Appraisers have been dealing with Reconsideration of Value (ROV) requests from clients for decades. However, in the past couple of years, the industry has experienced a significant increase in the number of ROV requests as well as the sources of the requests. This appears to be due, in large part, to the unprecedented upward price trending in virtually all real estate markets around the country and the challenges appraisers face when developing opinions of current most probable market values.
With that historic perspective in mind, an update to guidance recommendations on how to respond to reconsideration of value requests appears timely for several reasons, the first being the increasing number of ROVs appraisers are receiving. Additionally, recent developments within the industry suggest that the volume of ROVs is likely to increase, not decrease, moving forward.
Livestream & Classroom CE Courses: Learn best practices for responding to ROV requests in our Live Webinar: “Responding to a Reconsideration of Value (ROV)” — starting with the first livestream session on Wednesday, Oct. 26 from 2-5 pm Central Time. Florida Appraisers: We’re offering two in-person classroom sessions on Sept. 20 in Ft Meyers, Florida, and Oct. 19 in Tallahassee, Florida.
Note: The following guidance does not address the Department of Veteran Affairs (VA) Tidewater Appraisal Process. Valuations for the VA are completed by VA panel appraisers required to comply with VA guidelines, which include the Tidewater Appraisal Process. However, because this has been a successful protocol within VA valuation, it is worth reviewing the requirements and what is applicable to conventional GSE (Fannie Mae/Freddie Mac) appraisal assignments. It is also important to note that even though the name refers to value, an ROV request is not limited to questioning the value conclusion of an appraisal report. An ROV is basically an appraisal dispute that can also be used to request correction of errors found in an appraisal report or supplement information within an appraisal report to enable the intended user(s) to better understand the report.
Suggested protocols for responding to ROV requests
When you receive an ROV request, some recommended steps to take include:
1. Maintain USPAP compliance
Confirm the ROV request came from your client, either directly or through the client’s AMC, acting as an agent for the client, or other party designated as an agent by the client. The importance of this cannot be overstated. Appraisers are still required to comply with USPAP when responding to an ROV request, including the confidential nature of assignment results. The USPAP Ethics Rule, Confidentiality section states that an appraiser must not disclose (1) confidential information; or (2) assignment results to anyone other than the client or parties specifically authorized by the client.
2. Identify ROV content to determine next steps
Once you’ve confirmed your ability to respond to the ROV request and comply with USPAP confidentiality requirements, take the time to analyze the content of the ROV to determine what specifically is being requested of you (the appraiser) and what level of information will be needed to respond to the requestor of the ROV.
This is an opportune time to maintain a professional demeanor and not react to an ROV request as if it is an affront to your competency or experience. After receiving an ROV request, send an acknowledgement of receipt and advise the client that the ROV request will be analyzed and responded to in a timely manner.
Unfortunately, in the loan process, the appraisal is one of the last services requested by the lender. The appraisal report has already been delivered, so, in many instances, the only documentation needed to close the loan is the appraiser’s response to the ROV request. This makes communication with the client even more significant.
Risk flags that trigger ROV requests
It is important to remember there are numerous factors that trigger an ROV, including Collateral Underwriter (CU) risk flags, such as the Overvaluation Risk Flag and Appraiser Quality Risk Flag.
On August 3, 2022, Fannie Mae updated their Selling Guide, introducing a new Undervaluation Risk Flag. The addition of this new risk flag will no doubt increase the number of ROVs appraisers will be receiving in the future, particularly in markets still experiencing upward market pricing where appraisers continue to be challenged keeping up with the rapid price appreciation.
It is also important to remember these risk flags are triggered by an algorithm, that in some instances, will produce the risk flag based on incomplete or incorrect data, either of the subject property, the sales used in the appraisal report, or additional sales identified by the algorithm the appraiser is being asked to now consider.
FREE Webinar: Learn about the new Undervaluation Risk Flag in our FREE live webinar with Fannie Mae on Wednesday, September 28th from 11am-12pm ET. Sign up now.
Other sources of ROV requests
ROV requests are also initiated by homeowners/borrowers, real estate agents, and loan officers who question the accuracy of an appraiser’s value conclusion. Fortunately, ROV protocols have improved over time and most lenders’ ROV policies and procedures include requirements for substantive support for the request prior to sending to the appraiser. This contrasts with ROVs appraisers previously received that in some instances were single line public record data, with nothing more than an address.
If additional sales are included in an ROV, at a minimum, the sale data should be from a local Multiple Listing Service, should contain sufficient information to demonstrate the sale would compete with the subject property and possibly support a different value if used in the appraisal, or provide support for the value conclusion if the data in the appraisal report does not appear to support the assignment results.
3. Responding to the ROV request
If after reviewing the information in an ROV you determine some of the sales are relevant to the valuation assignment but will take time to verify and include in an appraisal update, you should communicate with the lender and advise a reasonable time frame to address the ROV and produce an updated report.
If after reviewing the additional sales you determine the provided data is not appropriate to either use as additional comparable sales or replace sales in the original appraisal report, you should provide a professional response explaining why. Taking the time to provide a professional response can and has saved appraisers from having to later respond to additional requests for justification or explanation after the client receives the original response.
Responding to ROV requests that are not value-related
The Interagency Appraisal and Evaluation Guidelines published in 2010 identify three specific requests a lender may make to an appraiser:
Consider additional information about the subject property or about comparable properties.
Provide additional supporting information about the basis for a valuation.
Correct factual errors in an appraisal.
Lenders and GSEs advise that common appraisal deficiencies involve either misrepresentation or contradictory information relating to the subject property or the comparable data.
USPAP Standards Rule 2-1(b) requires each written appraisal report to enable the intended user(s) to understand the report properly.
If the ROV is requesting an appraiser to correct factual errors in an appraisal, appraisers should comply to ensure their appraisal report does not contain erroneous information, which could potentially be considered a misleading report.
The Interagency Guidelines also state that an institution should not directly or indirectly coerce, influence, or otherwise encourage an appraiser or a person who performs an evaluation to misstate or misrepresent the value of the property. Such actions could rise to the level of appraiser independence violations. However, before you accuse a client of appraiser independence violations, you should have very compelling evidence and not use this as an excuse to not address the ROV request.
Additional considerations
An unintended consequence of lenders being required to provide borrowers with copies of valuation reports at least three days prior to closing is that borrowers are not typically users of appraisal services. They often do not understand the appraisal process or much of the contents and language used in appraisal reports. To mitigate potential ROV requests by borrowers or intended users who may also not be familiar, appraisers are advised to write their reports in such a manner that a typical lay person would understand.
A Word on updated appraisal reports
If an appraisal report is revised, make sure the ROV request is included in the updated report addenda and the new report has an updated signature date.
ROV requests have become a fact of life within appraisal practice, and there are no signs of them going away any time soon. It is therefore important that ROV requests be taken seriously when received. Responses from appraisers should be professional and timely to maintain the professional reputation of the appraiser as well as that of the profession.
Livestream & Classroom CE Courses: Learn best practices for responding to ROV requests in our Live Webinar: “Responding to a Reconsideration of Value (ROV)” — starting with the first livestream session on Wednesday, Oct. 26 from 2-5 pm Central Time. Florida Appraisers: We’re offering two in-person classroom sessions on Sept. 20 in Ft Meyers, Florida, and Oct. 19 in Tallahassee, Florida.
Article written by Greg Stephens. Greg Stephens has been a real estate appraiser since 1977, and currently holds a Certified General appraiser license in Texas, Virginia, and Wisconsin. His teaching style is high energy, engaging, and encouraging of class discussions and interaction, whether teaching in-person classes or livestream courses. Greg is a nationally recognized USPAP and valuation compliance subject matter expert and has been teaching USPAP since 1995. Greg serves as a mentor for the Texas Appraiser Licensing and Certification Board covering all aspects of USPAP with an emphasis on rules, real property appraisal development, and reporting.
