The number of eligible evaluation assignments has grown, but agency standards still differ
2 minute read
Financial institutions can benefit from the recent threshold increase that exempts residential real estate transactions of $400,000 or less from appraisal requirements. The rule was announced late September by The Federal Reserve, The Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
For transactions exempted from the appraisal requirement, the rule still requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral. That’s good news for financial institutions, since evaluations are generally less burdensome and more time- and cost-effective than conventional appraisals. But as the number of assignments eligible for evaluations has grown, there’s also been more and more confusion about what qualifies as an evaluation and who can perform them.
According to a concept paper from The Appraisal Foundation, a big reason for the confusion is the differing perspectives between the Uniform Standards of Professional Appraisal Practice (USPAP), Interagency Appraisal and Evaluation Guidelines (IAEG), and state regulatory agencies with regard to whether or not an evaluation is an appraisal.
– According to USPAP, yes, an evaluation is an appraisal.
USPAP has a broad definition of “appraisal” that encompasses all opinions of value. So, an evaluation is an appraisal, albeit one with a narrow scope of work. In addition, many states have statutorily defined “appraisal” as any opinion of value.
– According to IAEG, no, an evaluation is not an appraisal.
Unlike USPAP, the IAEG draw a strong distinction between an appraisal and an evaluation based upon differences in required analyses and report content.
– State regulatory agencies give different answers, depending upon the state.
Another reason for the confusion is the differing perspectives with regard to who can perform evaluations.
– USPAP currently has no authority to specify who is allowed to perform evaluations.
– According to IAEG, qualified individuals may perform evaluations.
The responsibility falls to each financial institution to hire appropriately-qualified individuals.
– State regulatory agencies give different answers, depending upon the state.
Some states specifically exempt appraisers who perform evaluations from USPAP and state appraiser regulatory agency oversight. Some states require licensed or certified appraisers to comply with USPAP when performing evaluations. Some states do not permit evaluations unless they are performed by licensed or certified appraisers.
While the issue is still complex, there are efforts underway to clear up some of the confusion. For example, standards for performing evaluations may end up in USPAP. But in the meantime, financial institutions should ensure their valuation provider keeps up with industry and regulatory changes and is able to provide seamless, continued service.
Appraisal alternatives are significantly less costly than conventional appraisals while still maintaining a high level of robustness and accuracy. Clear Capital provides USPAP- and IAEG-compliant evaluations including an automated valuation model (AVM) paired with a property inspection, a hybrid appraisal, and an appraisal modernization solution.
