Three little words: “you’re being audited.”
Just the idea of an appraisal audit can make your head spin, but professionals insist an audit does not have to be a negative experience. We agree. Examiners perform commercial lending appraisal audits for three core reasons:
- To determine if banks and other lending institutions have properly reviewed a loan file’s appraisal for reasonableness or truth of facts
- Whether the appraisal supports the final credit decision
- To help lenders assess their overall collateral risk.
In other words, appraisal audits are not designed and carried out to play “gotcha.” In fact, they can be a valuable learning experience. If you are about to undergo an appraisal audit, your first, best step? Remain calm.
Appraisal Review Process
Commercial lending represents one of the major components of credit risk at any bank. As you prepare for your appraisal audit, remember that what compliance examiners are interested in is anything that puts depositors, shareholders, or taxpayers at risk. Lenders are expected to have appropriate appraisal review policies already in place. The appraisal review is meant to assess whether that is the case. If your bank’s internal review policy achieves the objectives laid out in the Interagency Appraisal and Evaluation Guidelines, you have nothing to fear:
- Addresses the role and training qualifications of the reviewer.
- Reflects a risk-focused approach when determining how deep the review should go.
- Establishes procedures for resolving deficiencies in appraisals or evaluations.
- Includes documentation standards for reviewing and resolving noted insufficiencies.
Appraisal reviews are often points of tension, but they don’t need to be. Try to keep in mind why they exist and how they can even support your organization’s practices and future success. If the result is more knowledgeable staff and better policies and procedures, you will better identify and mitigate your collateral risk going forward. That means making more informed credit decisions, avoiding unnecessary risk, and better serving your borrowers and shareholders.
Appraisal Audit Survival Tips
Some people respond well in stressful situations, but most initially do not. Research shows that feeling stressed changes how you may weigh risk and reward. Stress also causes a reaction that reduces effective decision-making, including:
- Pre-occupation with how things have “always” been done.
- Impaired concentration.
- A deterioration in judgment, making you more reactive.
- An inability to objectively see the bigger picture.
No one enjoys being on the receiving end of an appraisal audit, prepared or not. Remember, if your first reaction to an appraisal audit is panic, a bumpy road may lie ahead. Even if you feel unprepared, it is still vital not to worry. Your initial response to stress may be a subconscious one, but you can keep a perceived threat from becoming a real threat and hindering your performance if you take it on as challenge that requires action. This is what athletes do all the time.
We Can Help
You can survive an appraisal audit, especially if you have an outside appraisal management firm to guide you through the process. At Oxford, we offer unmatched commercial appraisal management expertise to financial institutions.
Download our survival guide today to learn more.