What Agents Need to Know About Appraisal Reviews

A variety of circumstances, including a request by the seller, may lead to a formal review. It’s up to the lender.

Real estate agents with any experience in the field are certainly familiar with how an appraisal works. Many agents have worked with appraisers for years and have a strong understanding of the appraisal process. But how much do you know about the process of appraisal review? This can be important because there are times when a transaction may not be considered complete without one.

What is an appraisal review?

In general terms, an appraisal review is a formal evaluation of the quality of an appraiser’s work, performed by another appraiser. This is distinguished from a more cursory review of an appraisal that may be conducted by a loan processor, underwriter or quality assurance department to determine whether an appraisal appears to satisfy the lender’s guidelines, or those of regulatory entities such as Fannie Mae, Freddie Mac, HUD or VA .

Who would typically order an appraisal review and under what circumstances?

A client (e.g., lender or investor) is generally the one to order an appraisal review. Although most lenders and investors have a quality assurance process in place to evaluate the majority of appraisals submitted to them, several factors might lead a client to seek an additional level of scrutiny for a specific transaction. This may include the value or complexity of the property, the amount of the loan, the client’s history with the appraiser, or specific information contained in the appraisal report. Appraisal reviews may also be ordered outside the confines of a particular transaction. For example, lenders and appraisal management companies may be mandated to perform appraisal reviews on a representative sample of the appraisals they conduct. Appraisal reviews are also conducted by regulatory and enforcement entities, often in response to complaints, to determine whether an appraisal provides a credible opinion of value, and/or whether an appraisal was performed in accordance with recognized valuation methods and techniques.

How common is it for a residential appraisal to go for review?

A vast majority of appraisals do not undergo a formal appraisal review. As stated above, certain transactional factors can trigger an appraisal review as part of the longstanding due diligence process by lenders and investors. However, recent claims of appraisal bias or discrimination may propel a larger number of appraisal reviews than have been historically performed. Many of the stories alleging appraisal bias involve a second appraisal that differs significantly in value from the first. In such cases, questions pertaining to the credibility of an appraisal may often begin with a reconsideration of the value request from the borrower or agent.

How would an agent or seller go about requesting a review?

Typically, if an appraisal does not support a pending sale price, the first step would be to request a reconsideration of value (ROV). In these cases, agents and sellers work together to ensure the property was described properly in the appraisal and to see if the appraiser used what appears to be the most appropriate comparable sales and listing data in the analysis. If factual information about the property is incorrect, or relevant comp data was not considered, this should be brought out in the ROV request.

If the lender does not accept the ROV request, or if it does not result in any changes from the original appraisal, an agent or seller could ask the lender to perform an appraisal review—or they could ask the lender for a second appraisal on the property. Lenders aren’t mandated to honor such requests. In some cases, when an agent or seller requests a second appraisal, a lender may choose to have an appraisal review performed instead, as a new appraisal tends to be more expensive and take longer to obtain.

There are no absolute actions based on the results of an appraisal review. If it supports the appraisal, the lender typically takes no additional action. However, if the review identifies material deficiencies in the appraisal, including a value opinion that is not credible, it’s possible the lender will be open to obtaining a second appraisal. While a second appraisal would offer no guarantee of different results, it would certainly create an additional opportunity for a successful transaction.