniform Standards of Professional Appraisal Practice require appraisers to identify the definition of market value assumed in an appraisal: different definition elements, such as marketing time (or best versus most probable price) will affect value conclusions.

Different factual considerations for comparable sales can also change value conclusions. Both the sale properties’ physical descriptions and the conditions of their purchase will impact their unit sale prices. If a sale property is smaller than reported, its unit price will likely be higher. If the property is sold under duress, its unit price will probably be lower.

Analysis Variations

The analysis applied in an appraisal will affect its result. Divergent scopes of work can affect appraisals’ detail and depth of analysis. When appraisers conclude different highest and best uses for the same property, value conclusions likely will vary.

How an appraiser analyzes a property’s market will affect their selection of comparable sales. For example, if an appraiser knows that single-level homes are most desirable in a market area, excluding comparable sales of two-level homes will result in a different range of value. If the subject property is unusual in its locality, an appraiser may extend the comparable sale search outside of that region.

When an appraiser has extensive experience appraising in a specific location or for a particular property type, their analysis will often be different from that of a less-experienced appraiser. The experienced appraiser may place more weight on locational differences or property features. They may even have useful data from previous appraisals, such as proof for comparable sale adjustments.

Addressing Appraisal Differences

Appraisal conclusions often vary because they are opinions, not facts. By comparing both the facts and the analysis underlying different value opinions, an appraisal user can determine which opinion is most relevant. When value opinions for a property conflict, one opinion isn’t necessarily wrong. However, one appraisal will perhaps be best suited to the intended use at hand.

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