Here is a question that I have been asked, “How Does One Do an Appraisal Review?”, and this seems like a good month to answer it, especially since quite a few of you have turned in demonstration reports this month. “How does one review an appraisal report?”

Sometimes a client brings another appraiser’s work product to your office and asks for you to review that report, and then to report on your findings. When that happens, it is important to identify exactly what the client is requesting, and why. If your client plans to share your review’s findings with third parties, such as a judge, or the original appraiser, then it may be a good idea to make sure to follow USPAP’s guidance for a report review.

3 Types of Reviews under Standard 3-3 of USPAP

There are three types of reviews one can complete that are described under Standard 3-3 of USPAP.

1. The first one listed is where the reviewer will provide an opinion as to whether or not the analyses completed are appropriate and credible within the context of the scope of work for that report.
   1. This means the reviewer runs through the report, checking the underlying assumptions, the adjustments, and the overall logic followed by the original appraiser to see if the steps that were followed in the writing of that report would be sufficient to provide a credible and reasonable value conclusion. If the reviewer finds areas of the report where the reviewer disagrees with the appropriateness of certain techniques or analyses, the reviewer needs to provide their reasons for the disagreement. For example, if the report under review uses capitalization of earnings method to value a business, yet the appraiser’s own analysis indicates that the future operations of the business may well include a volatile period of growth, then that appraiser may not have used an appropriate method for the appraisal assignment.Please note that in this type of review, the reviewer is NOT providing their own conclusion of value for the subject of the report under review.
2. This next one is where the reviewer provides an opinion as to whether the report is appropriate and not misleading within the context of the scope of work for that report.
   1. This means that the reviewer has been asked to check if the subject appraisal report provides a reasonable basis for a reader to follow the analysis and conclusions. The reviewer is to look for any areas of the report where conclusions provided may be misleading or not appropriate for the appraisal assignment. For example, if the report under review utilizes a method or key assumption that affects the overall conclusion of value inappropriately; such as relying solely on an analysis of the value of the tangible assets of a business as if the operation would be liquidated, yet there is no indication that the subject ownership interest either will or even can affect such a liquidation.
      Please note that in this type of review, the reviewer is NOT providing their own conclusion of value for the subject of the report under review.
3. The third one is where the reviewer will be providing their own opinion of value for the same subject of the report being reviewed as part of the review.
   1. This is the type of review I often see come back from an appraiser who has been asked to review my work. Generally, this is in a litigation arena where the appraiser hired by the other side has developed an opinion of value that is very different from my own. Often, I will see the review come back where the reviewer has modified some of my key assumptions and included a statement somewhat similar to the following: “If Mr. Hyde had selected ‘X’ premium then his reported conclusion of value would fall within 10% of mine.”In this type of review, the reviewer is also required to opine on the quality of work provided by the appraiser under review. These steps are required by USPAP, regardless of whether or not the reviewer’s opinion concurs or differs from the reviewed opinion.

Standard 4 of USPAP describes the steps and requirements for writing a review report, which also includes a signed certification.

There is a fourth style of review that is not governed by USPAP, and this is typically the style that I follow when I am reading through a demonstration report, or completing a review for another appraiser prior to their submitting their report to their client. I consider this type of review to be very similar to having a report proofread prior to its delivery to a client, which is a service that can be performed by anyone without having to follow USPAP’s requirements. I offer no opinions as to what the conclusion of value should be, however, if I identify anything whose adjustment would affect the value conclusion, I do point that out.

Those of you who have passed through the crucible that is the Business Certified Appraiser (BCA) certification process have seen this.

I begin at the top of the first page and read everything in the report, flagging anything from spelling errors, to format discrepancies, to errors in logic, and even potential issues with valuation theory cited in the report. I simply embed my comments within the body of the report so the appraiser may easily identify each area I am discussing and can choose to either modify their report or simply ignore my commentary. For demonstration reports, and if requested by a review client, I tend to bold the text of those comments that really should be addressed or modified in order to either comply with USPAP or the specific requirements of the certification process.

I believe as a proofreader who has valuation experience, I will likely read reports where I would have done something differently or where my opinion would have been to go in a different direction, however just because I have a different opinion does not invalidate the appraiser’s written opinion of value. Each appraiser has their own opinion, and it is the opinion of the signing appraiser that is the most important. In my reviews, I often suggest additional explanation be provided to support any conclusions that I may disagree with, but my disagreement does NOT invalidate any report I review. I have passed demonstration reports, and will again, where the appraiser’s opinion was very different from what mine would likely have been, if I had been in charge of the appraisal assignment. That may very well be the most important piece of advice I can give to anyone who has been asked to review another appraiser’s work.

Just because you may disagree with something, does NOT mean that the report is in error.

The second piece of advice I could give, is if you are reviewing another appraiser’s work in a litigation scenario, do not waste time identifying typos and formatting issues (the one exception is if there are so many of those that it turns into a USPAP compliance issue) instead, focus on identifying any errors or omissions that may significantly affect that appraiser’s value conclusion, were the appraiser to be made aware of them.