Raising Appraisal Limits Could Hurt Consumers

More than 80 percent of bank appraisers think reducing the number of loans requiring an appraisal could increase risk to borrowers, according to a survey of its professionals released this week by the nation’s largest professional association of real estate appraisers.

The Appraisal Institute’s research also showed that nearly 90 percent of chief appraisers and appraisal managers surveyed think raising the threshold level of loans that require an appraisal could increase risk to lenders.

Overall, more than three-fourths of chief appraisers and appraisal managers surveyed disagree with raising the $250,000 threshold for real estate financial transactions, and nearly nine out of 10 disagree with raising the $1 million threshold level for certain business loans.

The nation’s banking regulatory agencies—the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve—on Dec. 2 completed a year-long series of public meetings as part of a review of federal banking regulations. That review is required every 10 years by the federal Economic Growth and Regulatory Paperwork Reduction Act of 1996.

“As part of its mission to serve the public interest, the Appraisal Institute continues to oppose any changes to the threshold levels,” says Appraisal Institute President M. Lance Coyle, MAI, SRA. “Appraisals serve a vital role in risk mitigation, and lenders and borrowers benefit from the role appraisals play.”

The Appraisal Institute previously has provided its recommendations to the regulatory agencies, including:

  • Cautioning against an increase of the appraisal threshold levels to the federal bank regulatory agencies during the official EGRPRA comment period in 2014.
  • Educating Congressional oversight committees on the importance of the current appraisal threshold levels during regulatory oversight hearings in 2015.
  • Attending all of the Economic Growth and Regulatory Paperwork Reduction Act outreach meetings held in 2015, encouraging bank regulatory agencies to maintain the current threshold levels and putting more resources toward educating examined banks about existing exemptions to appraisal requirements.

The federal agencies are expected to produce a joint report to Congress in 2016 and potentially to undertake regulatory changes thereafter.