Appraisal Guidelines
The regulatory agencies issued the Interagency Appraisal and Evaluation Guidelines1 (“Guidelines”) effective Dec. 10, 2010. The agencies issued the Guidelines to clarify the existing real estate appraisal regulations and to provide institutions and examiners with supervisory guidance for a prudent appraisal and evaluation program. The Guidelines are based on the core principles of the 1994 Guidelines and incorporate other appraisal related guidance documents.
We have received a number of questions from bankers asking for clarification on the Guidelines. Some of the questions we have received include:
- May a bank’s appraisal review staff contact an appraiser to ask for clarification of information contained in an appraisal? Yes, to clarify or to request additional information to support the opinion of value. There should be adequate internal controls to prevent the review staff fromtrying to influence or coerce the appraiser.
- If the loan for the purchase of agricultural land is between $250 thousand and $1 million, can a bank prepare an evaluation if the primary source of repayment is not based on the sale of or rental income from the real estate purchased? Yes, this meets the exemption criteria for a business loan.
- May loan administration staff prepare appraisal engagement letters and select appraisers froma bank’s approved list? Yes, if qualified and knowledgeable about the property type and market.
- How do small community banks handle independence? If absolute lines of independence cannot be achieved, a bank should be able to demonstrate clearly that it has prudent safeguards to isolate its collateral valuation program from influence or interference from the loan production process.
- What constitutes loan production staff? All personnel responsible for generating loan volume or approving loans.
In addition to the above questions, the Federal Reserve System hosted an Ask the Fed session on Feb. 23, 2011, for institutions on the Guidelines. You can find the presentation here by registering for an Ask the Fed account and clicking on the 2/23/2011 call materials.
