Appraisal review process

The institution I work with is in the process of strengthening it appraisal process in regards to the issues discussed in the Interagency Appraisal Q&A (March 2005).

The senior lender ask if I would ask peers the how the selection and review processes work in his/her institution.

The bank wants to follow the requirements, but still provide good customer service and loan transaction turn-around.

At our bank, we have someone other than the lender review all appraisals $250,000 and up. The checklists that we use are straight forward and easy to use and do not take a long time to complete.

For loans less than $250,000 we have the lenders fill out a shorter form to use that will show that they have read the appraisal. They have to in order to complete the form.

For appraised values under $1,000,000 we have our credit analysts prepare reviews on a checklist. For anything above the $1,000,000 value mark, we send it for review by appraisers on our approved panel.

Don't forget that regs prohibit any person that is involved in the loan approval process to have a finger in the appraisal ordering or review/acceptance process.

Two questions:
1. Who is typically doing the ordering of appraisals at banks that is independent? We are thinking of having the Loan Processor do it. She is not truly independent but has no credit approval rights.
2.Could Creditcop please send me a copy of their Checklist? The one we were given is 3 pages long.

A loan processor is fine as long as s/he follows the procedures for independence (does not use an appraiser who has discussed fee or timing with the customer or who has a relationship with the customer that would impair 'independence').

we are also thinking of having the loan processor review the appraisals but they sometimes order the appraisals and they close all the HELOC loans so we will have an issue there I think so it's great to have some feedback from everyone. Creditcop, would it be possible to see your checklist as the ones I have seen are 2-3 pages also.

Credit Cop- me too - ours needs updating although it's a one pager it was put in place 6 years ago. Ever so thankful- Is it Guinness time yet?

Another point. The real purpose of an appraisal review is not simply to check off the 14 FIRREA points or 5 FDIC points, rather to make sure that the reports makes sense. To me, this implies that the reviewer has had some training on the valuation process to think through the comparables grid to agree that the comps are good, the vacancy discount, the cap rate selected, whether the rents used are reflective of maret rents, etc.

REE

Patsfan - regs dictate that you have guidelines on the type of appraisals/evals that should get a compliance review and which ones should get a comprehensive analytical technical review (standard 3 review). It is also important to make sure that the reviewer isn't using verbiage that indicates they are accepting the value, because then they are performing an appraisal. They can accept the appraisal (I know...hairsplitting), so they can say stuff like the conclusion appears to be reasonable, methodology appears to be acceptable, and the value appears to be adequeately supported.

I wholeheartedly agree REE!! Of course I have a vested interest in convincing small and mid-sized banks that the money spent on engaging a third-party review with someone like, say, ME , is a definite risk reward. Even large banks are finding that it is often a better cost strategy to outsource their reviews rather then retain a staff appraiser.

I would have to disagree that it's better to outsource all reviews as opposed to having a staff appraiser. We're often turning to our staff appraisers for advice on issues that crop up on deals. In my experience, outsourced reviews are often accepted rather than the reviewer rocking the boat to get down to the nitty gritty on a deal. I can't say that I blame them when they're often only being paid $500+/- for their time. But our staff appraisers can devote additional time to get to a reasonable comfort level.

You have a point...I know reviewer's that think that the most important part of the assignment is endorsing the check. I also understand the need to have an appraiser ear. Seriously, you think $500 is a bad deal for two or three hours of work (I do mine on the beach or patio)? I must be easily satisfied Of course there are always those that take longer, but...

As a banker, you could pick up the phone and call 10 appraisers, and 9.5 would be willing to help you out (although it's kind of scary how many don't know the rules that guide the people they're writing appraisals for). Pick a cliche...what goes around...one hand washes. It's all in the name of good business and relationships.

Since I've endorsed checks from both sides of the fence, I have to say that I'm glad there are some banks that have appraisers on staff and some that don't.

Two to three hours to do an appraisal review? Our outside reviewers provide us with 20 page reviews with around 10 of those pages being all written analysis. I can't imagine that they're slamming them out in a few hours. I can't imagine making a risk decision based on a few hours of reading done on the beach.

Anybody who wants the forms, send me your e-mail address.

My e-mail is ghartz@peoples-bank.com

The forms we use are 3 pages, but 95% of it is circling Y or N and they are easy to use.

Our forms walk you through the USPAP guidelines. I agree with the earlier posts in that whoever reviews the appraisals needs to know something about the market in order to make sure that the comps are reasonable and that the income assumptions, for rentals, are realistic.

It is rare that I will have another appraiser review an appraisal. Most of the time when I do it is because I don't think that the appraisal is accurate and/or flawed. I am not an appraiser, but I have been around long enough to know when an appraiser is blowing smoke.

I guess I'm a fast reader! When I start a review, I have my laptop and my calculator. I use voice recognition software so as I read, I talk into a Word document or an Excel sheet. When I'm done talking, I move paragraphs around so they either fit the bank's form or make a sensible letter. Under this scenario with a straightforward property (owner-occupied industrial, say), it shouldn't take anyone more than 2-3 hours to do a review.

Wow was I lucky to find this post! I see you have a CML appraisal review checklist. Would it be possible to have a copy e-mailed to me? I would really appreciate it.