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Evaluations- A Hot Topic in the Appraisal Industry

Evaluation reports are a product that we have chosen to offer. The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have increased the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000.

This change could have an impact on the safety and soundness of financial institutions. It allows lenders to use evaluations in lieu of appraisals. An evaluation is defined in the Interagency Appraisal and Evaluation Guidelines as “a valuation permitted by the Agencies’ appraisal regulations for transactions that qualify for the appraisal threshold exemption, business loan exemption, or subsequent transaction exemption.”

  • Is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment, or

  • Involves an existing extension of credit at the lending institution, provided that:

  • There has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or

  • There is no advancement of new monies other than funds necessary to cover reasonable closing costs.

Evaluations provide market value estimates without being Uniform Standards of Professional Appraiser Practices (USPAP) compliant. The product does not need to be completed by licensed or certified appraisers. However, there is a requirement that the preparer be appropriately qualified and sufficiently independent from the transaction.

Personally, I am concerned that evaluations are being completed by unqualified professionals. This process needs to be completed by qualified professionals as we have all seen what happens when valuations are incorrect. At Harris Property Advisors, our Evaluation Reports are above the minimum requirements. All reports are completed by licensed appraisers. We offer competitive rates with appropriate turnaround times to meet our client’s needs.

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