Valuation Management Group understands that financial institutions sometime struggle with the question, “Would a restricted appraisal report be sufficient for the potential loan?” As a part of our appraisal management services, VMG strives to give guidance on appraisal issues, concerns, or questions.
The 2016-2017 Uniform Standards of Professional Appraisal Practice is effective January 1, 2016 thru December 31, 2017 and Standard 2 of this document deals with real property appraisal reporting options. Standards Rule 2-2 states that, “each written appraisal report must be prepared under one of the following options and prominently state which option is used: Appraisal Report or Restricted Appraisal Report.” USPAP Advisory Opinion 11 provides further commentary and a comparison chart for these reporting options to aid in the appraiser’s report writing. “Under Standards Rules 2-2, 8-2, and 10-2, the main differences between the two options are in three areas; 1) An Appraisal Report may have the client as the only intended user but may also have other intended users while a Restricted Appraisal Report must have the client as the only intended user. 2) In an Appraisal Report, specified parts of the research and development must be summarized; in a Restricted Appraisal Report, those same parts need only be stated. 3) An Appraisal Report requires the appraiser to summarize the information analyzed and the reasoning that supports the analyses, opinions, and conclusion while a Restricted Appraisal Report does not have this requirement.” Valuation Management Group’s quality assurance review team performs reviews considering the report option that was engaged and thus the applicable and appropriate requirements to ensure USPAP compliance.
The InterAgency Appraisal and Evaluation Guidelines became effective December 2, 2010. This document specifically addresses reporting options on page 8, “An institution should specify the use of an appraisal report option that is commensurate with the risk and complexity of the transaction. The appraisal report should contain sufficient disclosure of the nature and extent of inspection and research performed by the appraiser to verify the property’s condition and support the appraiser’s opinion of market value.” Additionally, on page 10, this document states that. “Generally, a report option that is restricted will not be appropriate to support most federally related transactions. These reports lack sufficient supporting information and analysis for underwriting purposes. These less detailed reports may be appropriate for real estate portfolio monitoring purposes. An institution is responsible for identifying the appropriate appraisal report option to support its credit decisions. The institution should consider the risk, size, and complexity of the transaction and the real estate collateral when determining the appraisal report format to be specified in its appraisal engagement instructions to an appraiser.”
For example, if the financial institution is ordering an appraisal for a loan renewal on a single tenant, owner-occupied, 8,000 square foot office building, a Restricted Appraisal Report may be appropriate and sufficient for the type of collateral and level of risk. Conversely, if the financial institution is ordering an appraisal for a new loan on a 200-unit apartment complex with 70% occupancy, below market rents, and a proposed renovation by the new owner, an Appraisal Report would be required for this type of collateral and level of risk. The appraisal would contain more in-depth data and analysis into the varying concerns related to market supply/demand, property type and neighborhood occupancy levels, and the overall financial feasibility of the project.
As part of our commitment to deliver outstanding service to both our clients and panel appraisers, VMG is always available and happy to discuss the best appraisal reporting options.
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.