Appraisal Quality & Review Process
By: Stephen Rountree
Within our community bank clients, numerous reviews have noted apparent appraisal weaknesses that have not been fully vetted within the appraisal review process. The apparent weaknesses involve omitted approach(s) to value. Of concern, not utilizing the cost approach to value within appraisals utilized to underwrite AD&C loans. Additionally, instances have been noted in which appraisals for CRE projects did not develop the market approach to value.
It would appear the cost approach is being omitted due to ongoing market volatility. However, omitting the cost approach to value within an appraisal used to underwrite an AD&C project would seem difficult to accept. At a minimum, the cost approach is needed as a feasibility check for the project.
As based on discussions within our client banks as well as limited correspondence with appraisers, omitted market approaches are likely attributable to the material increase in real estate prices, and current contracts & recent closings have yet to appear within public records. However, omitting a market approach to value may be difficult to support during an examination – particularity so for property types such as condominium units, apartment complexes, hotels, and so forth.
As appraisals are ordered, received, and reviewed, it would seem prudent to include any discussion / correspondence with the appraiser. Any apparent weaknesses should be fully vetted within the appraisal review process.
It would appear the cost approach is being omitted due to ongoing market volatility. However, omitting the cost approach to value within an appraisal used to underwrite an AD&C project would seem difficult to accept. At a minimum, the cost approach is needed as a feasibility check for the project.
As based on discussions within our client banks as well as limited correspondence with appraisers, omitted market approaches are likely attributable to the material increase in real estate prices, and current contracts & recent closings have yet to appear within public records. However, omitting a market approach to value may be difficult to support during an examination – particularity so for property types such as condominium units, apartment complexes, hotels, and so forth.
As appraisals are ordered, received, and reviewed, it would seem prudent to include any discussion / correspondence with the appraiser. Any apparent weaknesses should be fully vetted within the appraisal review process.