The OCC, Federal Reserve Board, and FDIC (collectively, the agencies) have adopted a final rule to amend the agencies' regulations requiring appraisals of real estate for certain transactions. The final rule increases the threshold level at or below which appraisals are not required for commercial real estate transactions from $250,000 to $500,000. 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. For commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices.
Per the Economic Growth and Regulatory Paperwork Reduction Act the Federal bank regulatory agencies have been reviewing whether to raise the appraisal threshold levles, which currently stand at $250,000 for real estate loans and $1 million for business or owner occupied loans. Testimony on September 28th by Federal Reserve Chair Janet Yellin to the House Financial Services Committee signaled the agencies' intentions to propose a reduction in appraisal requirements, perhaps before the end of 2016. This would reduce fundamental risk management requirements at a time when the housing market has only recently recovered from the largest real estate related financial crisis in several decades, and in the face of alarm bells transmitted by the regulators about the commercial real estate market.