What Is Appraisal Review in Real Estate?

Home negotiations can be deadlocked because of the valuation differences of a property by both prospects and homeowners. The seller wants to max out the estimate based on the growing inflation and number of renovations made, while the buyer wants the best deal in the market even as home affordability worsens. This is why home appraisals are advised to ensure property costing is as fair as possible.

This article discusses what an appraisal requires, why it needs to be reviewed and the methods involved in arriving at both conclusions.

What Is an Appraisal?

An appraisal is the fair valuation of a property based on a professional’s opinion, mainly if the payment method includes a mortgage. Appraisals are made by appraisers — professionals licensed by a regulatory body to carry out unbiased property valuation.

These evaluations have a central feature in any significant sales negotiations made within the real estate industry. A property’s estimate is based on the current market activity, location, size, functionality and the presence or absence of amenities.

Appraisal reports are essential as they facilitate transactions between buyers and sellers because a property value estimation by a neutral body breeds trust among all parties.

Methods of Conducting Appraisals

The method employed by appraisers in valuing a property depends on the type of property and the purpose for which it was intended. The methods of appraisal include:

Sales Comparison Approach

The comparative sales approach is conducted by comparing the prices of similar properties sold within a given neighborhood. Appraisers compare properties by considering several criteria such as the number of rooms and baths, location, spaciousness and age.

Cost Approach

The cost approach values a property based on the sum of the cost of the land and the cost of property construction, less the calculated depreciation over time. It is an easy way of asking the buyer to pay how much it would cost to build the property from the ground up.

The cost approach may put the homeowner at a disadvantage because the influence of market activity is not considered, a variable that can see the house increase further in valuation based on current mortgage costs.

Income Capitalization Approach

The income capitalization approach values a property based on the annual income generated minus the yearly cost of the property’s maintenance. This method is utilized for commercial buildings to assess the viability of the potential investment.

What Is Appraisal Review?

An appraisal review is an evaluation of an appraisal that is carried out to determine the report’s accuracy and the appraiser’s thoroughness in valuing the property. Appraisal reviews are usually requested by financial institutions and attorneys who want to get a second opinion on an appraisal report.

Appraisal review is an assessment of the appraisal and not the appraiser. Prospective buyers may argue that the estimate does not reflect the property’s current market value, and the property owner may state otherwise. In such a situation, the buyer may employ the services of a reviewer to take another look.

For reviewers to do an excellent job, they must at least be on the same skill level as the appraiser. The goal of an appraisal review is to:

• Determine if the appraisal conducted employed is in line with the acceptable appraisal standards and techniques;
• Assess the data gathered during the appraisal and the relevance to the assessment;
• Confirm that the conclusions drawn from the appraisal are correct.

Appraisal Review Methods

What sets the reviewer on a path that guarantees accuracy and objectiveness when an appraiser delivers a poor job? Reviewers employ three methodologies to assess an appraisal.

Desk Review

A desk review is an appraisal report assessment involving the reviewer taking a personal tour of the property. This method evaluates the methodology’s accuracy and reasoning of the report.

A desk review can be used to ascertain if the data used in the appraisal was relevant and correctly applied. However, a desk review can not verify the accuracy of the data presented in the report. The authenticity of the appraisal is measured per the USPAP guidelines.

Field Review

In field reviews, the reviewer tours the property to verify the facts recorded in the report by conducting a thorough analysis. Field reviews do not emphasize the methodology employed in the report; reviewers are more concerned about the verifiable data used throughout the appraisal.

Full Review

This method of appraisal review is a combination of both desk and field reviews. In the full review method, the reviewer vets the provided data in the appraisal report and the methodology used to execute the assessment of the property. The reviewer assesses the report and visits the property to verify the data.

Why Is Appraisal Review Important?

Even the most well-respected appraisers can make a mistake or overlook something that could negatively impact your contract. You need the confidence of knowing that your appraisal includes everything possible, which makes appraisal reviews an extremely important step in the process that many people may not even know about.

Reinforces Clients’ Confidence

Appraisal reviews are used to measure the credibility of the appraisal conducted. If the appraisal review can confirm that the appraisal was conducted correctly while utilizing the relevant data, the client becomes more confident in the appraisal report. This is essential for clients with little to no knowledge about appraisals.

Resolves Legal Conflict

During legal proceedings, one or both parties may question the accuracy and relevance of the appraisal report used. Such situations demand that an appraisal review be carried out to verify or refute the claims contained in the report.

Assists Clients’ Decision-Making Processes

Appraisal reviews help clients double-check the information contained in appraisals. They give investors extra information to help them make better and informed business decisions.

Contact AmeriMac Appraisal Today to Improve Your Investment Decisions

Appraisals are powerful when you consider the information they contain. Home hunters and investors make their decisions based on the info contained in the document. For this reason, AmeriMac Appraisal Management has dedicated its expertise to providing homeowners and investors with elite and comprehensive appraisal reports and reviews. If you want to learn more, call us today at 866-395-3773 or fill out the quick contact form on our website.