MARCH 14, 2025 – The following is from the Appraisal Institute’s ‘Appraisal Now’ email newsletter. The first time I saw regulators focus on Appraisal Review was during the 2005-2010 Financial Crisis. This is the second time. As such, appraisers should include more expense comparable data specifically (especially re Insurance!). Reviewers should focus more intently on expenses. Trust me, with bank examiners being given this guidance they are going to be laser focused on expenses in the Income Approach!! My experience is about 50% of appraisers provide a table of expense comparables with the individual expenses listed and then an analysis of each for estimating the individual subject expenses. About 50% do not provide any support and maybe will say maintenance typically ranges from $0.50 to $1.50/sf and I conclude at X. That is not support. I encourage those appraisers to step up their game. Because if examiners come across those appraisal reports with no detailed support, they will have that bank or credit union remove that appraiser from their approved list! And bank examiners only see black and white. They are not appraisers. They will see those appraisals with a table of 4 or 5 expense comparables and individual expenses listed. Then they will see those reports that do not have such tables. The latter is in trouble. Obviously, you should also have a table of subject actuals for the past 1-3 years, when available. Just my advice from 33 years of being in the bank appraisal review world and dealing with examiners and regulators.
Shalom,
The Mann
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Bank Examiners Highlight Key Appraisal Issues for 2025
Recent industry meetings between bank chief appraisers and bank examiner policy specialists have brought to light several key issues that appraisers should be aware of in 2025. These discussions reflect the evolving expectations and regulatory scrutiny surrounding appraisals, particularly in the banking sector. Below are the primary points of emphasis that emerged from these meetings.
Appraisal Quality Remains a Top Concern
Bank examiners continue to stress the importance of appraisal quality, underscoring the need for well-supported valuations that withstand regulatory and client scrutiny. Ensuring compliance with professional standards, proper market analysis, and credible adjustments remain critical in maintaining confidence in appraisal reports.
The Ongoing Concern Over Engaged Appraisers Not Signing Reports
A recurring complaint in these discussions—brought up annually—is the issue of appraisers engaged for assignments not signing their reports. This raises concerns about accountability, potential outsourcing issues, and the integrity of appraisal reports. Examiners urge banks and appraisal firms to reinforce best practices and ensure that the responsible appraiser is clearly identified in every report.
Data Center Appraisal Issues Persist
Data center valuations continue to pose challenges, with bank examiners revisiting concerns from previous years. These properties have unique valuation factors, including high infrastructure costs, evolving technology, and variable market demand. Appraisers working in this niche should stay updated on emerging valuation methodologies and market trends to address examiner expectations.
Ongoing Scrutiny of Participation Deals
Participation deals remain an area of focus, as they were last year. The complexity of these deals can introduce valuation challenges and potential risk exposure for financial institutions. Examiners urge appraisers to ensure transparency, provide thorough documentation, and carefully analyze risk factors when handling such assignments.
Increased Expectation for Reviewers to Challenge Assumptions
Another significant takeaway is that examiners expect review appraisers to question and push back on key assumptions made in appraisal reports. This aligns with a broader push for stronger due diligence and critical analysis. Appraisers should be prepared for increased scrutiny of their market assumptions, income projections, and comparable selection.
Heightened Focus on Expenses, Particularly Insurance Costs
Bank examiners also emphasized the need for greater attention to expenses in appraisal reports, particularly related to insurance. Rising insurance costs have become a growing concern, impacting property valuations and financial risk assessments. Appraisers should ensure that expense projections, including insurance, reflect current market conditions and provide adequate justification.
What This Means for Appraisers
With these continued and emerging concerns, appraisers should take proactive steps to ensure their reports meet heightened expectations. Strengthening report quality, addressing recurring industry concerns, and preparing for increased review scrutiny will help appraisers navigate the evolving regulatory landscape in 2025.
Tag Archives: appraisal review
USPAP CHANGES FOR 2018-2019
February 24, 2017 – The ASB has posted a summary of changes at the following link:
https://appraisalfoundation.sharefile.com/share?#/view/s305094efde84bbda
For those performing appraisal review, you will want to read about the changes and plan ahead if there will be changes needed for your review documents.
The definition changes are also worth noting. We have 10 months to get ready for the changes.
I HAVE HIT A NEW LOW :)
September 21, 2016 – Not too many people would use the above as a headline:) Let me explain…
About 8 years ago today in fact, the last review I did as Chief Appraiser for the fractional bank (as it was called…or Evil Empire by other banks) was an appraisal of a vacant residential lot in Detroit. The value conclusion was $100. It was well supported with two sales at $100 and a listing at $200 that the appraiser adjusted downward 50%.
I had spent 22 years appraising and reviewing. Made it to Chief Appraiser of a $100 Billion bank. And there I sat making the big bucks to review a $100 residential lot:) And, yes, the appraiser’s fee was higher than the value conclusion.
I have used that story many times over the years. Now, I can top it. I just got paid to review an appraisal of what has to be kept as a confidential property (and client). The value conclusion was $0! Yes, I have finally hit a new low! Now, I can finally say I have appraised and/or reviewed properties ranging in value from $0 to over $2 Billion. That is a resume builder! It was annoying to use $100 as the bottom of that range.
Oh, and yes again, my review fee was higher than the value conclusion. Thankfully, USPAP prohibited me from quoting a review fee that was a percentage of the value! LOL
Everyone have a great day:)
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!