By Andrew A. Turner, J.D.
The Office of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation have increased the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000. The amendments will take effect immediately upon publication in the Federal Register.
After considering more than 200 comments from appraisers, appraiser trade organizations, financial institutions, financial institutions trade organizations, and individuals, the agencies decided to increase the commercial real estate appraisal threshold to $500,000, rather than $400,000 as proposed. The rulemaking initiative responded to financial industry concerns that the current threshold level had not kept pace with price appreciation in the commercial real estate market in the 24 years since the threshold was established. The agencies’ action is intended to reduce the regulatory burden for real estate-related financial transactions.
The change allows a financial institution to use an evaluation rather than an appraisal for commercial real estate transactions exempted by the $500,000 threshold. 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.
Definition of commercial real estate transaction. The final rule defines commercial real estate 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, and remain subject to the $250,000 threshold.
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