Ethical Pressure: Client Requests a Favorable Review
You are a review appraiser engaged by a mortgage broker to review an appraisal for a luxury home. The broker is anxious to close the loan and has told you that the original appraisal 'came in low' and that the borrower is threatening to walk. The broker asks you to 'take another look' and suggests that the original appraiser may have missed some comparable sales that support a higher value. You have reviewed the original appraisal and found it to be credible: the appraiser used three closed sales and two active listings, made appropriate adjustments, and concluded a value of $2.1 million. The broker has provided you with two additional sales that closed after the effective date of the original appraisal; one is a distressed sale (foreclosure) and the other is a sale of a similar home but with a larger lot and a pool. The broker also hints that if you 'help out,' he will send you more review work in the future.
1. What ethical and professional standards are relevant to this situation?
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Relevant standards include:
USPAP Ethics Rule: Reviewers must not accept an engagement with a predetermined opinion or value, must not misrepresent their role, and must perform assignments with impartiality, objectivity, and independence. The broker’s request to 'take another look' to support a higher value could be seen as pressure to advocate for the client’s position, which violates the Ethics Rule.
USPAP Standards Rule 3: The reviewer must develop an opinion of the quality of the original appraisal. The reviewer cannot simply substitute their own value opinion without justification. If the reviewer believes the original appraisal is credible, they must say so, regardless of client pressure.
Competency Rule: The reviewer must have the knowledge and experience to review luxury homes. Assuming competency, the reviewer must still exercise due diligence.
Confidentiality: The reviewer must not disclose confidential information, but here the issue is pressure to alter the review.
Management and Independence: The reviewer must be independent and not be influenced by the promise of future work. The broker’s hint is a bribe (or attempted bribe) and should be reported to the appropriate authority (e.g., the state appraisal board or the client’s employer).
USPAP Record Keeping: The reviewer must maintain a workfile that documents the review process, including the broker’s requests and the reviewer’s analysis of the additional sales.
Appraisal Standards Board Guidance: Advisory Opinion 21 (USPAP) addresses review assignments and the reviewer’s responsibility to be objective.
2. How should you respond to the broker’s request and the additional sales data?
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Response:
Decline the pressure: Politely but firmly inform the broker that your review must be objective and that you cannot advocate for a higher value. State that you will consider any relevant data, but your opinion will be based on market evidence, not on the desired outcome.
Evaluate the additional sales: The two sales provided are after the effective date of the original appraisal. In a review, the reviewer typically considers data available as of the effective date. However, if the reviewer is also providing an opinion of value as of a later date, the additional sales might be relevant. But here, the review is of the original appraisal; the reviewer should assess whether the original appraiser’s value was credible given the data available at the effective date. The distressed sale should be excluded or adjusted for distress; the other sale may be comparable but requires adjustment for lot size and pool. The reviewer should analyze whether these sales would have changed the original appraiser’s conclusion. Likely, they would not, given the differences.
Document the request: Record the broker’s comments and your response in your workfile. This protects you if the broker later complains.
Consider reporting: The broker’s promise of future work in exchange for a favorable review is unethical and may violate state licensing laws. You should consider reporting the broker to the state appraiser board or the broker’s regulatory agency. At minimum, inform your client (the lender, if different from the broker) of the attempted influence.
Complete the review honestly: Conclude that the original appraisal is credible and that the additional sales do not alter that conclusion. Provide a clear rationale.