Fed Proposes Raising Bar for CRE Appraisals

In a notice of proposed rulemaking the Federal Reserve Board said it wants to raise the threshold for commercial real estate transactions requiring an appraisal to $400,000. The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency noted that raising this threshold for commercial real estate transactions from the current level of $250,000 could significantly reduce the number of transactions that require an appraisal, while not posing a problem for banks. 

The proposed change stems from comments the Federal Reserve received during the Economic Growth and Regulatory Paperwork Reduction Act review process 2014 and 2015. According to the Federal Reserve, members of the financial industry raised concerns that the current exemption level had not kept up with the CRE market’s price appreciation.

Currently, an appraisal is required, but under the policy in the proposal commercial real estate transactions at or below the threshold would receive an evaluation, which would be less detailed than appraisals, do not require completion by a state-licensed or certified appraiser, and provide a market value estimate of the real estate pledged as collateral.