Agencies Change Appraisal Threshold Requirement

Industry Updates  ยป  Agencies Change Appraisal Threshold Requirement

The agencies have jointly issued an amended rule that increases the current appraisal threshold for commercial real estate (CRE) transactions from $250,000 to $500,000.

The Appraisal Rule addresses comments received during the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review process, which requires that, not less than once every ten years, the Agencies, along with the Federal Financial Institutions Examination Council, conduct a review of the Agencies’ regulations to identify outdated or otherwise unnecessary or burdensome regulatory requirements. 

The Agencies’ appraisal regulations were last amended in 1994. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 authorizes the Agencies to establish a threshold level below which an appraisal is not required.

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.

For real estate-related financial transactions at or below the applicable thresholds, the interagency appraisal regulations require financial institutions to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices, but does not need to be performed by a licensed or certified appraiser or meet the other Title XI appraisal standards.

The Appraisal Rule creates a new definition of, and separate category for, commercial real estate transactions and raises the threshold for requiring an appraisal from $250,000 to $500,000 for those transactions, which will exempt an additional 15.7 percent of transactions from the appraisal requirements.

There are some specifics regarding the type of properties and transactions the new rule covers.  The final rule defines commercial real estate transaction as a real estate-related financial transaction that is not secured by a single l-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 l-to-4 family residential property are excluded.

For commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices.


How to cite this blog post (APA Style): 
Premier Insights. (2018, April 5). Agencies Change Appraisal Threshold Requirement [Blog post]. Retrieved from https://www.premierinsights.com/agencies-change-appraisal-threshold-requirement.


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