Today, the Fed, FDIC, and OCC jointly issued a final rule to exempt commercial real estate transactions of $500,000 or less from appraisal requirements. (1) Please see a summary below:
The threshold for requiring an appraisal (as opposed to an evaluation) for a Commercial Real Estate Transaction has increased from $250,000 to $500,000. “CRE Transactions” are defined as a real estate-related transaction not secured by a 1-4 family residential property.
This definition excludes construction loans secured by a 1-4 family property, and therefore the threshold remains unchanged at $250 million for these transactions, as well as for 1-4 family residential mortgages. However, the guidance does state that construction loans secured by a single 1-4 family property will still be considered as CRE for CRE concentration calculations.
For Qualifying Business Loans (QBLs), the threshold for appraisals is unchanged at $1,000,000. QBLs are defined as loans which are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.
In summary, there are now three thresholds for transactions requiring an appraisal (versus an evaluation):
- $250,000 for all transactions, except:
- $500,000 for CRE transactions as defined above;
- $1,000,000 for Qualifying Business Loans.
Essentially, this highlights the importance of ensuring that evaluations comply with regulatory requirements. (2)
Citations:
(1) https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180402a.htm
(2) https://www.occ.treas.gov/news-issuances/bulletins/2016/bulletin-2016-8a.pdf *Please note that this document still references the old dollar thresholds for requiring appraisals vs. evaluations
