Changes to Appraisal Threshold
A new rule issued by the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation increased the loan amount threshold that triggers the requirement for a financial institution to obtain a property appraisal. For many years, a full appraisal was not required for all real estate-secured transactions of $250,000 or less, and certain real estate-secured qualifying business loans of $1 million or less. The new rule increases the threshold level at or below which appraisals are not required for “commercial real estate transactions” from the current $250,000 level to $500,000. Under the new rule, a “commercial real estate transaction” is a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property. For commercial real estate transactions under the applicable thresholds, regulated financial institutions will not be required to obtain a full appraisal but will still be required to obtain an “evaluation” of the real property (an evaluation must contain sufficient information and analysis, consistent with safe and sound banking practices, to support the financial institution’s decision to make the related loan). The new rule became effective on April 9, 2018. Note that the $250,000 appraisal threshold continues to apply for loans secured by a single 1-to-4 family residential property (including construction loans). For questions concerning this topic, please contact Christopher Rahl.