Page 1 - Real Estate Appraisals

Monday, December 10, 2018

Below are a few updates on various federal regulatory issues. Bankers need to be
involved with many of these so please scan these updates to spot where you should
submit comment letters or take other steps within your bank.

Real Estate Appraisals. Three federal bank regulators, FDIC, OCC, Fed, proposed
November 20 to raise the threshold for residential real estate transactions that require
an appraisal from $250,000 to $400,000 in order to ease regulatory burdens and keep
pace with home prices. See the proposal. FDIC and OCC said increasing the threshold
by $150,000 would make appraisal requirements less burdensome without threatening
the safety and soundness of financial institutions.

If adopted, the proposal would require lenders involved in residential real estate sales
under $400,000 to obtain an evaluation “consistent with safe and sound banking
practices” instead of an appraisal. Evaluations, which are less costly than appraisals,
have been mandatory for real estate sales exempted from the appraisal requirement
since the 1990s. “Evaluations provide an estimate of the market value of real estate but
could be less burdensome than appraisals because the FDIC’s appraisal regulations do
not require evaluations to be prepared by state licensed or certified appraisers,” FDIC
said. The proposal would also incorporate the rural residential appraisal exemption
outlined in the regulatory relief bill President Trump signed in May. This exempts rural
area real estate loans <$400,000 when loans meet specific criteria. After the proposal is
officially published in the Federal Register, the public will have until February 1, 2019, to
comment on the changes.

In April, the three federal banking regulators raised the appraisal threshold for
commercial real estate sales from $250,000 to $500,000.

There appears to be a limited number of qualified appraisers willing to accept
assignments in many markets – even when the bank is willing to pay a premium for the
assignment. This shortage negatively impacts borrowers as it extends turnaround times,
extends rate locks and delays closings.

We believe that there are multiple issues affecting appraisal availability. CBA just
completed a white paper in cooperation with the Northern Colorado Association of Real
Estate Appraisers. It profiles many relevant appraisal issues and provides information
developed by bankers and appraisers.

CBA also favors easing qualification criteria for real property appraisers, as adopted by
the Appraisal Qualification Board in May 2018. Changes include removal of the required
bachelor’s degree for Licensed Residential appraisers, and decreasing timeframes for
experience and education hour requirements.