Over more than 30 years as an independent review appraiser for various lenders, the FDIC, and the RTC, I’ve reviewed thousands of appraisal reports, and there is often one thing the deficient reports have in common:
THEY WENT TO THE LOWEST COST “GLOBAL APPRAISAL COMPANY”
DESPITE MORE QUALIFIED LOCAL APPRAISERS BEING AVAILABLE
The latest example was a review I did for a New York city lender for a property in California. The property was a specialized property in the healthcare field and a “global” appraisal company was hired to appraise this particular property. By all accounts, this company is well known by any commercial appraisal department and has a very good reputation. However, in this case, they were a disappointment.
To get the job, they bid what I would say is typically 2/3 of what the fee should have been. Both appraisers were from Florida, and the MAI that signed the report did not have a California license. The appraiser who inspected had only a temporary California permit and was not MAI designated. The MAI did not have a temporary California permit.
Though comparables in California were available, they used comparables in Texas that were older. This is the type of property that required a broad geographic area for comparables, but when more recent comparables are available in the subject’s state, shouldn’t they use them? It was clear they went into their own database and that most “global” firms will have and did not search anywhere else.
After they replaced the comparables with reliable California comparables, their Sales Approach valuation no longer supported their Income Approach valuation (this was a $13 million property). That apparently was no problem for this “global” firm, because they kept the same price per unit and EGIM metrics as they had used in the first appraisal, EVEN THOUGH THEY WERE HIGHER THAN WHAT THEIR OWN ANALYSIS SUPPORTED AND HIGHER THAN ANY OF THE COMPARABLE SALES’ METRICS!
Once this was corrected, they submitted the 3rd version, which did not have an updated transmittal letter date as required by USPAP.
On the 4th try, they got it right.
Moral of the story: When selecting an appraisal firm, the lowest cost provider is not always the most reliable provider, and “global valuation firms” are sometimes no substitute for local market knowledge.