Fed Proposes Exempting Some Commercial Real Estate Deals from Appraisals

(CN) – The Federal Reserve on Wednesday said it wants to raise the threshold for commercial real estate transactions requiring an appraisal to $400,000.

In a notice of proposed rulemaking to be published in the Federal Register, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency said they believe raising this threshold for commercial real estate transactions from the current level of $250,000 will significantly reduce the number of transactions that require an appraisal.

They also offer assurances that easing the appraisal requirement will not pose a threat to the safety and soundness of financial institutions.

Instead of an appraisal, the proposal would require that commercial real estate transactions at or below the threshold receive an evaluation.

As defined by agency guidance, evaluations are 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.

In a written statement, the Federal Reserve said the proposed change is a response to comments it received during the Economic Growth and Regulatory Paperwork Reduction Act review process that transpired in 2014 and 2015.

During those sessions, the Federal Reserve says, members of the financial industry raised concerns that the current exemption level had not kept pace with price appreciation in the commercial real estate market.

Comments will be accepted for 60 days from publication in the Federal Register.

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