Adam Wiener, founder of Aladdin Appraisal in Greater Boston and an active reviewer of appraisal reports, shared with us the seven most common issues and errors he has encountered while reviewing real estate appraisals. The following errors are violations of the requirements established by a set of quality control standards called the Uniform Standards of Professional Appraisal Practice (USPAP), to which all appraisers are bound.
1. Factual Errors. The MLS data is entered by individual brokers and not policed by the MLS. As a result, the information is full of errors, according to Wiener. When inaccurate data is entered and not fact checked, an appraiser will arrive at an inaccurate valuation.
2. Excluding an Approach to Value with No Explanation. Appraisers do not have to develop all three of the approaches to value — the cost approach, the income approach and the sales comparison approach — as long as the resulting conclusion is not affected by the exclusion of one approach. With that said, the appraiser is required to explain why any of the three approaches was excluded.
3. No Reconciliation Between Various Value Approaches. When an appraiser uses more than one approach to value, it is likely because the two approaches won’t lead to exactly the same value. In order to arrive at one final opinion of value, the appraiser uses a process called the reconciliation between value approaches.
4. Lacking Time Adjustments. A date of sale adjustment helps to bring an old comp up to date with the current market. Wiener says that failing to do so, aka making an adjustment when the real estate market experiences an increase or decrease since the time a comparable property was sold, will likely affect the final valuation of a property.
5. Missing Highest and Best Use Analysis. Wiener stresses that it is necessary for the appraiser to develop an opinion of a property’s highest and best use, regardless of its actual current use, and report a summary of the analysis within the appraisal report.
6. Using the Wrong Appraisal Form. Wiener occasionally sees forms from the Federal National Mortgage Association (FNMA), which were designed for use with federally insured loans, being inappropriately used for non-lender assignments.
7. Incorrect Date of Value. Wiener primarily sees this error with tax abatement appraisals. Each appraisal has an effective date of value; therefore, the appraiser must complete a retrospective appraisal using only sales that closed before the effective date of value.
Adam Wiener founded Aladdin Appraisal in 2006 to fill the need for personal service and attention while delivering reliable, accurate, timely appraisals. Fast forward to 2014, and his mission is to earn the reputation as Greater Boston’s go-to non-lender real estate appraisal expert by spreading humor and valuable, interesting information to bridge the knowledge gap between appraisers and the rest of the world.