Appraisal Threshold Comments Reveal Divide
The comment period on the proposed rule to increase the commercial real estate appraisal threshold level closed Sept. 28, and the federal bank regulatory agencies received 70 comments. The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers jointly submitted their opposition to the proposed increase.
Most of the comments were submitted by practicing real estate appraisers who oppose the increase and expressed concern about increased risk to the CRE market. They also challenged the use of existing appraisal threshold levels as the basis for inflationary increases and opposed the inclusion of construction loans for multifamily properties with four or fewer units.
However, state banking organizations and the organizations representing financial institutions expressed support for the increased CRE appraisal threshold level. Most also either expressed support for or called for further study of an increase to the appraisal threshold level for residential and business loans. AI and ASFMRA strongly oppose such an increase.
Notable comments from national industry organizations:
The National Association of Realtors agreed with the agencies, stating that an increase to the CRE appraisal threshold is “appropriate at this time.” NAR said an increase to $400,000 represented an appropriate assessment of inflation since the threshold was last raised, noting that “the value of commercial transactions has increased such that the number of commercial properties that this increase will affect does not undermine the safety and soundness of the commercial real estate market.”
NAR did not support an increase in the residential appraisal threshold at this time.
The National Association of Home Builders supported a CRE threshold increase as part of the “efforts to identify areas where regulatory burden can be reduced without negatively impacting safety and soundness.” NAHB wrote that the increase would especially benefit construction loans made to small builders who are “more disproportionally impacted by added financing costs.” Additionally, NAHB encouraged the agencies to continue reviewing a possible increase to the residential appraisal threshold “to see if more flexibility could be provided to lenders with sound underwriting criteria and processes in place.”
The American Bankers Association supported the CRE increase, writing “it will provide immediate relief to the challenges faced by banks as they traverse the current shortage of appraisers and lengthening of turnaround times in the industry. This solution would also address increased costs associated with small-dollar transactions for small business owners.” Additionally, ABA said it believes the increase is “consistent with safe and sound banking practices” since an evaluation of real property will still be required. Regarding the residential threshold, ABA “encourages the agencies to engage in much deeper consideration of increasing the threshold.” The organization stated, “accurate valuation tools are readily available and currently utilized by regulated banks. Our members currently perform valuations for residential portfolio transactions, home equity loans and routine asset quality reviews. These valuations adhere with the interagency guidelines and are assessed by the prudential regulators during safety and soundness examinations.”
All comments submitted to the federal bank regulatory agencies about the proposed appraisal threshold increase are posted online for review. Each comment must be considered by the agencies when issuing a final rule. The agencies have not indicated how they will proceed with a final rule, but interagency rulemaking typically requires significant legal and administrative review.