Federal Agency Releases New Appraisal Guidelines for Financial Institutions
Financial institutions have new guidelines to follow when conducting real estate appraisals and evaluations. The Interagency Appraisal and Evaluation Guidelines, which replace the 1994 guidelines, explain the minimum regulatory standards for appraisals. Highlights from the Guidelines and its appendices include:
* recognizing that a borrower’s ability to repay real estate loans according to reasonable terms and sound collateral valuation practices are an integral part of the loan underwriting process;
* updating and replacing supervisory guidance to reflect new developments regarding appraisals and evaluations, changes in appraisal standards, and advancements in regulated institutions’ collateral valuation methods;
* clarifying that collateral valuation methods using an analytical method or technological tool, such as an automated valuation model, cannot be substituted for an appraisal when the transaction requires an appraisal;
* enhancing the requirements for collateral valuation methods for transactions that permit the use of an evaluation, and specifying that valuation methods that do not provide a property’s market value, such as a broker price opinion, are not acceptable as an evaluation;
* instructing institutions to file a complaint with state appraiser regulatory officials when they suspect that a state certified or licensed appraiser fails to comply with the Uniform Standards of Professional Appraisal Practice, applicable laws, or engages in other unethical or unprofessional conduct.
Future revisions to the Guidelines may occur after regulations are adopted under the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act of 2010 .
The author wishes to acknowledge the assistance of Cory K. Kestner, Esq., of McKirdy & Riskin, PA, in the preparation of this article.
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