When we repeatedly hear the same questions, we know it’s time to sift through the noise and offer some much-needed answers. Recently, we realized we were encountering a great deal of confusion about appraisal updates and reappraisals.
Today we’re clearing the air on these terms to provide you with everything you need to know about these topics.
1.) What are appraisal updates?
Let’s play a game. Take a nearby piece of paper and draw a vertical line down the middle. At the top of one side, write “recertification of value,” and on the other, write “update.” According to USPAP, there is no special meaning for the term “update” (or “reappraisal” for that matter). These two terms are commonly used business terms, not appraisal terms. Because they aren’t official terms, they tend to hold different definitions for different people. Business wise, USPAP treats requests for “updates” and “reappraisals” as new assignments.
2.) What does a client mean when they ask for an appraisal update?
When a client asks for an “update,” they probably mean they want to know the value of a property as it stands today. Most likely, the existing appraisal in the file only gives them the value of the property from the date of the previous appraisal. In technical terms, they want to bring forward the effective date of an existing appraisal.
3.) What is a recertification of value?
A “recertifications of value” is not the same as an “update” or “reappraisal.” The key distinction is that recertification of values do not bring forward the effective date. Instead, they simply confirm a condition in the original appraisal. For example, if a borrower is considering construction, and the original appraisal includes a value subject to completion of construction, the appraiser would have included a condition indicating the “subject to” value is only good to the extent the construction is completed in accordance with the plans the appraiser reviewed. Let’s say the borrower wants to confirm, they could ask the appraiser to “recertify” the value.
4.) If each new update request is a new assignment, does that mean that the appraiser has to start from scratch?
In short, the answer is no. USPAP clarifies that “[a] new assignment does not mean that you must start from scratch” and that “appraisers are often selected for subsequent assignments specifically because of experience and demonstrated competency in a prior assignment.” Further, USPAP Advisory Opinion 3 provides three options for addressing this problem. They all start with the appraiser making a decision as to what information from the existing appraisal is still reasonably reliable, and then making an extraordinary assumption to that effect.
After that, the appraiser can either:
- Repeat the previous information to the extent it’s deemed reliable
- Incorporate the previous information by attachment
- Incorporate the previous information by reference.
5.) Do I have to ask the same appraiser to complete the update, or can I select a different appraiser?
You do not have to use the same appraiser. In fact, Advisory Opinion 3 states specifically that there are no appraiser restrictions. However, it’s important to note if you do switch appraisers, the new appraiser may be unable to determine with any degree of certainty that the previous appraiser’s work product was reliable. Therefore, they may not be able to make an extraordinary assumption to incorporate substantial portions of the previous appraisal, or may have to perform an appraisal review.
Looking for clarification on more complex terms and reports? Head to our blog where we’re dedicated to answering your questions and providing you all of the appraisal insights you need to know.