Appraisers and Bank Evaluations
As many of you are aware, banks have been successful in their efforts to have the de minimis transaction amount at which appraisals are required raised to $250,000 for residential properties, $500,000 for commercial properties and $1,000,000 for qualified business loans. While the de minimis transaction amount for credit unions is still $250,000, an attempt is currently being made to increase it to $1,000,000 on commercial properties. If the credit unions are successful, it is likely that the banks will attempt to raise their de minimis threshold to at least match, or more likely, exceed that of the credit unions. Why is this important to appraisers? Because in simple terms, it means that fewer appraisals will be needed. The transaction amount is not the property’s value, it’s the loan amount. I’m not sure what your market is like, but in Decatur, Alabama higher de minimis thresholds have eliminated the need for many of the appraisals that were once ordered by banks and credit unions. Instead, these financial institutions are now utilizing evaluations.
In the past, licensed appraisers in Alabama could complete evaluations, but they had to comply with the minimum requirements of the Uniform Standards of Professional Appraisal Practice. As a result, licensed appraisers were at a competitive disadvantage to the non-licensed individuals who were performing this service. On May 29, 2019, the statutes that regulate real estate appraisers in Alabama were amended to allow appraisers greater latitude in completing evaluations for federally-regulated financial institutions. Specifically, where the amount of the transaction is de minimus and a federal financial institution determines that its regulations do not require an appraisal, a licensed appraiser can now complete the evaluation. The evaluation, which must contain the statement “This is not an appraisal.”, does not have to comply with USPAP, nor is it governed by the State of Alabama Real Estate Appraiser Board. Instead, it is governed by federal law and must comply with the rules of the governing federal financial regulatory agency. Before completing an evaluation, I highly recommend that you review the Interagency Appraisal and Evaluation Guidelines, December 2010. I also recommend that you review the Appraisal Institutes Guide Note 13 which provides an excellent overview of evaluations.
There appears to be a split of opinion amongst chapter members as to whether licensed appraisers should include bank evaluations as one of their valuation services. It is worth noting that the legislation that amended the current law was supported by a majority of the board members of the State of Alabama Real Estate Appraiser Board. There seems to be a recognition that if banks and credit unions are going to utilize evaluations, licensed appraisers are the individuals who are most qualified to perform this valuation service. Regardless of your viewpoint, licensed appraisers in Alabama are now legally able to complete evaluations for federally regulated institutions.
Thank you for your continued support of the Alabama Chapter and its activities. If anyone has any questions about what is going on either locally or nationally, please don’t hesitate to contact me or any of the chapter officers.