Federal Agencies Increase Threshold for Appraisals for Commercial Real Estate Transactions
In April 2018, The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a final rule that increased the threshold for commercial real estate (CRE) transactions requiring an appraisal from $250,000 to $500,000. The higher threshold reflects increases in CRE transaction values since the adoption of the existing threshold in 1994 and increases in the general indices of inflation. The CRE threshold also reflects the valuation cycles in the CRE market since 1994 and the agencies’ analysis of data losses relating to commercial real estate transactions.
The final rule requires evaluations for transactions at or below the $500,000 threshold for CRE transactions, although financial institutions may use appraisals for these exempt transactions in appropriate circumstances, such as for higher-risk transactions. Evaluations provide a market value estimate of the real estate pledged as collateral, but an evaluation does not have to comply with the Uniform Standards of Professional Appraiser Practices and does not require completion by a state licensed or certified appraiser. The final rule defines a commercial real estate transaction to mean “a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.” The second conforming change requires use of a state-certified appraiser for CRE transactions of more than $500,000. These requirements for evaluations and for use of state-certified appraisers are in the current appraisal rules; the conforming changes update the transaction levels for these requirements from $250,000 to $500,000.
The link to the final rule is here. Advanced Business Solutions, LLC is here to assist you in reviewing your current appraisal policies and practices.