Commercial Appraisal Reviews – Valuation Management Group

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Commercial Appraisal Reviews – Valuation Management Group

Valuation Management Group, as an appraisal management services company, understands the importance of quality appraisal reviews. One of our quality assurance staff, Dave Maul, recently obtained the prestigious designation, AI-GRS, and we felt more information about the designation and commercial appraisal review was warranted.

The Appraisal Institute has established a professional appraisal review designation program in response to the growing and critically important role that appraisal review plays in risk management and mitigation for many clients/users of appraisal services. The new designation program is aimed at providing professional reviewers with the knowledge and skills needed to satisfy issues related to due diligence and risk management often requested by their employers and clients.

The AI-GRS (General Review Specialist) designation targets the commercial reviewer and is received upon the successful completion of a bachelor’s degree program, passage of a comprehensive exam and attaining 4,500 hours of qualifying experience. Also, designees must abide by both the appraisal profession’s Uniform Standards of Professional Appraisal Practice (USPAP) and the Appraisal Institute’s Standards of Professional Practice and Code of Ethics.

The Indiana Banker’s Association recently reported, “Commercial appraisals are not only lengthier than residential reports, but are also exponentially more complex. As a result, (reviewers of) commercial appraisal reports face a greater challenge than their residential counterparts. In residential appraising, the sales comparison approach is the main event. But in commercial appraising, any of three approaches can be relied upon in the final reconciliation process. According to the regulators, the very complexity of commercial appraisal methodology may increase a bank’s credit risk.”

According to an article published March 28, 2016, in the ABA Banking Journal, the federal banking agencies in December warned they “have observed substantial growth in many Commercial Real Estate (CRE) asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.” Their statement notes that CRE asset and lending markets are experiencing substantial growth and that competitive pressures are contributing significantly to historically low capitalization rates and rising property values.

The joint memorandum recommends that member banks mitigate their risks, including “implementing processes for reviewing appraisal reports for sufficient information to support an appropriate market value conclusion based on reasonable market rental rates, absorption periods, and expenses.” It also said that during 2016, supervisors from the banking agencies will pay special attention to potential risks associated with CRE lending.

According to Appraisal Institute research, there were about 12,500 review appraisers in the United States in 2012. As of June 30, 2013, the total U.S. appraiser population stood at 82,250 individuals, reflecting all active state-licensed and -certified appraisers.

As of Dec. 31, 2014, total Appraisal Institute professionals stood at 20,697, including active Designated members, Candidates for Designation, Practicing Affiliates and Affiliates, as well as Retired Designated members and Life Designated members. As of the end of 2015, only 419 of those individuals were designated as AI-GRS. Congratulations to Dave Maul, MAI, AI-GRS.

Valuation Management Group recommends selecting well-trained and experienced appraisers to assist banks in understanding CRE risks and to avoid contributing to asset bubbles. Their qualifications—particularly high quality education, peer review and demonstration of knowledge requirements—prepare them to support and defend their work. This kind of rigor can be particularly valuable when facing challenging valuation assignments.

In order to comply with Interagency Appraisal and Evaluation Guidelines and to assist in risk mitigation, financial institutions should have appropriate appraisal review procedures. Valuation Management Group’s quality assurance reviewers are very knowledgeable and qualified in both commercial and residential appraisal reviews. Any financial institution needing quality appraisal reviews should contact VMG to discuss our processes and how we can partner to ensure quality appraisal reviews.

Valuation Management Group is a national, residential and commercial appraisal management services company that manages the appraisal process, including the appraisal review, for financial institutions, banks, mortgage bankers, and credit unions. VMG offers a full array of commercial and residential appraisal products and services. The company’s goal is to take the appraisal process from ordinary to extraordinary for its clients and appraisers.

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