There continues to be quite a bit of discussion about the topics of appraisal review, appraiser independence and client/underwriting requirements.
In all areas of work, there must be goals and standards met to be able to determine completion of a task. When writing a sentence, the goal is to communicate an idea so the reader or listener understands the thought. Accomplishing this requires using at least a subject and a verb, and closing with a punctuation mark. When completing an appraisal, the goal is for the reader to understand the market information and how it was analyzed and adjusted to arrive at an estimate of value. Completion, in this case, requires presenting and analyzing data, and following the laws and guidelines of the appraisal industry.
There are a few details in working with a client’s review process to consider that work toward achieving clarity.
Reviewer qualifications make a huge difference
The years of appraisal experience that a reviewer has should make a big difference in the appraiser experience with the review process. Experienced appraisers completing reviews means appraisers should not be receiving frivolous requests. Granted, standards for some clients will go past what some appraisers believe reasonable, and the reviewer may be communicating the client’s requirements.
At VMG, we understand each client’s individual underwriting expectations and customize our review process to the client’s expectations. Clients have various reasons for their appraisal expectations, and it usually has to do with the standards appraisals must meet to be sold on the secondary mortgage market.
Appraisal management companies and institutions that depend primarily on automated review systems can be, understandably, problematic. Appraisers, especially, can get frustrated being on the receiving end of such automatically generated requests that do not consider the specific challenge of each appraisal scenario, having little access to open communication with the company. There is no “filtering” by an experienced field appraiser of the “flags” noted in the automated review process. VMG is not a fan of automated review for this very reason.
Understanding your client’s business affects the process
An appraiser understanding their client’s business also makes a difference in the process of appraisals. Clients have good and various reasons for their appraisal expectations, and it often has to do with the standards appraisals must meet to be sold on the secondary mortgage market. Investors, in particular, are very meticulous these days about what they expect to be addressed in appraisals and at what level of detail they expect the issues to be discussed. It behooves everyone involved in the process to understand their client’s business, and work as a team with our clients (and the end-users), instead of having an adversarial reaction to their underwriting requests and “client-specific requirements.”
A client has the right to question a product
A consumer expects to have the ability to approach a service provider and question a good or service they have received. Lender clients are no different. However, there are guidelines and laws regarding what is and is not acceptable to question or challenge in an appraisal.
Dodd Frank Wall Street Reform and Recovery language and Interagency Appraisal and Evaluation Guidelines are very clear about acceptable methods of communicating deficiencies noted and requesting corrections by the appraiser. The same laws encourage lenders and banking institutions to implement adequate internal controls to ensure that such communications do not result in any coercion or undue influence on the appraiser or person who performed the evaluation.
A client or institution may also request the appraiser consider additional information about the subject property or comparable properties, provide additional supporting information about the basis for a valuation, and correct factual errors in an appraisal.
VMG takes seriously making sure such guidance and laws are followed for all involved: the appraisers, the clients and VMG personnel. It sounds straightforward, but there are still claims from appraisers everywhere about undue influence as it relates to appraisal revision requests. Keep in mind, the client has concerns about the standards they know must be met based on the purpose of the appraisal and their business model. It is also the responsibility of the banking institution to their regulatory examiners to review and agree with the contents of the appraisal.
Appraisers have responsibilities, too
Conversely, appraisers are responsible for creating quality, compliant appraisal reports. Their report should be easily understood, with support as to how they arrived at their conclusions. If the report is not understood by the reader, the reader should ask questions. It is not pressure to request changes; USPAP standards require appraisers to clearly communicate their opinions in a manner that is not misleading or confusing.
It would benefit us all to focus on what matters in developing a credible appraiser: presentation of market data, a minimum summary of how the data was analyzed, and the logic and reasoning applied to the data on which the appraiser’s conclusions were made. If known, preferred underwriting standards are not met, the appraiser should take the time to recognize this in the appraisal and explain why it was not possible to meet the preferred standards. This will save all involved time spent going back to the appraiser with requests.