Implementing an appraisal review function can have a positive effect on the lending process

RMA Journal, The, June, 2003 by Richard Hamm

Reading about implementing an appraisal review function may bring to mind images of added bureaucracy, extra steps in the credit decision process, and, ultimately, poorer customer service. Would you believe that the reverse can be true?

From my experience as a lending officer at a regional bank several years ago, I can tell you that unexpected, positive things can happen as an appraisal review function is implemented.

1. It's easier to find an appraiser who can meet your time line and/or fulfill a specialist role within the various property types. We were able to expand our roster of appraisers beyond each lender's favorites, and the increased roster made it easier to meet the inevitable rush jobs. For unusual or specialty areas, it became easier to locate the best person for the engagement.

2. The bid process generated more competition among the appraisers and lower closing costs to our borrowers. Previously, scattered loan officers received quotes somewhat infrequently, but the concentration of work in the Review Group encouraged appraisers to keep their prices low. Because they knew that the Review Group saw lots of pricing on a daily basis, there was little opportunity to charge above-market rates.

3. Qualified criticisms from the Review Group improved our underwriting and were appreciated by the borrowers. In many situations, I experienced an improvement in the loan decision being made because of the input from the Review Group. We gained opportunities with our customers because they also appreciated the feedback and knew that we were serious about our due diligence. The appraisal became more than just another item on the lengthy checklist of closing items.

4. Communication of both positive and negative feedback between reviewer and appraiser led to improved appraisal quality. The appraisers began to learn our philosophy on cap rates, market rental rates and other key assumptions. They learned that the bankers had a good amount of knowledge, too. The dialogue helped everyone, and I noticed several appraisers raising the bar, improving their work in comparison to other reports received by the Review Group.

So embrace the appraisal review concept and get ready for good things to happen in your real estate lending process.

Richard Hamm is an executive vice president at Colonial Bank and a member of the Editorial Advisory Board of The RMA Journal.