Federal Banking Agencies Increase Appraisal Threshold for Commercial Real Estate Loans

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The FDIC, Federal Reserve Board, and OCC have issued a final rule that raised the threshold over which commercial real estate transactions, as they are now defined, require an appraisal, from $250,000 to $500,000. The rule went into effect April 9, 2018.

Before the final rule was approved, there were 13 different categories of loan transactions that qualified for exemption from the appraisal requirement, including a general exemption for all real estate-related transactions with a value of $250,000 or less.  The new rule adds a 14th exemption for “commercial real estate transactions,” defined as a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property.

While an appraisal is not necessary for commercial real estate transactions at or below the new threshold of $500,000, a regulated institution must obain an evaluation of the real property collateral that is consistent with safe and sound banking practices, if it does not obtain an appraisal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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