NOVEMBER 19, 2025 – The Appraisal Institute’s latest Valuation magazine had an article on Validations and fee appraisers providing this service. For 20 years, I tried to convince fee appraisers to do Evaluations. They opposed such and fought against state laws being passed to allow non-USPAP Evaluations. Finally, around 2015, they saw the light and Evaluations are a common product that financial institutions outsource to AMCs and appraisers.
It is now 30 years since I drafted a Validation report. I waited until Evaluations had become commonplace before I brought up this final product that fee appraisers can provide. Below is my post from 2020. My forecast that Validations will become the next product for fee appraisers to provide is coming true.
In 2020, I wrote an outline for a Seminar on Validations (4 hours). I redesigned my Validation report for staff appraisers. I have not designed the Validation report for fee appraisers, yet. But, can do that in an hour or two when needed.
I am not up for putting the meat on the bones for my Seminar. IF YOU WOULD LIKE TO WORK WITH ME TO WRITE THE SEMINAR AND MARKET IT, PLEASE CONTACT ME. NO NEED FOR THE WORLD TO WAIT FOR THE APPRAISAL INSTITUTE TO COME OUT WITH SOMETHING. And I doubt anyone else in the country has been performing Validations since 1994 other than me:) I am also the only person to co-write two articles solely about Validations that were published in The RMA Journal.
Happy Thanksgiving.
The Mann
========================================
MAY 29, 2020 – Validations are the little known and little used product that get overlooked in the world of Appraisals and Evaluations. The December 2010 Interagency Appraisals and Evaluations Guidelines (IAEG) document has the following section that addresses Validations:
XIV. Validity of Appraisals and Evaluations
The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as:
Passage of time.
Volatility of the local market.
Changes in terms and availability of financing.
Natural disasters.
Limited or over supply of competing properties.
Improvements to the subject property or competing properties.
Lack of maintenance of the subject or competing properties.
Changes in underlying economic and market assumptions, such as capitalization rates and lease terms.
Changes in zoning, building materials, or technology.
Environmental contamination.
Validations answer one simple question – is the value of the real estate collateral equal to or greater than the value in a prior Appraisal or Evaluation? If so, then that value can be brought up to today. If not, then a new Appraisal or Evaluation is needed.
Validations are useful in level to rising markets. They are not very useful in the current market conditions.
However, not all property types have experienced a value decline this year. In general, industrial properties and national tenant leased properties where the tenant has a bond rating A and above, are still candidates for Validations. Apartments might be depending on the age of the prior Appraisal or Evaluation and the property location.
I have updated the Validation Report that I originally developed in 1994. This report is intended to be used by internal bank employees. It is not for use by fee appraisers, as it does not comply with USPAP. If you are a bank employee and want a copy of my report template, just email me at GeorgeRMann@Aol.Com. I will send it to you for free:)
It took me 25 years to finally get Evaluations to be mainstream. Validations are next. They are under utilized. Albeit, today’s market is not ideal for them. But, we will get back to market conditions where they are useful again. My plan is to design a Restricted Appraisal Report (RAR) specific to the Validations need for fee appraisers to use. But, at this time, this is not needed for the most part.
Again, bank staff please contact me if you want a copy of my template.
Tag Archives: Appraisal Institute
STATE OF WASHINGTON ALLOWS NON-USPAP EVALUATIONS
JULY 2023 – The following is from the Appraisal Institute’s ‘Washington Report & State News.’ A big welcome to appraisers in Washington finally being able to perform non-USPAP Evaluations.
“Washington Gov. Jay Inslee on May 15 signed HB 1797, legislation that allows real estate appraisers to complete evaluations for federally regulated financial institutions. It was amended to include a “trigger” mechanism whereby the bill will not take effect until the state adopts administrative rules related to fair housing and valuation bias established by the Department of Licensing that require appraisers and appraiser trainees to complete nondiscrimination and fair housing training as dictated by the Appraiser Qualifications Board. “
FANNIE MAE STUDY CONCLUDES NO RACIAL BIAS IN APPRAISALS
MARCH 12, 2002 – Now, two studies of millions of appraisals by the American Enterprise Institute (AEI) and Fannie Mae have concluded that there is no racial bias in real estate appraisals.
For those involved in the industry, this comes as no surprise. It is essentially impossible for real estate appraisers to be biased. Probably 95% of the time the appraiser knows nothing about the physical characteristics of the borrower. Nearly 100% of the time the appraisal reviewers know nothing about the borrower. And ALL appraisals must be approved by a reviewer.
Also, the market sets prices and all appraisers do is analyze recent comparable sales and arrive at a value for the subject. Which, in purchase situations, is equal to or higher than the sales price 95%+ of the time.
Racist organizations like the Brookings Institution and others that are falsely complaining about appraisal bias need to ‘follow the science’ as they like to say. Scientific studies 100% conclusively say there is no appraisal bias.
Maxine Waters and President Biden owe the appraisal industry an apology. And so does the Appraisal Institute for not supporting its own members.
The real estate appraisal industry is the gold standard for an unbiased profession. We have been the independent referee for 80+ years.
Lastly, we all know about the Fair Housing Act, redlining, discrimination being illegal, et al. To say we need to be educated about such is ridiculous. If you have lived in America since the 1970’s, you know all about fair housing laws and what is and is not discrimination.
The true racists are those that accuse everyone else of being racist. These people need to be exposed and told where to stick their unfounded claims. They should be sued for slander and defamation, also.
Hey, Appraisal institute, get a backbone and stand up for your members! There is no legislation that can change 4,000+ years of economic theory. The appraisal industry does not need to make any changes. It is already fully diverse and inclusive of people of all socio-economic classes (I grew up in mobile homes and am Jewish….I have the low-priced housing and minority characteristics covered!). Remember, skin-color and the only two genders have nothing to do with diversity and inclusivity.
Shalom,
The Mann
GEORGIA CLARIFIES LAW ON EVALUATIONS
SEPTEMBER 26, 2020 – The following is from the Appraisal Institute’s Washington Report:
The Georgia Real Estate Commission & Appraisers Board on July 30 adopted a rule change that “eliminates language that has caused confusion in the industry concerning when Georgia appraisers can conduct evaluations.” The change addresses the reporting format for evaluations that are prepared by appraisers for financial institutions that are not regulated by a federal financial institution’s regulatory agency.
The previous rule stated that evaluations are allowed to be “prepared in any reporting format, such as, but not limited to, a self-contained appraisal report, a summary appraisal report and a restricted use appraisal report if the reporting format meets the requirements of the nonfederal financial institution.”
The updated rule, which took effect Aug. 19, removes specific references to the transactions for which an appraiser may provide an evaluation, stating instead that appraisers can provide evaluations “for any transaction that qualifies to be performed as an evaluation under the Interagency Appraisal and Evaluation Guidelines.”
The rule also eliminates enumeration of an evaluation’s required content in favor of language that states, “at a minimum, the development and content of an Evaluation Appraisal shall comply with the guidelines set forth in the Interagency Appraisal and Evaluation Guidelines.”
THE APPRAISAL OF REAL ESTATE – 15TH EDITION
SEPTEMBER 26, 2020 – The Appraisal Institute has published the latest edition of the industry’s bible. I will let them describe noteworthy items in the new edition. See below. You can purchase it at their website.
“The Appraisal of Real Estate,” 15th edition, is a book that fits current times. It reflects a renewed commitment to the essential principles of appraisal and the sound application of recognized valuation methodology. In addition to updated information on changes in real estate markets and valuation standards, longtime readers of “The Appraisal of Real Estate” will notice these significant changes in this edition:
- New chapters focused on applications of market analysis and highest and best use analysis;
- Additional emphasis on identifying the property rights to be appraised in an appraisal assignment; and
- Deeper discussion of accepted techniques for allocating value among real estate, personal property and non-realty items.
In this book, readers will notice the expanded discussion of market analysis and highest and best use, with new chapters clarifying these important concepts and demonstrating procedures for their application. Readers will also notice the relationship between market analysis and highest and best use is made explicit and described in a step-by-step analytic procedure. Lastly, the major development in this new edition is the emphasis on the necessity of definitively describing the property rights to be appraised in an appraisal assignment to ensure that all the necessary steps are taken to produce a credible value conclusion.
Order your copy today!
WELCOME SOUTH DAKOTA TO THE EVALUATION WORLD
JUNE 29, 2020 – South Dakota has become the 11th state to allow licensed/certified appraisers to perform non-USPAP Evaluations. We have 39 more to go:) When we get back to in-person classes, if you are in a state that allows non-USPAP Evaluations, I have a 7-hour seminar on Evaluations and Validations that I will gladly come and teach. I don’t teach over the web. I can only share my 28 years of experience with Evaluations in person. The Appraisal institute’s news item on this follows:
South Dakota Passes Legislation Allowing Appraisers to Perform Evaluations
South Dakota Gov. Kristi Noem on March 4 signed HB 1127, legislation that allows appraisers to provide real property evaluations to federally regulated financial institutions. When the law takes effect July 1, the state will join at least 10 others that allow appraisers to provide evaluation services. Several other states are considering similar laws.
Evaluations provided by appraisers must conform to Interagency Appraisal and Evaluation Guidelines. South Dakota’s secretary of the Department of Labor and Regulation will be authorized to promulgate rules relating to “exemptions and standards allowing appraisers to perform an evaluation for a federally insured depository institution.”
==========================================
Everyone stay safe.
The Mann
RESIDENTIAL APPRAISAL THRESHOLD INCREASE – MUCH ADO ABOUT NOTHING
February 1, 2019 – The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency proposed raising the residential appraisal threshold from $250,000 to $400,000.
The Appraisal Institute and numerous other groups are opposing this increase. That is understandable. But, the hyperbole that these organizations and appraisers put out there is no different than the Fake News problem.
Based on my experience of over 25+ years in banking, I estimate that less than one-hundredth of 1% of residential appraisals will be affected. Probably less than that.
GSEs are responsible for 90%-95% of residential loans and, thus, residential appraisals. All such loans are exempt from FIRREA. So, the Federal Agencies can increase the residential threshold from $250,000 to $1 Trillion and it wouldn’t be noticed by 99%+ of residential appraisers! Also, it will have no effect on the national economy.
For the most part, the only residential properties that stay under FIRREA are second/vacation homes, model homes in subdivisions, and rental homes (e.g. an investor rents 20 houses around a city). Some ‘regular’ house loans remain under FIRREA – this is when the bank does not sell the loans to the secondary market. Banks typically don’t keep many of these loans on their books. But, yes, they do keep some.
Appraisers just need to keep an eye on the GSEs. They are the ones who make decisions that affect the entire residential appraisal industry in a significant way. Don’t worry about the FIRREA issue at hand. As they say, it is a nothing burger:)
The Mann
AN INDEPENDENT REVIEW OF YOUR BANK REVIEWS
August 8, 2016 – I attended the Appraisal Institute’s national conference in Charlotte, NC a few weeks ago. One of the sessions was about compliance and a topic was called ‘Quality Assurance Reviews – Review of the Review.’
I believe I may have performed the first ever independent review of a bank’s staff reviews back in 2014. In March, 2015, The RMA Journal published my article on the topic. It is titled ‘What’s New In Appraisal Review’ and you can get to it on the Articles page of this web site. (NOTE: I call these Quality Control Audits (QCAs), but the task is the same regardless of the name.)
One of the slides at the AI session said ‘In layman’s terms, a Real Estate Assurance Review is a third party review, performed by a reviewer not tied to the institution’s review department, of an institution’s reviewer’s review of a real estate appraisal. This type of external review allows for a variety of credibility checks for the institution, as well as for the governmental banking regulation authorities.’
One of the slides asks the questions ‘How can my institution justify the additional cost?’ In my Chief Appraiser days at two $100+ Billion institutions this question was presented more than once a year by senior management. How can we recover the expense of the appraisal department? How can we get borrowers to pay the internal review fee your department is charging the lending groups?
I can see all of the Chief Appraisers reading this and nodding their head and saying yep I do this ever darn year! As I tried to explain to senior management, the appraisal department can pay for itself many times over by saving the bank a single large loan loss. e.g. I remember one of my reviewers finding a $4 million error in an ARGUS cash flow. That paid for the cost of my department for 4 years right there. And I am sure my staff found many more errors that saved the bank millions of dollars.
In one of my Quality Control Audits for a regional bank, I found a single appraisal report that was approved by the reviewer, but had a $10 million error in it! I found many other overlooked errors in the millions of dollars. The cost of a QCA/QAR is nominal in comparison to not doing one.
It is not just about approving erroneous appraisal values. A QCA/QAR is also about seeing if your internal policies and procedures are being followed. If they aren’t, you will have a lot of fun answering to bank examiners and internal audit about why not. Read my RMA Journal article to see the common issues I encounter.
You can try to do this internally. But, you likely lack the resources. My experience is it takes 10-12 hours per review – remember, you have to review the review AND the appraisal report. Only then can you know if the reviewer missed anything.
Not many of us ever have enough staff to just do our day jobs. Much less try to now perform reviews of reviews. Outsourcing this task is the way to go. Also, it provides an independent view of your staff.
Let me answer two questions I often get asked. Yes, a QCA/QAR can be performed remotely. This reduces the cost. No, every review does not need to be checked. A well-thought out sampling should let you know if there are any areas of concern.
Lastly, this does not apply to just banks/credit unions with internal review staff. This applies to financial institutions that use Appraisal Management Companies (AMCs). It would be prudent to know in advance of your next bank examination or internal audit if your appraisal review process is going to get high marks or has issues you can start addressing asap.
My focus is commercial real estate, so the above is mainly about that. I am sure there are many advanced ways of addressing the quality of residential appraisal reports and residential reviews.
Please contact me if you are in need of a QCA/QAR!