US Agencies (FDIC, FED, and OCC) issued a final rule that increases the threshold for commercial real estate (CRE) transactions requiring an appraisal from USD 250,000 to USD 500,000. The final rule allows a financial institution to use an evaluation rather than an appraisal for CRE transactions exempted by the USD 500,000 threshold. The final rule becomes effective on the date of its publication in the Federal Register.
The final rule defines CRE transaction as a real estate-related financial transaction that is not secured by a single 1-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 1-to-4 family residential property are excluded. The transactions that are exempt from the appraisal requirements must undergo an evaluation. Evaluations provide a market value estimate of the real estate pledged as collateral, but do not have to comply with the Uniform Standards of Professional Appraiser Practices and do not require completion by a state licensed or certified appraiser.
The agencies had originally proposed to raise the threshold, which has been in place since 1994, to USD 400,000, but determined that a USD 500,000 threshold will materially reduce regulatory burden and the number of transactions that require an appraisal. The agencies also determined that the increased threshold will not pose a threat to the safety and soundness of financial institutions. The final rule responds, in part, to the concerns of the financial industry representatives that the current threshold level had not kept pace with price appreciation in the CRE market in the 24 years since the threshold was established and about regulatory burden during the Economic Growth and Regulatory Paperwork Reduction Act review process completed in March 2017.
Effective Date: Publication Date in Federal Register
Keywords: Americas, US, Banking, CRE, Appraisal Requirements, Exemption Threshold, US Agencies