PROPOSED INCREASE OF APPRAISAL THRESHOLD FOR COMMERCIAL REAL ESTATE

On July 19, 2017, the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a notice of proposed rulemaking to raise the threshold for commercial real estate transactions requiring an appraisal to $400,000. This proposed rule is an effort by the agencies to address concerns about time and cost burdens related to real estate transactions without compromising the safety and soundness of financial institutions.

Under the current thresholds established in 1994, real estate-related financial transactions with a transaction value of $250,000 or less, as well as certain qualifying business loans with a transaction value of $1 million or less, do not require appraisals. This proposal, if finalized, would establish a separate threshold of $400,000 for commercial real estate transactions. The agencies determined that it would not be appropriate to increase the threshold for transactions secured by residential real estate at this time.

The proposed rule states that, “[f]or commercial real estate transactions with a value at or below the proposed threshold, the amended rule would require institutions to obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices if the institution does not obtain an appraisal by a state certified or licensed appraiser.”

The National Credit Union Association is considering a separate proposal to provide comparable relief for federally insured credit unions.

The Notice of Proposed Rulemaking is available here.

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