Information to Review
As a practical matter, Lending and Compliance-related policies with respect to appraisals and
evaluations should be updated as applicable to
reflect the rule and its threshold. It is important to note the new threshold only encom-passes “CRE” transactions, so the carve-out
needs to be reflected appropriately in policies,
procedures, forms, etc. The final rule defines
commercial real estate transaction as “a real
estate-related financial transaction that is not
secured by a single 1-to- 4 family residential
property. It excludes all transactions secured
by a single 1-to- 4 family residential property,
and thus construction loans secured by a single
1-to- 4 family residential property are excluded.”
Policy should include conformance to the
“independence” provisions as outlined in the
Interagency Appraisal and Evaluation Guide-
lines. With the possibility of having more
evaluations performed, including internally by
bank staff, a compliance check should also be
performed to ensure there is adequate inde-
pendence between the internal evaluators and
loan production staff, including those voting
on the transaction. (There is a caveat for small
institutions where true independence cannot be
achieved due to staffing constraints.)
Another practical matter would be reviewing
the procedures that dictate processing any type
of valuation (appraisal or evaluation). Will you
need to update your procedures to reflect the
CRE transaction carve out? Will you need to
define what “CRE” transactions or properties
denote, to match the definition as published in
the Federal Register? Since all appraisals and
evaluations need to be reviewed prior to loan
approval, that area should also be reassessed
for potential updates to wording, processes,
etc. Since some internal reviewers also perform
other bank functions, more particularly so in
community banks, the room for potential er-
rors by bank staff could increase if the institu-
tion expands its usage of internal evaluations.
It is important to note that deficiencies found
during the review must be corrected before the
loan moves to final approval. The FDIC Risk
Management Manual of Examination states,
“Deficient [appraisal/evaluation] reports should
be returned to [appraisers and persons performing evaluations] for correction. Unreliable
appraisals or evaluations should be replaced
prior to the final credit decision”(www.fdic.
pdf ) Note it reads prior to the credit decision—
not prior to loan closing or funding. Also,
worth mentioning is that reviewers, unless an
appropriately qualified state licensed or certified
appraiser in accordance with Standard 3 of the
Uniform Standards of Professional Appraisal
Practice (USPAP), should not make changes to
an appraisal’s estimate of value.
Evaluation Program Elements
Now that your institution could be seeing more
evaluations rather than appraisals, it would be
prudent to review various elements of the valuation program to ensure compliance remains a
top priority. As a reminder, especially for production and valuation staff, evaluation content
should, at a minimum, contain:
■ ■ ■ Identification of the property.
■ ■ ■ Provide a description of the property and its
current and projected use.
■ ■ ■ Provide an estimate of the property’s market
value in its actual physical condition, use
and zoning designation as of the effective
date of the evaluation (that is, the date that
the analysis was completed), with any limiting conditions.
■ ■ ■ Describe the method(s) the institution used
to confirm the property’s actual physical
condition and the extent to which an inspection was performed.
■ ■ ■ Describe the analysis that was performed
and the supporting information that was
used in valuing the property.
■ ■ ■ Describe the supplemental information that
was considered when using an analytical
method or technological tool.
■ ■ ■ Indicate all source(s) of information used in
the analysis, as applicable, to value the property, including:
• External data sources (such as market
sales databases and public tax and land
• Property-specific data (such as previous
sales data for the subject property, tax
assessment data, and comparable sales
• Evidence of a property inspection;
• Photos of the property;
• Description of the neighborhood; or
• Local market conditions.
■ ■ ■ Include information on the preparer when
an evaluation is performed by a person,
such as the name and contact informa-
tion, and signature (electronic or other
Appraisal Exemption Threshold
Update—Appraisal or Evaluation?
THROUGH THE Economic Growth & Recovery Paperwork Reduction Act (EGRPRA), the Agencies jointly announced on April 2, 2018, that they would increase the appraisal exemption threshold from $250,000 to $500,000, but only on Commercial Real Estate
(CRE) transactions. The final rule became effective immediately upon
publication in the Federal Register, which occurred on April 9, 2018 (www.
appraisals). It is estimated this could exempt an additional 15. 7 percent of
transactions from the appraisal requirements.