Compliant Appraisal Management and Review Process – Part I

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As a full service national appraisal management company, Valuation Management Group selects and engages the appraiser, provides compliant quality technical appraisal reviews, ensures appraisal compliance, improves efficiency, and can reduce expense for a financial institution.

VMG is presenting a three part blog series to provide a better understanding of appraisal management services and appraisal compliance. We will begin with selecting and engaging the appraiser.

Part I –

Real estate appraisal processes for financial institutions are a serious area of regulation that is often over looked or ignored by the institution. Frequently, we get an urgent call from the institution’s executive team due to a recent regulatory exam, where they were cited for issues with the appraisal process and/or the review quality was less than acceptable. Interagency Appraisal and Evaluation Guidelines and Dodd Frank have very specific appraisal independence and review guidelines. We will discuss just a few areas that seem to be the biggest oversights.

The first step in appraisal compliance is that the individual who selects and engages the appraiser cannot be in loan production or reporting to anyone in loan production. Some lenders have an individual placing the order with the appraiser that is independent of the loan production staff, but the individual who is in loan production is “quietly” suggesting which appraiser should be given the engagement. Of course, this is not an independent process but a mirage of independence. Other financial institutions may still allow the loan originator or processor to engage the appraiser, clearly not independent or compliant.

The financial institution is required to have a process in place to identify potential issues, including valuation issues, and processes in place to remediate those issues once identified. There must be an established process for annual review of the appraiser’s state licensing and quality, a process for suspending or terminating business with individual appraisers, and a procedure for referrals of appraisers to the applicable state appraiser licensing regulatory board. Managing the lender’s appraiser panel is an important and time consuming role. The individual managing this process should be trained to understand the appraisal process, state appraisal laws, and have very specific procedures in place to ensure and validate compliance. The quality of the appraiser’s work should be monitored on a regular, scheduled and written basis. The appraiser should have a documented quality score and the institution should utilize the scoring process to logically assign to the appraiser based on score, proximity to the property, expertise of the property type and market, and their known current assignment commitments. The appraiser’s score card should be easily presented to a regulator if requested. Fee or turn time should never be the only factors considered before engaging an appraiser.

Valuation Management Group is a national appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We offer the full array of commercial and residential appraisal products and services. We take the appraisal process from ordinary to extraordinary. VMG welcomes your call to discuss our national appraisal management services.

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