Real estate evaluations have increased substantially in the last decade. As more and more appraisals are replaced by evaluations, the real estate appraisal world has taken a keen notice of this controversial tool. In this post, the difference between appraisals and evaluations will be highlighted and a few of the most popular questions about these tools will be answered.
IGs differentiates evaluations from appraisals. The Guidelines state that an evaluation is needed when a transaction qualifies “for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.” The appraisal threshold exemption clarifies that any mortgage under $250,000 (the threshold will likely be raised to $400,000 soon) can receive an evaluation rather than an appraisal, although many lenders still choose to order appraisals.
USPAP does not address evaluations. However, Advisory Opinion (AO) 13 does. AO 13 states that if an appraiser is going to write an evaluation, that evaluation must conform to USPAP, thus endowing the evaluation with the appellation of appraisal.
Evaluations are not appraisals in some states, but are considered appraisals in other states. USPAP (through AO 13) considers evaluations appraisals.
Appraisal | Evaluation |
Requires an analysis of the property’s highest and best use | No requirement |
Requires a summary of the logic and rationale behind the analysis within the report |
No requirement |
Requires an analysis of reasonable exposure time | No requirement |
Requires a statement within the report of the analysis of reasonable exposure time |
No requirement |
Presented in two formats (Appraisal Report and Restricted Appraisal Report) |
No requirement |
Requires a signed certification as part of every written appraisal report |
No requirement |
Contains many details and steps that must be carefully included | Less details and steps than an appraisal |
Must be credible as per USPAP requirements. Credible is defined by USPAP as “worthy of belief” |
Must be reliable as per IGs. Reliable is not defined by IGs. |
IGs states that qualified individuals “may include appraisers, real estate lending professionals, agricultural extension agents, or foresters.” IGs also clarifies that the personal performing evaluations must:
USPAP has no authority to determine who can perform evaluations.
IGs dictates when an evaluation can be performed:
IGs explains that the content of an evaluation must include:
USPAP and some states contradict each other. State law trumps USPAP, however, and thus the state’s requirements must be met first. A thorough understanding of your state’s requirements is a must when properly executing an evaluation.
The widespread confusion over the role of evaluations, who can perform them in each state, and what the standards are for the reports, is justified. Detecting the need for clarity, the Appraisal Standards Board (ASB) is considering the establishment of standards for evaluations. As the use of evaluations increases, an affirmative conclusion to the ASB consideration is much needed and seems likely.