The federal banking regulatory agencies issued an advisory to clarify expectations for the use of property evaluations by banking institutions.
The advisory describes the agencies’ existing supervisory expectations for the use of an evaluation instead of an appraisal to estimate a property’s market value for certain real estate-related financial transactions. Unlike an appraisal, an evaluation does not have to be developed by a state-licensed or state-certified appraiser.
The advisory also addresses the use of alternative valuation approaches, methods, and other information that financial institutions may use to develop an evaluation in areas with few, if any, recent comparable property sales in reasonable proximity to the subject property.
Regardless of the approach or method used to estimate the market value of real property, an evaluation report should contain sufficient information and analysis to support the value conclusion and the institution’s decision to engage in the transaction.
Other regulations may require obtaining an appraisal for certain transactions with transaction values under the threshold. For example, an appraisal may be required under Regulation Z for any transaction that is considered a higher-priced mortgage loan under that regulation due to its interest rate. This information is reviewed under our course entitled Truth in Lending Act Certain Home Mortgage Transactions.
In addition, we are preparing to release a new course entitled Appraisal Laws and Guidance which will be available by Summer 2016.
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