By Cody Roberts, CRCM
On April 9, 2018, the OCC, Board of Governors of the Federal Reserve System (Board), and FDIC adopted a final rule to amend these agencies’ regulations requiring appraisals of real estate for certain transactions. This final rule was effective on April 9, 2018. The affected regulations are: 12 CFR 34, Subpart C; 12 CFR 225, Subpart G; and 12 CFR 323 (Subpart A).
While there were relatively few sections amended, institutions can expect to do substantially fewer appraisals for commercial loans. This is because the final rule increases the appraisal threshold for commercial real estate transactions from $250,000 to $500,000.
In addition, the final rule defines a commercial real estate transaction as a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property. This new definition of commercial real estate eliminates the distinction between construction loans secured by a single 1-to-4 family residential property that finance only the construction phase and those that provide financing for both the construction and permanent phases. Both of these types of loans will remain subject to the $250,000 threshold.
Commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold require an evaluation of the real property collateral that is consistent with safe and sound banking practices.
This amendment does not change appraisal requirements for consumer residential real estate transactions.
The Federal Register notice (PDF format – 18 pages) can be found here.
Please feel free to contact us at American Banks Systems if you have any questions on this matter.