Appraising the Appraisal: The Art of Appraisal Review

by Richard Sorenson, MAI
Published by the Appraisal Institute, 1998

Review by Stephen Traub, ASA

Copyright © 1998 Property Valuation Advisors, Newburyport, MA


Appraisal review is an appraisal of an appraisal: a critique of the report under review. Ideally, an appraisal review will ensure that the appraisal report is 1) complete, 2) correct, 3) current, 4) cogent, 5) consistent, 6) convenient, and 7) concise.

Although the author jokingly refers to the review appraisal as "the joy of criticizing other people's work", appraisal review is the quality control function of the appraisal professional. A good appraisal will accomplish three goals: 1) adequately describe the property; 2) clearly reveal the appraisal valuation process; and 3) support the value conclusion in a reasonable manner. Technical review is performed according to Uniform Standards of Appraisal Practice (USPAP). The author recommends that the reviewer, therefore, should have a good working knowledge of USPAP and he walks us through Rule 3.

According to USPAP, an appraisal must be labeled either a Limited or Complete Appraisal, and either a Self-Contained, Summary, or Restricted Report. Moreover, the report should analyze recent sales of the subject property. Any gap between the sale price of the subject and the estimated value must be explained. Consistency of use also should be checked: the site cannot be valued based on one use while the improvements are valued on another.

Dos and Donts

The reviewer, however, should not criticize methods without explaining why they were improper. Check the data and ensure that it is authentic, pertinent, and sufficient. Calculations also should be checked and the logic should be scrutinized. The review appraiser may recommend that additional market data be obtained and/or specific pages be corrected.

A survey of chief appraisers shows that common deficiencies include misleading or ambiguous language; outdated information; omitting value influencing factors; and referencing material not in the report. If the appraiser simply provides an unorganized mass of raw data, clients often find the report unacceptable. Moreover, the client should be able to understand the appraisal without additional information. The analysis, therefore, should be logical so the reader can understand the reasoning leading to the conclusion. Some reviewers call this "leaving footprints". In the end, the reviewer should form an opinion about the soundness and appropriateness of the analysis, opinions, and conclusions in the report and should explain the reasons for any disagreement with the conclusions. The review appraiser will render an opinion whether to accept, reject, or change the conclusions in the report.

In summary, a reviewer will determine if the appraisal report 1) meets acceptable quality standards and the criteria of the client who will use the report; 2) conforms to USPAP; 3) follows government regulatory requirements; and 4) concludes with a reasonable and reliable market value estimate. In the end, the report should provide the detail and depth of analysis that reflects the complexity of the real estate and contain sufficient supporting documentation. The appraiser should employ the most appropriate valuation techniques and use the best available data. To this end, the book provides a review checklist form and an example of a reviewer's certification.

Value Approaches Limitations & Reliability

The limitations of each value approach also should be considered. For example, the cost approach generally is not a primary valuation approach used by market participants. Special-purpose real estate, however, is not frequently exchanged, so it is often valued by the cost approach, particularly when the subject cannot be valued by the income approach. Moreover, performing the cost approach will often result in a more thorough inspection by the appraiser.

The Large Print Giveth
and the Small Print Taketh Away

The sales comparison approach is only as reliable as the data that supports it. Common problems include failure to use the appropriate unit-of-comparison or failure to bracket the property value range by not including sales that are both inferior and superior. An appraiser also may improperly compare properties that have distinct tenancy profiles (comparing a multi-tenant 100,000 SF warehouse to a single-tenant 100,000 SF warehouse). The less comparable the sales, the less reliable will be the value, and the greater the chance of an inaccurate value. The author provides the following comic relief: "Exasperated reviewer to appraiser: If you are not going to tell the truth, could you at least make it sound more interesting?"

When performing the income approach, the appraiser should use the most appropriate capitalization technique: direct or yield capitalization. The reviewer should be aware of ways to prove or disprove a final rate selection. Often appraisers erroneously will assume that an income cycle trend will persist indefinitely. Some appraisers are reluctant to make forecasts because they believe that because the future is unpredictable, only historical data should be used to develop a value estimate. They fear that they may be held accountable if their forecasts turn out wrong. Nonetheless, as comforting as relying on historical data may be, experience has shown that its exclusive use does not prevent valuation errors.

Monopoly Real Estate

One chapter focuses on appraisals of complex and special-use properties. Later, the author discusses reviewing specific property types: regional shopping centers, lodging facilities, and health care facilities ("Do unto your sales as you do unto your subject"). He also touches on golf properties, residential subdivisions, medical office buildings, branch banks, religious facilities, restaurants, and monopoly properties. Monopoly properties may include grandfathered buildings; difficult-to-get, environmentally permitted, existing landfills; and oceanfront properties that enjoy uses no longer permitted.


The author also discusses the problems associated with discounted cash flow. To test its reasonableness, he suggests a comparison of first-year income estimates to historical experience and an analysis of the implied going-in cap rate.

The book also includes a frequently asked question section (FAQ), and an abbreviated section of definitions, data resources, units-of-comparison, a bibliography, and a number of appraisal-related truisms ("The large print giveth and the small print taketh away!").

If you want to improve the quality of your appraisal reports or learn how to improve your review of the reports of others (a.k.a. the joy of criticizing other people's work), get a copy of Appraising the Appraisal: The Art of Appraisal Review.

The book above, Appraising the Appraisal: The Art of Appraisal Review, is available on-line at Amazon Books.

Stephen Traub, ASA, the reviewer, is chief commercial appraiser for Property Valuation Advisors, 63 Hill St., Newburyport, MA 01950. He is a certified general appraiser in NH, ME, and MA.

To contact the author of this review, e-mail to: [Mailbox] or contact him at the address above, or call 978-462-4347.

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