Appraisals NOT Required

When an Appraisal is Not Required - Appraisals & Evaluations Regs

…is not required to obtain an appraisal under other law…

The Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter to US banks on 10/16/18, which incorporates Appraisal and Evaluation regulations and guidelines. This consolidates previously issued regs and guidelines into one document:

2000 – Rules and Regulations


§ 323.3 Appraisals required; transactions requiring a state certified or licensed appraiser.

(a) Appraisals required. An appraisal performed by a state certified or licensed appraiser is required for all real estate-related financial transactions except those in which:

(1) The transaction value is $250,000 or less;

(2) A lien on real estate has been taken as collateral in an abundance of caution;

(3) The transaction is not secured by real estate;

(4) A lien on real estate has been taken for purposes other than the real estate’s value;

(5) The transaction is a business loan that:

(i) Has a transaction value of $1 million or less; and

(ii) Is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment;

(6) A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate;

(7) The transaction involves an existing extension of credit at the lending institution, provided that:

(i) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or

(ii) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs;

(8) The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgaged-backed securities, and each loan or interest in a loan, pooled loan, or real property interest met FDIC regulatory requirements for appraisals at the time of origination;

(9) The transaction is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency;

(10) The transaction either:

(i) Qualifies for sale to a United States government agency or United States government sponsored agency; or

(ii) Involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate;

(11) The regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; or

(12) The FDIC determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution; or

(13) The transaction is a commercial real estate transaction that has a transaction value of $500,000 or less.

(b) Evaluations required. For a transaction that does not require the services of a State certified or licensed appraiser under paragraph (a)(1), (a)(5), (a)(7), or (a)(13) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices.

(c) Appraisals to address safety and soundness concerns. The FDIC reserves the right to require an appraisal under this subpart whenever the agency believes it is necessary to address safety and soundness concerns.

(d) Transactions requiring a state certified appraiser–(1) All transactions of $1,000,000 or more. All federally related transactions having a transaction value of $1,000,000 or more shall require an appraisal prepared by a state certified appraiser.

(2) Commercial real estate transactions of more than $500,000. All federally related transactions that are commercial real estate transactions having a transaction value of more than $500,000 shall require an appraisal prepared by a State certified appraiser.

(3) Complex residential transactions of $250,000 or more. All complex 1–to–4 family residential property appraisals rendered in connection with federally related transactions shall require a state certified appraiser if the transaction value is $250,000 or more. A regulated institution may presume that appraisals of 1-to-4 family residential properties are not complex, unless the institution has readily available information that a given appraisal will be complex. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either:

(i) The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and co-sign the appraisal; or

(ii) The institution may engage a certified appraiser to complete the appraisal.

(e) Transactions requiring either a state certified or licensed appraiser. All appraisals for federally related transactions not requiring the services of a state certified appraiser shall be prepared by either a state certified appraiser or a state licensed appraiser.

(f) Effective date. Regulated institutions are required to use state certified or licensed appraisers as set forth in this section no later than December 31, 1992, unless otherwise required by law.

[Codified to 12 C.F.R. § 323.3]

[Source:  Section 323.3 amended at 57 Fed. Reg. 9050, March 16, 1992; 59 Fed. Reg. 29501, June 7, 1994; 80 Fed. Reg. 32684, June 9, 2015, effective August 10, 2015; 83 Fed. Reg. 15036, April 9, 2018]

Dave Towne
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Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on

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8 Responses

  1. Avatar marion says:

    See the Theft of Appraisers’ Data Thread.

    Sign up,

    The intended use of this appraisal report is for the lender/client to evaluate the property that is the subject of this appraisal for a mortgage finance transaction.”

    Yup, the intended use was not to fill databases to be used in competition with appraisers.

    Sign up!

  2. Avatar Beth says:

    I do not see a definition of Evaluations in this release from the FDIC.

    • A critical oversight I think. Under FIRREA ‘evaluations’ may NOT be called appraisals. My suspicion is some more linguistic gymnastics are on the horizon…either by the feds or TAF. Users and investors want the word “appraisal” in the valuation document.

      • Baggins Baggins says:

        I scoured the fnma ucdp pages and likewise could not find specific reference to hybrids.

        Great article Mr Towne, and don’t you know it, these essential topics were not covered in regular appraisal training or testing classes.

        Next up, essential breakdown of firrea?

  3. Avatar Victoria Addington says:

    Thanks for helping me learn about real estate appraisals. I had no idea that it is a federal law requirement that commercial real estate agreements with a value of $500,000 and more shall get an appraisal. Since my sister and her business partners are planning to purchase a commercial property, this is something I have to inform her. With that, they must find a certified appraiser here in Indianapolis.

  4. Avatar Marcia Andrews says:

    One property has 2 Trusts…2 death dates…but no changes on property within the 15 month difference in death dates. Is an appraisal required for the earlier death date?

    • “It depends.” The first trust needs an FMV appraisal. Whether one is also needed for the second trust depends on how the trust was set up and what kind of trust it was.

      Don’t offer clients tax advice. That is their accountant’s job. IRS allows alternate date election on Form 706 (estate tax returns) which means the date of value can be up to 6 months after the date of death. That brings you to within 9 months of the second date of death. That may or may not be, or become relevant.

      It is possible that there was no change in value between the two dates, but you cant assume that; nor condition an appraisal on it. If you are in an area with little activity, and 9 month+ old sales are the ‘best around…or 12-15 month sales are legitimately best available it’s possible both values would depend on the same comparables…but any values have to be separately developed.

      There is some older information at under estate and gift taxes that may help. Also, you may be dealing with generation-skipping or other trusts, etc that have special handling. You REALLY need to leave this to the tax advisor. No two taxpayers’ circumstances are the same and IRS looks at each case separately and independently of any other cases you may be ware of. Good luck!


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Appraisals NOT Required

by Dave Towne time to read: 3 min