Appraisal Reviewer Risk Assessment Flashcards
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Under FIRREA, federally regulated lenders must obtain appraisals that meet USPAP for transactions above a threshold. The primary risk of using a below-threshold exemption inappropriately is:
Answer: The lender may hold collateral with an unverified or unsupported value
Using an exemption for a transaction that legally requires a full USPAP appraisal leaves the lender without a reliable collateral valuation, increasing credit risk.
A reviewer notes that the appraiser selected a reconciled value exactly equal to the purchase price despite wide variance among the approaches. This pattern most commonly suggests:
Answer: The appraiser may have targeted the contract price rather than independently deriving market value
When the reconciled value consistently matches the contract price regardless of approach variances, it is a classic indicator of value targeting or pressure.
In assessing environmental risk during an appraisal review, which finding would most warrant recommending further investigation before loan approval?
Answer: The appraiser noted a potential underground storage tank on an adjacent commercial property
A nearby underground storage tank creates potential contamination liability that could impair the subject property's marketability and value.
Which of the following best describes the risk associated with 'retrospective appraisals' used in legal or estate matters?
Answer: Market data available at the effective date may be harder to verify, reducing reliability
Historical effective dates limit the data set to what was available at that time, making verification more difficult and increasing the risk of unsupported conclusions.
When reviewing an appraisal in a declining market, which reviewer action best mitigates the risk of an overstated value?
Answer: Verifying that the appraiser applied a negative time adjustment to reflect falling prices
A negative market conditions adjustment is essential in declining markets; without it, older comparable sales overstate the current market value.
Which element of an appraisal review most directly addresses 'scope of work' risk?
Answer: Confirming that the appraiser's selected scope is appropriate given the intended use and users
Scope of work risk arises when the level of analysis performed is insufficient for the assignment's intended use; the reviewer must assess whether the scope was adequate.
A reviewer performing a technical review of a commercial appraisal questions the capitalization rate used. The most appropriate next step is:
Answer: Compare the cap rate to market-derived data and contact the appraiser for support if inconsistent
The reviewer should benchmark the cap rate against market evidence and request appraiser support before concluding whether the rate and resulting value are credible.