OCC Bulletin 2018-10| May 2, 2018
Appraisals for Commercial Real Estate Transactions: Final Rule
Chief Executive Officers of All National Banks and Federal Savings Associations, Federal Branches and Agencies, Department and Division Heads, All Examining Personnel, and Other Interested Parties
The Office of the Comptroller of the Currency has adopted a final rule to increase the appraisal threshold for commercial real estate (CRE) transactions from $250,000 to $500,000. This threshold increase means that transactions at or below this level do not require appraisals that conform to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the interagency appraisal rules. The final rule also makes amendments to the appraisal rules to reflect the higher CRE appraisal threshold as it relates to evaluations and the use of certified appraisers. The OCC adopted the final rule jointly with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (collectively, the agencies).
The final rule became effective on April 9, 2018.
Note for Community Banks
The final rule applies to all OCC-supervised banks and, therefore, applies to community banks.
The final rule increases the appraisal threshold for CRE transactions from $250,000 to $500,000. The higher threshold reflects increases in CRE transaction values and general indices of inflation since adoption of the existing threshold in 1994. The CRE threshold also reflects the valuation cycles in the CRE market since 1994 and the agencies' analysis of data losses relating to CRE transactions. The final rule defines a "commercial real estate transaction" to mean "a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property."
The final rule also makes conforming changes to the appraisal rules. The final rule requires evaluations for transactions at or below the $500,000 threshold for CRE transactions, although banks may use appraisals for these exempt transactions in appropriate circumstances, such as for higher-risk transactions, as discussed in the "Interagency Appraisal and Evaluation Guidelines" attached to OCC Bulletin 2010-42. An evaluation provides an estimate of the market value of real estate but is not subject to the same requirements as a Title XI appraisal, such as the requirement to use a certified or licensed appraiser. The second conforming change requires use of a state-certified appraiser for CRE transactions of more than $500,000. These requirements for evaluations and for use of state-certified appraisers are in the current appraisal rules; the conforming changes update the transaction levels for these requirements from $250,000 to $500,000.
Please contact Mitchell Plave, Special Counsel, Legislative and Regulatory Activities Division, at (202) 649-5490; or Joanne Phillips, Senior Attorney, Bank Activities and Structure Division, at (202) 649-5500.
Acting Senior Deputy Comptroller and Chief Counsel
- "Real Estate Appraisals" (PDF)