Reviewing Another Institution’s Appraisal Report

Reviewing Another Institution’s Appraisal Report

PresenterCraig Benton, MAIDirector, Valuation ServicesSynovus Bank


When would you need to consider accepting an appraisal from another institution for review?

Customer changing banks Customer applying for 2nd mortgage or HELOC Syndication/Participation


What do the Guidelines say? You can accept appraisals from other financial and

financial services institutions.• You must “subject such appraisals to at least the same level of

review that [you] perform on appraisals [you] obtain directly for similar properties”

• You must ensure:– The appraiser was engaged directly by the other financial services institution

» Engagement letter– The appraiser had no direct, indirect, or prospective interest, financial or

otherwise, in the property or transaction– The financial services institution (not the borrower) ordered the appraisal – The appraiser has the requisite education, expertise, and experience


What do the Guidelines say? An institution’s use of a borrower-ordered or borrower-provided

appraisal violates the Agencies’ appraisal regulations. However, a borrower can inform an institution that a current appraisal exists, and the institution may request it directly from the other financial services institution

Other options:• Reliance/permission letter from other institution (#1)• Permission to speak with appraiser directly (#2)• Contact appraiser directly for confirmation or to order new appraisal

assignment as of same date, etc. as re-addressing is not allowed (#3)

You must verify that you have a “true and accurate” copy of the appraisal delivered to the original institution


Now that you have the appraisal… How do you decide if you will use it?

• Appraiser– Are they on your approved list?– Or at least have they not been removed from your approved list?– Is the appraiser competent? How do you make that determination?

• Property Type/Loan Size– Specialty property, smaller loan

• Age of Report– How long is the appraisal “good” before the value becomes suspect?

• Original lender– Was the original lender involved in the ordering process or was it an AMC on

behalf of the lender? Do you trust their process to have selected the best appraiser?


Now that you have the appraisal and you’ve decided to review it for acceptance…(Scope of Review)

Guidelines require that you review it at least to the same level as you would an appraisal you ordered

• Technical/Compliance Review– Compliance review may be adequate for very small loans, but technical review is

advised to better document the file and satisfy the regulators

• Additional Research– Do you investigate the market for additional information and/or interview market

participants?

• Inspection– Do you inspect the property? If so, to what level?


Now that you have the appraisal… How do reconcile issues if you cannot go back to the

original appraiser?• Without permission to discuss with the appraiser, you have only

two options:– Accept as is or reject outright

• In practice, this leads to heavy reliance on what is written in the appraisal report

– This effectively leads to a much more robust review than would likely typically be done/required as your appraiser can be asked to enhance the report if you ordered it

Rejection is the typical answer for me for many reasons:• Inadequate comps, lack of support for adjustments/conclusions,

unacceptability of assumptions or conditions, other information we require that many institutions do not (insurable value, etc)


New Assignment Option 3 mentioned earlier was to order a new appraisal

from the appraiser• As of same appraisal date?

– If so, this should be able to be accomplished for a very small fee

• USPAP FAQ 202 states: “A new assignment does not mean [the appraiser has] to start from scratch.”

– Client/Appraiser can decide what is needed/required for scope of work– Most of the data can likely be used again

» Be mindful of confidentiality– In practice, if customer/borrower provided the property data, it will be the same

information again

• New appraisal date?– Likely higher cost, but depending on time between existing appraisal and new

assignment, could also be a small fee– Remember that FDIC allows banks to decide how long appraisals are valid, within

reason


Syndications/Participations All of the same rules described above apply

• In a Syndication, all banks work together from the beginning of the process, which usually facilitates getting the appraisal issues handled before funding, passive role if not lead bank

• In a Participation, agent banks sell to participants. There is more risk to the participants as there is less flexibility in loan terms and the appraisals have already been ordered and accepted by the lead bank.

• Review process:– In a syndication, limited direct review is needed as the banks are

buying shares of a loan, but not directly taking collateral, reducing risk– In a participation, lenders are likely collateralizing the loan, requiring

appraisal review just as discussed above


Syndications/Participations Syndication Review

• Items to consider:– Do you trust the processes at the lead bank?– Do you trust the original appraiser(s)?– Do you have experience with the reviewer at the lead bank?

» At my institution, when we enter into our first syndication with a particular bank, we will review some appraisals and reviews, to ensure we are comfortable with the reviewer’s experience and documentation

» For subsequent transactions with that bank, we review the reviews performed by the lead bank for all properties in the Syndication

» If we have issues with a particular property based on what we see in the review, we will ask for that appraisal so we can review it directly

» We will also, from time to time, monitor the reviewer’s work by comparing reviews and appraisals, to ensure work product remains consistent

– If we cannot get the reviews from the lead bank, we will directly review a sample of the appraisals, generally focusing on the most complex or largest property (by value conclusion) in the portfolio


Syndications/Participations Participation Review

• Your bank has much more responsibility in a participation situation• Items to consider:

– Do you trust the processes at the lead bank?– We review all appraisals directly for a participation following same rules as

discussed earlier– We ask for permission to speak to appraiser directly if we have problems with the

appraisals


Final thoughts How long is the appraisal valid?

• FDIC allows you to “establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid).”

– Assuming you have accepted the appraisal for use in your bank’s transaction, how would you go about determining how long it remains valid?

– At our bank, an appraisal from another institution cannot be used for more than one loan renewal

» If the appraisal is used for a one year renewal, that appraisal is only good for one year at which time we will perform an evaluation or get a new appraisal

– Regulations allow you to make this determination


References FDIC

• 2010 Interagency Appraisal and Evaluation Guidelines, various pages

• 2014-2015 USPAP, FAQ 202, page F-92


Questions/Thoughts? Craig Benton, MAI

• [email protected]• 770-343-6409

mailto:[email protected]

Reviewing Another Institution’s Appraisal Report

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