Loan Officer Pressure and a Prior Appraisal
You are a CG appraiser engaged by a regional bank to appraise a 24-unit apartment building for a refinance. The loan officer emails a prior appraisal concluding $4.35 million and writes: 'Borrower needs $4.0 million; please make sure your value supports that or the rate lock expires Friday.' Your preliminary work indicates contract rents of $1,250 per unit, vacancy and collection loss of 6%, operating expenses of $7,800 per unit, and market cap rates of 6.25% to 6.75%. A broker's rent survey supports market rent of $1,325, and a recent sale of a similar 22-unit property indicates $3.62 million at a 6.45% cap rate. The prior report used unverified rent comparables and no rent roll. The bank's engagement letter says the intended use is lending and the intended user is the bank. The loan officer asks you to 'adopt the prior report's comps' and to omit the broker survey because it 'muddles the story.'
1. Identify the USPAP and independence issues raised by the loan officer's requests, and explain how you should respond before accepting or continuing the assignment.
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The request is a red flag because it ties the assignment result to a predetermined value. Under USPAP, an appraiser must develop and report credible assignment results, remain independent, impartial, and objective, and not advocate the client's cause. I can accept an assignment to develop an opinion of value for lending, but not one conditioned on supporting $4.0 million or on adopting another appraiser's comparables. The prior appraisal may be used only as data after verifying its facts and reconciling it; it is not a substitute for my own analysis. The broker survey is relevant market evidence. If the client directs me to omit relevant evidence or to ignore a known rent indication, I must explain why that would make the report misleading. If the bank insists on a value target or on suppressing relevant market data, I should decline or withdraw and document the communication. I should also check competency for this property type and disclose any prior services. A contingency fee or value guarantee would be prohibited.
2. Using the stated income and sale data, compute preliminary income indications and explain what you must verify before concluding a value.
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Contract-rent NOI: GPR = 24 x $1,250 x 12 = $360,000; vacancy/collection = 6% x $360,000 = $21,600; EGI = $338,400; operating expenses = 24 x $7,800 = $187,200; NOI = $151,200. At 6.25% to 6.75%, direct capitalization indicates $2.24 million to $2.42 million. Using market rent of $1,325, GPR = $381,600; vacancy = $22,896; EGI = $358,704; NOI = $171,504; indicated value = $2.54 million to $2.74 million. The 22-unit sale at $3.62 million and a 6.45% cap implies NOI of about $233,500, or $10,600 per unit; the subject's contract NOI is only $6,300 per unit. That gap is too large to ignore. I would verify the sale's rent roll, expense ratio, unit mix, condition, concessions, and any non-rental income, and confirm the subject's rent roll and operating history. The sale may support a higher value only if its income is genuinely superior and adjustments are supported. I would not average the indications or adopt the prior $4.35 million before resolving the discrepancy.
3. If the bank insists that you 'support $4.0 million or decline the assignment,' what should you do, and what should your workfile show?
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Decline or withdraw if the condition remains. A value target is not an acceptable assignment condition; accepting it would compromise independence and objectivity. I can explain the preliminary indications, offer to complete a full appraisal with verified data, and let the value fall where it may, but I cannot promise a number. If I withdraw, I should document the loan officer's written and oral requests, my response, the preliminary data, and the reason for withdrawal. If I continue, the workfile must contain the engagement letter and any modifications, the rent roll, leases, expense history, market survey, sale verification, calculations, and evidence that I considered and reconciled the prior appraisal and broker survey. The report must include the intended use and user, scope of work, relevant extraordinary assumptions or hypothetical conditions, and a certification that is not false. I should not sign a report that omits the broker survey if it is relevant.