CAR Quality Assurance & Improvement 3 — Questions and Answers
Question 1: A reviewer finds that a commercial appraisal's income approach used a cap rate derived from a single comparable sale. The MOST appropriate reviewer action is to:
- Accept it if the sale is recent and verified
- Flag it as a potential deficiency due to insufficient market evidence for the cap rate (Correct answer)
- Require the appraiser to use at least five sales
- Reject the report and order a new appraisal
Correct answer: Flag it as a potential deficiency due to insufficient market evidence for the cap rate
A cap rate derived from one transaction lacks sufficient market evidence and should be flagged as a potential deficiency requiring further support.
Question 2: Under AIR (Appraiser Independence Requirements), which of the following actions by a loan production staff member would constitute a violation?
- Providing the appraiser with a copy of the purchase agreement
- Requesting the appraiser reconsider value based on additional comparable sales
- Informing the appraiser of the loan amount needed to approve the transaction (Correct answer)
- Ordering the appraisal through an approved AMC
Correct answer: Informing the appraiser of the loan amount needed to approve the transaction
Informing the appraiser of the loan amount needed pressures the appraiser to meet a predetermined value, violating appraiser independence.
Question 3: When a review appraiser disagrees with the original appraiser's value conclusion but cannot identify a specific error in methodology, the reviewer should:
- Override the value without explanation
- State the disagreement and provide the reviewer's own analysis and market evidence supporting a different value (Correct answer)
- Defer entirely to the original appraiser's judgment
- Request a second opinion from the AMC
Correct answer: State the disagreement and provide the reviewer's own analysis and market evidence supporting a different value
The reviewer must support any disagreement with the original conclusion by providing market evidence and analysis, not simply assert a different opinion.
Question 4: A 'second appraisal' ordered by a lender is MOST appropriate when:
- The first appraisal exceeds the contract price
- There is a complex or high-value property, or an inconsistency in the original report warrants additional due diligence (Correct answer)
- The borrower disputes the original value
- The appraiser is not on the lender's approved panel
Correct answer: There is a complex or high-value property, or an inconsistency in the original report warrants additional due diligence
Second appraisals are most appropriate for complex or high-value properties, or when due diligence reveals inconsistencies needing independent verification.
Question 5: In residential mortgage lending, an Appraisal Management Company (AMC) must ensure that fee appraisers on its panel are:
- Licensed or certified in the state where the property is located (Correct answer)
- Members of a professional appraisal organization
- Employees rather than independent contractors
- Pre-approved by Fannie Mae directly
Correct answer: Licensed or certified in the state where the property is located
AMCs are required to use only appraisers who hold appropriate state licensure or certification in the jurisdiction where the subject property is located.
Question 6: When reviewing an appraisal for a property in a rapidly appreciating market, the reviewer should pay particular attention to:
- Whether the appraiser used at least three closed sales
- The time adjustments applied to comparable sales and whether they reflect current market trends (Correct answer)
- The size of the subject property relative to comparables
- Whether the report includes a cost approach
Correct answer: The time adjustments applied to comparable sales and whether they reflect current market trends
In rapidly changing markets, the adequacy of time adjustments is critical to ensure comparables are properly adjusted to reflect current market conditions.
Question 7: A lender's quality control program identifies that 30% of appraisals from one appraiser require revision. The MOST appropriate immediate action is to:
- Report the appraiser to the state licensing board
- Remove the appraiser from the approved panel pending a performance review (Correct answer)
- Require the AMC to retrain all appraisers
- Accept the reports if the revisions were successfully completed
Correct answer: Remove the appraiser from the approved panel pending a performance review
A 30% revision rate signals a systemic quality problem; removing the appraiser from the panel pending review is the appropriate risk management response.
CAR Quality Assurance & Improvement 3
A reviewer finds that a commercial appraisal's income approach used a cap rate derived from a single comparable sale.
The MOST appropriate reviewer action is to: