CAR Appraisal Reviewer Risk Assessment 3 — Questions and Answers
Question 1: A field review finds the subject property has a non-permitted addition. What is the primary risk impact for the lender?
- The appraisal fee may need to be refunded
- The collateral value may be overstated because unpermitted space may not be insurable or financeable (Correct answer)
- The appraiser must revise the report under USPAP
- The comparable selection process is invalidated
Correct 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.
Question 2: In risk-based appraisal review, a 'red flag' related to the sales comparison approach would include:
- All comparables are within 90 days of the effective date
- Comparable sales were verified through MLS and courthouse records
- All comparables are located outside the subject's defined market area without explanation (Correct answer)
- The appraiser bracketed size above and below the subject property
Correct 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.
Question 3: Which condition most increases the risk that an appraisal is subject to value pressure or coercion?
- The loan officer provided the appraiser with a copy of the purchase contract (Correct answer)
- The appraiser has 15 years of experience in the market area
- The review was ordered by the same lender that originated the loan
- The appraiser used a cost approach as a check on the sales comparison approach
Correct 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.
Question 4: An appraisal review for portfolio risk management purposes differs from a transactional review primarily in that:
- Portfolio reviews do not require USPAP compliance
- Portfolio reviews assess risk across multiple assets and may use sampling and statistical analysis (Correct answer)
- Portfolio reviews must be completed by a Certified General appraiser
- Portfolio reviews cannot include desk reviews
Correct 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.
Question 5: When a reviewer determines that an appraisal is not credible and cannot be relied upon, the appropriate course of action is to:
- Assign a new value and use it for the lending decision
- Report the finding and recommend the client obtain a new appraisal (Correct answer)
- Contact the original appraiser and require them to revise the report immediately
- File a complaint with the state appraiser board before notifying the client
Correct 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.
Question 6: Which of the following is a key risk indicator when reviewing an appraisal that uses the income approach for a small residential rental property?
- The gross rent multiplier is derived from confirmed market rentals
- The vacancy rate used is below the market rate without explanation (Correct answer)
- The appraiser applied a direct capitalization method
- The cost approach was used as a secondary method
Correct 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.
Question 7: 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:
- A minor disclosure issue with no material impact on value
- A conflict of interest that compromises appraiser independence and increases fraud risk (Correct answer)
- A violation of the Dodd-Frank Act's appraisal fee rules
- An issue addressable through a simple addendum to the appraisal
Correct 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.
CAR Appraisal Reviewer Risk Assessment 3
A field review finds the subject property has a non-permitted addition.
What is the primary risk impact for the lender?