Commercial Appraisal De Minimis Proposal
Proposal To Increase The Appraisal Threshold On Commercial Real Estate Loans
The Federal Financial Institutions Examination Council’s Joint Report to Congress said the federal banking agencies are developing a proposal to increase the threshold for requiring an appraisal on commercial real estate loans from $250,000 to $400,000.
The report did not propose changes to the current residential real estate threshold of $250,000.
In addition, the agencies recognize that appraisals can provide protection to consumers by helping to assure the residential purchaser that the value of the property supports the mortgage amount assumed. Overall, the agencies believe that the interests of consumers are better served when appraisal regulations are coordinated among government agencies.
ICAP believes that increasing the appraisal threshold levels could have a negative impact on safe and sound real estate lending practices and opposes a threshold increase.
Read ICAP’s comment letter on the appraisal threshold Issue below:
Dear Sir or Madam:
The Illinois Coalition of Appraisal Professionals (ICAP) was established in 1994 to be a unified voice for real estate appraisers in the state of Illinois. On behalf of our 1,500 members, we appreciate this opportunity to comment on the review of existing regulations regarding “Appraisals: Standards for Federally-Related Transactions” under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) (Docket ID: FFIEC-2014-001).
As you know, real estate appraisals are not currently required for federally regulated real estate transactions below a transaction value of $250,000 for residential mortgage loans and business loans less than $1 million in transaction value that are not dependent on income from the rental/lease of the property for repayment of the loan. ICAP encourages you not to adopt any action that would increase the current appraisal thresholds levels.
No evidence exist that raising the appraisal thresholds would increase the safety and soundness of real estate lending practices; in fact, ICAP believes that raising the appraisal thresholds would have a negative impact on the safety and soundness of real estate lending practices.
According to the Illinois Association of Realtors 2015 Annual Report on the Illinois Housing Market, there were 155,676 sales of residential properties in Illinois in 2015, with a median sale price of $173,000 (31% below the current $250,000 appraisal threshold for residential mortgage loans).
In addition, of the 10 Illinois metropolitan statistical areas (MSA) studied, not one exhibited a median sale price that met or exceeded the current $250,000 appraisal threshold (median prices ranged from $87,700 in the Decatur MSA to $210,000 in the Chicago MSA). This data parallels the Government Accountability Office’s (GAO) testimony in 2012; which reported that between 2006 and 2009; more than 70% of all mortgage transactions fell below the current $250,000 threshold. As the significant majority of mortgage transactions in Illinois do not currently meet the existing appraisal threshold; ICAP sees no reason to have the thresholds increased.
Increasing the appraisal threshold levels would negatively affect safety and soundness of real estate lending practices, and likely prompt many financial institutions to significantly reduce attention to collateral risk management. Such inattention to collateral risk contributed to the recent catastrophic economic decline; an event the Agencies are charged to ensure will not be repeated.
The appraisal threshold has been increased twice since its inception; however, at this point in time there is absolutely no justification to raise the thresholds from their current levels. In order to maintain and promote prudent risk management as well as safety and soundness policies, ICAP recommends that the Agencies continue to operate with consumer protection as its prime directive and urge the agencies to resist any calls to increase the appraisal thresholds in order to safeguard the integrity, safety and soundness of the U.S. banking system.
Thank you again for this opportunity to comment.
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- Bringing Evaluations Under USPAP’s Umbrella - September 6, 2019
Looks like the plethora of international investors swiping US properties out from under the feet of citizens both now and in the future, have requested higher lending limits with fewer controls in place. Go figure.
One has to HOWL WITH LAUGHTER at the latest John Brenan article on AppraisalBuzz regarding precisely why appraisers won’t train trainees. It appears that the Appraisal Foundation found it necessary to travel the planet in search of precisely why appraisers refuse to train others. In the end they appear to have settled on the fact that their new education requirement did the damage (which it did in large part). What they can’t seem to come to terms with is the answer that appraisers have been screaming in their ear since 2009. Just for the fun of it folks, let’s scream the answer into John Brenan’s ear one more time. “IT’S THE FEES STUPID”. Fees were cut by half in 2009 while work load was doubled. This appears to be breaking news to the Appraisal Foundation and the Appraisal Institute however.
There are agendas within agendas at all levels of national appraiser leadership non profit organizations, trade groups; lending institutions, appraiser guilds and coalitions.
I read a few days ago that we are now down to around 73,000 appraisers nationally. Appraisers keep leaving but I fail to see corresponding widespread increases in fees yet. Maybe we need to cull ourselves down to 50,000?
As for any impending ‘shortage’, I’m supposed to care all of a sudden? All any shortage will do as far as I’m concerned is to undo some of the mess regulators have themselves caused and then refused to clean up.
Personally I WANT a shortage. The bigger, the better. I remember 1986 when we routinely advised lender clients it would be three weeks before we could even schedule appointments; and another one to three weeks after that before they could expect their reports. Prevailing rates back then were $250 to $275 but many agents and lenders would offer inducements of up to double that for getting theirs done on week end “days off”. I was too naïve to capitalize on the offers back then. Thought it was immoral. Now? Working for less than $500 a day (x 2 to 4 days a week) is immoral.
The powers that be have decided that four year degreed individuals will make the best new crop of appraisers. OK. So be it. Of course those same powers fail to recognize that these uber intelligent are also smart enough to study the history of appraisal fees and business killing micro management which will continue to discourage many from entering the profession.
Mr. Brennan and Mr. Harding both did well for us when they held leadership positions in our (CA) OREA and I think their hearts are in the right place while respectfully disagreeing with their specific current shortage solutions. Maybe if they focused a bit more on how many states are driving appraisers out of the business by creatively reinterpreting USPAP (Oregon, California and how many others?) and then coercing settlement stipulations from those that cannot afford $20,000 to $30,000 to defend themselves?
i remember those days mike. probable less that 40,000 appraisers at that time before certification.
i will be more than happy to bring out the ax to continue culling this appraiser herd. in those golden days you had to wait for an appraiser to die to get that opportunity.