There are situations in which individuals may be asked to rely upon an appraisal for which they are not the client. For example, the seller of a building may provide the buyer with a copy of an appraisal they had prepared in order to set a listing price or possibly a new lease is being negotiated and one party presents the other with an appraisal with an opinion as to the market rent. Getting an independent review of those appraisals can be an important part of the negotiation process in reaching a fair price.
An appraisal review must be completed in compliance with USPAP Standard 3. MacLane and Company, Inc. uses a review document format prepared in compliance with that Standard. Agreement as to the scope of work for the review is very important. For example, does the client require the reviewer of the appraisal report to inspect or observe the subject property, confirm the market data reported in the appraisal, and perhaps most important, provide an opinion of market value? Such a review will also require compliance with USPAP Standards 1 & 2 as the review has also become an appraisal.
Examples of appraisal review include:
- Financial institution request for USPAP conforming appraisal review of an appraisal used in a federally related transaction
- Litigation support – an independent appraisal review of an appraisal prepared for counsel (representing either defendant or plaintiff)
- Review of an appraisal prepared for a party to a transaction such as an option to purchase
- Fraud investigations
The minimum requirements for any appraisal review report are summarized below:
- state the identity of the client and and intended users, by name or type;
- state the intended use of the appraisal;
- state the purpose of the appraisal review;
- state information sufficient to identify the work under review, the date of the work under review, the effective date of the work under review and the appraiser(s) who completed the work under review;
- state the effective date of the appraisal review;
- clearly and conspicuously state all extraordinary assumptions and hypothetical conditions, and state that their use might have affected the assignment results;
- state the scope of work used to develop the appraisal review;
- state the reviewer’s opinions and conclusions about the work under review, including the reasons for any disagreement;
- include a signed certification that is similar in content to the comments listed in standards Rule 3-6.
Documents often needed in the appraisal review process include the following.
- An assignment agreement
- A copy of the appraisal
- A copy of the workfile (if necessary)
After an initial clarification of the type of services needed, an assignment agreement will be prepared and sent to the client for signature. It will include a brief description of the property, and will include information regarding the name of the client, intended use and users of the appraisal, appraisal review, or consulting services. Essentially the “scope of work” will be stated along with a request for any needed documents. The assignment agreement should be reviewed carefully.