Appraisal Reviewer Risk Assessment Flashcards

A field review finds the subject property has a non-permitted addition. What is the primary risk impact for the lender?

Answer: The collateral value may be overstated because unpermitted space may not be insurable or financeable

Non-permitted additions may not be covered by insurance or recognized by future buyers, making the appraiser's inclusion of that space in value potentially unsupported.

In risk-based appraisal review, a 'red flag' related to the sales comparison approach would include:

Answer: All comparables are located outside the subject's defined market area without explanation

Using comparables consistently outside the market area without justification signals poor geographic competency and potentially unsupported value.

Which condition most increases the risk that an appraisal is subject to value pressure or coercion?

Answer: The loan officer provided the appraiser with a copy of the purchase contract

Providing the contract price to the appraiser can anchor their opinion to the sale price, raising concerns about independence and value pressure.

An appraisal review for portfolio risk management purposes differs from a transactional review primarily in that:

Answer: Portfolio reviews assess risk across multiple assets and may use sampling and statistical analysis

Portfolio risk reviews evaluate aggregate collateral quality across many loans, often using statistical sampling rather than reviewing every individual appraisal.

When a reviewer determines that an appraisal is not credible and cannot be relied upon, the appropriate course of action is to:

Answer: Report the finding and recommend the client obtain a new appraisal

The reviewer's role is to assess credibility and report findings; directing the client to obtain a new, independent appraisal is the correct remedy.

Which of the following is a key risk indicator when reviewing an appraisal that uses the income approach for a small residential rental property?

Answer: The vacancy rate used is below the market rate without explanation

Using a below-market vacancy rate inflates the effective gross income and resulting value, overstating collateral and increasing lender risk.

An appraiser certifies they have no current or prospective interest in the property, but the reviewer discovers the appraiser's spouse is the listing agent. This situation represents:

Answer: A conflict of interest that compromises appraiser independence and increases fraud risk

A family member's financial interest in the transaction creates a material conflict that violates appraiser independence requirements and elevates fraud risk.