Report Review: Inconsistent Data and Missing Analysis
You are reviewing an appraisal report for a single-family home. The report is 45 pages long, but you notice several issues: (1) The subject property is described as having 3 bedrooms and 2 bathrooms, but the sales comparison grid lists a comparable with 4 bedrooms and 3 bathrooms without any adjustment for bedroom/bath count. (2) The income approach is included even though the property is owner-occupied and there is no rental data; the appraiser used hypothetical rent and a capitalization rate from a different neighborhood. (3) The reconciliation section states that the sales comparison approach is most reliable, but the final value conclusion is exactly the average of the sales comparison and income approaches. (4) The appraiser’s certification is signed, but the date of the report is after the effective date of the appraisal by six months. (5) The report includes a statement that the appraiser 'has not inspected the property' but later describes 'the subject’s view of the park' as if from personal observation.
1. Identify and explain the significance of each issue in the report.
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Missing adjustment: The comparable has 4 bedrooms/3 baths vs. subject 3/2. A bedroom/bath adjustment is typically necessary. Its absence may overstate or understate the comparable’s value, affecting the sales comparison approach. This is a significant error because it could distort the value indication.
Unnecessary income approach: For an owner-occupied property with no rental data, the income approach is not applicable. Using hypothetical rent and a cap rate from another neighborhood is unsupported and misleading. This violates USPAP’s requirement for sufficient and credible analysis. The reviewer should recommend removing the income approach or providing strong support.
Reconciliation inconsistency: The appraiser states the sales comparison approach is most reliable but then averages the two approaches. This contradicts the stated rationale and suggests the appraiser did not actually reconcile. The final value should reflect the weight given to each approach. This is a logical error that undermines credibility.
Date discrepancy: The report date is six months after the effective date. This is not necessarily an error if the report was prepared later, but the appraiser must ensure that the value is as of the effective date and that no subsequent market changes affect the value. The reviewer should check if the appraiser considered market changes between effective date and report date. If not, it’s a deficiency.
Contradictory inspection statement: The appraiser states they did not inspect but then describes the view as if they did. This is a misrepresentation and violates the Ethics Rule. It also raises questions about the appraiser’s credibility. The reviewer must address this and may need to recommend disciplinary action.
Each issue affects the credibility of the report. The reviewer should determine whether the errors are material and whether the value conclusion is still credible.
2. How should the reviewer communicate these findings in the review report?
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The review report should:
Clearly state each deficiency: Use a separate section or bullet points to describe each issue, with references to the specific pages or sections of the original report.
Explain the significance: For each issue, explain why it matters and how it affects the credibility of the value. For example, the missing adjustment may mean the sales comparison approach is unreliable; the contradictory inspection statement may indicate a lack of integrity.
Provide a conclusion: State whether the original appraisal is credible as-is or whether it requires correction. If the errors are material, the reviewer may conclude the value is not credible and recommend a new appraisal or significant revisions.
Be objective and professional: Avoid accusatory language; focus on the facts and standards. Use phrases like 'the report does not comply with USPAP Standards Rule 1-1' rather than 'the appraiser is incompetent.'
Include recommendations: Suggest specific corrections, such as adding a bedroom adjustment, removing the income approach, reconciling properly, clarifying the inspection, and explaining the date discrepancy.
Document the review process: Describe the steps taken, data verified, and analyses performed. This supports the reviewer’s opinion.
Consider the intended use: If the review is for a lender, the lender needs to know whether to rely on the appraisal. The review should be clear about the risks.