9-16. INITIAL AND SUBSTANTIVE REVIEW OF OWNER’S RCS

This section provides guidance to initial and substantive reviewers for performing a comprehensive review of the Owner’s RCS, covering the initial review, substantive review, and field visit.

• A. Initial Review. The HUD/CA initial reviewer performs an initial screening of the RCS for completeness and timeliness utilizing the “Initial Screening” checklist provided under Appendix 9-5. The HUD/CA initial reviewer must sign and retain the completed checklist, and a copy must be provided to the substantive reviewer informing them that the RCS is determined to be complete and ready for a substantive review. If the initial

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reviewer finds the RCS to be incomplete, the initial reviewer must contact the Owner or the Owner’s appraiser to obtain the missing material before the package is forwarded to the substantive reviewer.

• B. Purpose of Substantive Review. The purpose of a substantive review is to assess and evaluate whether the Owner’s RCS appraiser’s selection of comparables, adjustments, and rent conclusions are reasonable. The substantive reviewer may not agree with every detail of the RCS, but the substantive reviewer’s approval of the RCS means that the substantive reviewer has concluded that the suggested market rents presented in the RCS are reasonably supported by market facts. The RCS must contain sufficient information to convince a person unfamiliar with the market areas or properties involved that the RCS conclusions are reasonable.

• C. Compliance with USPAP. The substantive reviewer should not focus on compliance with USPAP unless the substantive reviewer identifies significant problems in the research, facts, reasoning, or conclusions noted in the RCS report. Substantive reviewers are not required to check for compliance with USPAP when performing a substantive review.

• D. Scope of a Substantive Review. The key focus for a substantive reviewer is to ensure that the Owner’s RCS is reasonable, consistent with facts and standard appraisal practice, and complies with the guidance provided in Sections 9-9 through 9-13. The tools and checklists provided under Appendix 9-5-2 through 9-5-6, and discussed in detail below, will facilitate the substantive review process.

  1. Detailed Screening Checklist. Appendix 9-5-2 provides a “Detailed Screening” checklist that incorporates key questions that a substantive reviewer must assess and evaluate when reviewing an RCS. These key questions incorporate requirements under Sections 9-9 through 9-11, with respect to analyzing the subject project, comparables selection and data collection. Substantive reviewers must document any concerns or conclusions in the checklist when reviewing the RCS.

  2. Rent Grid Analysis Checklist. The substantive reviewer must complete the Rent Grid Analysis Checklist (Appendix 9-5-3) using guidance provided under “Notes for Rent Grid Analysis and Triggers for Second Review” (Appendix 9-5-4). The purpose of these checklists is to ensure that the concluded market rent is appropriate and reasonable. Substantive reviewers are not expected to challenge minor differences in RCS adjustments, particularly if correcting those perceived flaws would not affect the rent an Owner will receive or the estimated market rent shown on the Rent Comparability Grid (Form HUD-92273-S8). For example, if the Owner is seeking a $20 rent increase, and the market rent increase will exceed $20 even if adjustments are revised, then it would not be cost effective to spend extensive time analyzing adjustments that are reasonably close.

  3. Triggers for Second Review for Non-Appraiser Reviewers. In cases where an RCS includes line-item adjustments that are identified as triggers under Appendix 9-5-4, and if the substantive reviewer is a non-appraiser HUD employee, HUD requires that a second reviewer also review and sign-off on the specific trigger items. The second reviewer must meet the minimum qualification requirements (as described under Section 9-15.A.) and is required to provide input on the appropriateness and

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reasonableness of only the specific line item that triggered a second review, as opposed to the entire RCS. If the first and second reviewers do not reach consensus, then the trigger item will be reviewed by an RCS review appraiser, whose opinion will prevail as to what revisions, if applicable, need to be made to the RCS. Please note that seeking a second reviewer’s input is not a requirement if the first or second substantive reviewer is an RCS review appraiser (statecertified).

4. Issues/Certification Memo. Once the substantive reviewer has completed the detailed screening and Rent Comparability Grid, the substantive reviewer must also complete a certification (Appendix 9-5-5). If the substantive reviewer has questions or needs additional clarification, they can use the sample provided in Appendix 9-5-6 for preparing an issues memo for the Owner and/or RCS appraiser.

• E. Field Visits. While most RCS reviews usually require a desk review only, substantive reviewers may recommend a field review if they believe a site visit is needed to assess the RCS. If required, all field reviews must be conducted by an RCS review appraiser. A substantive reviewer must consider recommending a field visit when:

  1. The desk review raises major questions;

  2. The substantive reviewer is largely unfamiliar with the market area, the subject project or the comparables; or

3. The substantive reviewer is considering challenging adjustments for condition, appeal, neighborhood, or other factors that can change quickly.

Note: If not acting as the review appraiser, HUD staff may review the RCS and communicate concerns to the review appraiser. However, the review appraiser makes the final determination of market rents.