Reviewer's Scope Creep on a Retrospective Real Property Report
A bank orders a retrospective appraisal of a 12,000 sq ft suburban office building effective 18 months ago for a loan file. The appraiser, under a tight fee and 10-day turnaround, develops only the sales comparison approach, stating the income approach was 'not necessary given ample comparable sales.' The reviewer notices the subject was 62% leased at the effective date, the market is heavily investor-driven, and the report's own highest-and-best-use analysis concludes the property's value is driven by income potential. The reviewer's engagement letter says 'review for USPAP compliance and technical adequacy,' but the client verbally asks the reviewer to 'just give us your own value opinion so we can close.' The reviewer has no new market data and the original effective date has passed.
1. Should the reviewer comply with the client's verbal request to supply an independent value opinion? What does the reviewer's scope actually permit?
Read the worked answer
No. The engagement is an appraisal review under Standards Rule 3, not a new appraisal assignment. Providing an independent value opinion converts the work into an appraisal (SR 1/SR 2) requiring its own scope, certification, and competence - and the reviewer lacks current market data for a now-past effective date. The reviewer should: (1) document the verbal request and decline it in writing, (2) clarify that any value opinion would require a separate engagement, fee, and scope, and (3) if the client insists, either re-scope the engagement or withdraw. The reviewer can still conclude on the adequacy of the original report's value - that is within SR 3 - without asserting an independent opinion of value.
2. Is the original appraiser's omission of the income approach a USPAP violation, a technical deficiency, or acceptable? Reason it through.
Read the worked answer
It is at minimum a technical/development deficiency and likely a USPAP SR 1-4 (adequacy/credibility) problem, but not automatically a violation merely because an approach was omitted. SR 1-4 requires that if an approach is necessary for credible results, it must be developed; omission requires a stated, supportable reason. Here the report's own HBU analysis concludes value is income-driven and the property is 62% leased in an investor market - that undercuts the 'ample sales' justification. The reviewer should: (1) test whether the sales used were truly comparable in lease status and income profile; (2) assess whether the omission rendered the value conclusion not credible; and (3) frame the finding as 'the stated reason for omission is not supported by the report's own analysis,' which is the defensible review conclusion rather than a bare 'you violated USPAP.'
3. Draft the review conclusion language the reviewer should use regarding the value opinion.
Read the worked answer
The reviewer should not substitute a number. Appropriate language: 'The sales comparison approach as developed is insufficiently supported to conclude the value opinion is credible, because (a) the report's HBU analysis identifies income as the value driver, and (b) the stated rationale for omitting the income approach is contradicted by the subject's 62% occupancy and the investor-character of the market. The reviewer concurs that the value opinion is not adequately supported as presented; a credible opinion would require development of the income approach or a documented, supportable reason for its omission.' This stays within SR 3 (review and conclude on adequacy/credibility) without asserting an independent value.