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In a joint press release, the three major banking regulatory agencies — The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency — announced the issuance of a final rule that will increase the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $500,000.

Before the official announcement on April 2, the agencies originally had suggested that they would be raising the $250,000 threshold, which was put into place in 1994, to $400,000. But officials determined that a $500,000 threshold will more significantly reduce the regulatory burden on lenders and the number of transactions that will now require an appraisal.

The agencies also concluded that increasing the threshold, “will not pose a threat to the safety and soundness of financial institutions.”

Why the Need for the New Threshold Amount?

The agencies stated that the final rule responds to the concern voiced by financial industry representatives, that since its inception 24 years ago, the original threshold level has not kept pace with price appreciation in the commercial real estate market.

What Is the Impact of the Final Rule on Commercial Real Estate Appraisals?

Under the final rule, financial institutions will now be able to use an evaluation, rather than an appraisal for commercial real estate transactions exempted by the $500,000 threshold. Evaluations provide a market value estimate of the real estate pledged as collateral, but do not have to comply with the Uniform Standards of Professional Appraiser Practices and do not require completion by a state licensed or certified appraiser.

How MBAF Can Help

Now that lenders can use an evaluation rather than an appraisal for commercial real estate transactions below the new $500,000 threshold, our banking and real estate professionals can help you to make sure that such evaluations reflect fair market value, while ensuring that any evaluation prepared, and loans granted based on same, stay in complete compliance with the new threshold standards.

Understanding the implications of the new commercial real estate threshold amount, can be complex. If you would like to benefit from our expertise in these areas or if you have further questions on this Advisory, do not hesitate to contact our Financial Institution specialists, or call us at 1-800-239-1474.