Regulators Amend Appraisal Requirements for Commercial Real Estate Transactions

On April 2nd the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (the “Agencies”) amended the appraisal threshold for commercial real estate transactions. 

This amendment addresses the comments received during the Economic Growth and Regulatory Paperwork Reduction Act review process from the original proposal in July 2017. 

The following points were taken from the summary of the proposed changes:

  • The amendments create a new definition for commercial real estate transactions and raises the threshold for requiring an appraisal from $250,000 to $500,000.
  • Under current thresholds, all real estate-related financial transactions with a value of $250,000 or less, as well as qualifying business loans secured by real estate that are $1 million or less, do not require appraisals. Qualifying business loans are business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.
  • The Agencies’ appraisal regulations identify categories of real estate-related financial transactions that do not require appraisals. In particular, Title XI authorizes the Agencies to establish a threshold level below which an appraisal is not required.
  • For real estate-related financial transactions at or below the applicable thresholds, the inter-agency appraisal regulations require financial institutions to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices. The evaluation does not need to be performed by a licensed or certified appraiser or meet the other Title XI appraisal standards.

Click here to access the entire Financial Institution Letter.