Commercial Real Estate Appraisal Reviews
What Are Commercial Real Estate Appraisal Reviews?
In common usage, the term review means to examine or critique. In appraisal practice, appraisal review has a very specific meaning. Commercial real estate appraisal reviews provide an opinion about the quality of another appraiser’s work. Appraisal review is a valuation-related service that many different types of clients may need. The extent and nature of a review is a scope of work decision reached jointly by the appraiser and the client. There are distinct best practices and professional standards that apply when providing this type of service.
Most often, the subject of the appraisal review is an appraisal report prepared by another appraiser. When that is the case, the appraisal review may or may not include an opinion about the appraiser’s value conclusion. Most noteworthy, the opinion will say that the value conclusion is or is not well supported.
If the reviewer agrees or disagrees with the value conclusion as part of the scope of work provided in the work under review, the reviewer is providing an appraisal. By agreeing, the reviewer is taking the appraiser’s value opinion to be his or her own, though subject to certain stated conditions (e.g., extraordinary assumptions. Rather, by disagreeing, the reviewer is saying his or her value opinion is something different.
Extraordinary assumptions play a key role in the review process. This is especially important when the reviewer provides an opinion of value in the review report.
Clear disclosure of extraordinary assumptions is critical. Consequently, professional standards require this disclosure. In this way, the client and users of the review report can determine its suitability for their use.
Professional standards require the inclusion of the following items, at a minimum, in a review report:
- The reviewer’s client an any other intended users.
- The intended use of the appraisal review. (In other words, why does the client need the review?)
- The purpose, or objective, of the appraisal review. (What is the client’s question about the work under review.
- The subject of the appraisal review assignment. (What are you reviewing?)
- The ownership interest of the property that is the subject of the work under review.
- The date of the work under review (i.e., the date of the report).
- The effective date of the opinions and conclusions in the work under review.
- The appraisers who completed the work under review.
- The effective date of the appraisal review.
- Any extraordinary assumptions and hypothetical conditions the reviewer used. A statement that their use might have affected the reviewer’s conclusion should also be included.
- The reviewer’s scope of work.
- The reviewer’s opinions and conclusions about the work under review. This should also include the reasons for any disagreement.
- When the scope of work includes the reviewer’s development of an opinion of value, a statement of which information analyses, opinions, and conclusions in the work under review the reviewer accepted as credible and used in developing the reviewer’s own opinion and a summary of any additional information relied on and the reasoning for the reviewer’s opinion of value.
- Finally, the reviewer’s signed certification.
Standards for Appraisal Reviews
When the appraiser is subject to USPAP, the applicable performance standard for the development and communication of the appraisal review is Standard 3. Furthermore, the reporting requirements for an appraisal review are set forth in Standards Rules 3-4, 3-5, and 3-6.
Global Valuation provides Commercial Appraisal Review Reports on all types of commercial real estate and special purpose properties. Reviews may be for compliance with professional standards and guidelines including:
- Uniform Standards of Appraisal Practice (USPAP)
- International Valuation Standards (IVSs)
- Federal Housing Authority (FHA)
- US Veterans Administration (VA)
- Fannie Mae – The Federal National Mortgage Association (FNMA)
- Freddie Mac – The Federal Home Loan Mortgage Corporation (FHLMC)