More Commercial Deals Don’t Need an Appraisal

April 3, 2018

U.S. bank regulators said on Monday that more commercial real estate deals can proceed without an independent appraisal of the property’s value. 

The regulators raised the threshold for commercial real estate transactions that require an appraisal from $250,000 to $500,000. Commercial transactions that are valued at more than $500,000 must still have an independent third-party check on the property value before the bank will process a loan; transactions under that amount will be able to proceed ahead of getting an appraisal. 

The new threshold “will materially reduce regulatory burden and the number of transactions that require an appraisal,” according to a press release from the U.S. regulators. “The increased threshold will not pose a threat to the safety and soundness of financial institutions.”

Lenders can use an evaluation rather than an appraisal for a commercial real estate transaction that is exempted by the $500,000 threshold. Evaluations provide a market value estimate. 

“The final rule responds, in part, to concerns, financial industry representatives raised that the current threshold level had not kept pace with price appreciation in the commercial real estate market,” the agencies wrote. The $250,000 limit was originally established in 1994. 

The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp. agreed on the new standards Monday.