Deregulation took another small step forward on Monday when the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. jointly agreed to raise the threshold for commercial real estate deals that can go ahead without an appraisal.
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Previously, property valued at more than $250K had to have an independent appraisal of its value as a condition of obtaining a bank loan. Under the new rules, only deals valued at more than $500K do.
“The increased threshold will not pose a threat to the safety and soundness of financial institutions,” the agencies said in a joint statement.
The final rule allows a financial institution to use an evaluation rather than an appraisal for CRE transactions under the $500K 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 or require completion by a state licensed or certified appraiser.
Regulators had initially proposed $400K as the threshold, but later adjusted the figure upward after lenders and trade groups called for an increase, Reuters reports. The current threshold had been in place since 1994.
The change was also partly in response to a larger effort to streamline regulation. Under the Economic Growth and Regulatory Paperwork Reduction Act of 1996, regulators must conduct a review to identify outdated or otherwise unnecessary or burdensome rules every 10 years.
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