Client Alert: Federal Banking Agencies Issue New FAQs on Appraisal Regulations

Banking & Financial Institutions Client Alerts Commercial Real Estate

On October 16, 2018, the federal banking agencies issued new frequently asked questions (FAQs) regarding the agencies’ real estate appraisal regulations and guidance. This is the agencies’ first update to the FAQs on this topic since the previous FAQs were issued in 2005. The 2018 FAQs replace the 2005 FAQs in their entirety.

Also of note, effective April 9, 2018, the agencies increased the appraisal threshold for commercial real estate transactions from $250,000 to $500,000. The FDIC’s Financial Institution Letter announcing the amendment to the agencies’ appraisal regulations can be found here. In addition, the agencies issued an Interagency Advisory on the Availability of Appraisers on May 31, 2017 to inform financial institutions of two options to address shortages of licensed appraisers in their markets: (1) temporary practice permits and (2) temporary waivers. The North Carolina Appraisal Board’s temporary practice permit application can be accessed here. Temporary practice permits may be particularly useful for banks located in rural areas or close to the state line.

The 2018 FAQs should be reviewed in conjunction with the agencies’ appraisal regulations, real estate lending standards, the December 2010 Interagency Appraisal and Evaluation Guidelines, the March 2016 Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions, and other regulations and advisories related to appraisals and evaluations.

What’s Changed?

  • The 2018 FAQs incorporate some of the 2005 FAQs (see questions 14–23). In some cases, the 2005 FAQs have been edited for clarity and consistency with current rules. Many of the questions in the 2005 FAQs have been removed because they are directly addressed in the Valuation Guidelines.
  • New guidance and specific examples of the appropriate use of appraisal exemptions (see questions 7–10) including more detailed guidance and specific examples on the need to obtain a new appraisal or evaluation for existing loan renewals (see question 8).
  • Enhanced guidance on the use of tax assessment valuations as a component of an evaluation (see question 12).
  • Guidance on the acceptance of appraisals ordered by intermediate/warehouse lenders, borrowers and loan brokers (see questions 13, 16 and 19).
  • Clarification that appraisers are required to disclose any services regarding a given property, including previous appraisals, performed within the previous three years (see question 17).
  • Updates to the acceptance of transferred appraisals (see questions 20–23).

If you have questions about the 2018 FAQs or your institution’s appraisal and evaluation program in general, please do not hesitate to contact us.