Why Lenders Are Using Appraisal Reviews to Get Ahead of Risk in 2025

A well-defined appraisal review strategy isn’t merely an operational function; it’s an integral component of a resilient lending business, especially as we look across 2025 in the U.S. market.

• Elevated Risk Management in a Fluid U.S. Market: While interest rates may see some moderation in 2025, the U.S. market remains highly sensitive to domestic economic indicators and Federal Reserve policy. These fluctuations directly impact U.S. property values and borrower capacity. Strategic reviews act as a vital early warning system, identifying potential overvaluations or market inconsistencies before they lead to loan defaults in a shifting rate landscape. For instance, commercial property delinquency rates have notably increased in Q1 2025, with specific sectors like lodging and industrial showing particular vulnerability in U.S. CMBS loans, where levels reached 5.2% [1]. This underscores the heightened need for vigilance in commercial real estate portfolios across the U.S.
• Strengthened Underwriting Decisions Amidst Shifting U.S. Market Dynamics: The median home-sale price in the U.S. reached $403,700 in March 2025, setting a new record for that month and marking the 21st consecutive month of year-over-year increases [2]. This ongoing trend and affordability challenges across various U.S. housing markets demand even greater underwriting precision. A rigorous appraisal review ensures the original report aligns with internal lending guidelines and evolving U.S. industry standards, including those from Fannie Mae and Freddie Mac. This deeper, validated scrutiny empowers more informed and confident underwriting, significantly reducing post-closing surprises in a market characterized by high prices and elevated, though stabilizing mortgage rates.
• Seamless Regulatory Compliance in an Intensifying U.S. Landscape: Regulatory scrutiny isn’t easing in 2025; it’s sharpening its focus from U.S. federal agencies on areas like Environmental, Social, and Governance (ESG) factors and Automated Valuation Models (AVMs). While the International Valuation Standards (IVS) 2025, effective February 2025 [3], sets a global standard, U.S. regulators are increasingly echoing these principles in their expectations for risk management and fair valuation. Moreover, the new Interagency Automated Valuation Model (AVM) Quality Control Standards Rule is set to take effect on October 1, 2025 [4], specifically impacting how U.S. financial institutions manage and validate automated property valuations for mortgage and home equity products. Appraisal reviews serve as an internal audit mechanism, demonstrating due diligence and systematic compliance with mandates from U.S. federal bodies (e.g., OCC, Federal Reserve, FDIC, NCUA), especially for complex or higher-value loans and those now subject to new ESG considerations and AVM rules. In the millions, the financial implications of non-compliance are substantial for U.S. institutions, significantly exceeding the cost of proactive compliance.
• Consistent Quality Control in the Age of U.S. AI and Automation: While AI and digital tools are rapidly transforming U.S. real estate valuation, robust human oversight through strategic review processes remains crucial. AI has the potential to generate $110 billion to $180 billion in value within the U.S. real estate market [5] through improved accuracy and efficiency. However, this advancement also necessitates rigorous quality control. A strategic review process establishes a consistent, high-performance benchmark for appraisal quality across all assignments, ensuring that even technology-assisted valuations are thoroughly vetted and meet your institution’s stringent standards. This helps identify recurring issues, address appraiser performance, and ensure that every valuation accepted aligns with your institution’s high standards for accuracy and reliability.
• Effective Reconsideration of Value (ROV) Handling in a Borrower-Centric U.S. Market: Borrower disputes over valuations are an increasingly common occurrence in the U.S. market. A recent analysis highlighted that 33.6% of appraisals carried a “high risk” of inadequate or missing adjustments, potentially leading to over $27 billion annually in repurchase risks for U.S. lenders [6]. A clear, documented, and efficient review process can transform a potential challenge into an opportunity. Whether it’s a concise desk review or a more comprehensive field review, a strong framework enables efficient and equitable re-evaluation of the valuation based on new information. This preserves client trust while unequivocally upholding valuation integrity in a competitive U.S. lending environment where client experience is paramount.