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Supervisory Expectations for Evaluations

March 4, 2016

Summary:

The Federal banking agencies1 issued an advisory to clarify supervisory expectations for using an evaluation for certain real estate-related transactions in response to questions raised during outreach meetings held pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. Many of the questions pertained to when an evaluation is permitted for a real estate-related transaction and how an evaluation can support a market value conclusion when there are few or no recent comparable sales of similar properties.

Statement of Applicability to Institutions With Total Assets Under $1 Billion: This Financial Institution Letter applies to all FDIC-supervised institutions.

Highlights:

  • Part 323 of the FDIC Rules and Regulations permits institutions to use an evaluation in lieu of an appraisal to value real property pledged as collateral for certain real estate-related transactions that are not subject to the appraisal requirements in Part 323. For example, institutions may use evaluations rather than appraisals to estimate the market value of residential or commercial properties securing real estate-related transactions of $250,000 or less except for certain higher-priced mortgage loans under Regulation Z.
  • The Interagency Appraisal and Evaluation Guidelines do not require evaluations to be based on comparable sales.
  • In areas with few, if any, recent comparable sales of similar properties in reasonable proximity to the subject property, persons who perform evaluations may consider alternative valuation methods and other supporting information when developing a market value conclusion.
  • Institutions that demonstrate that a valid correlation exists between tax assessment values and market values may use such information to develop the market value conclusion in an evaluation.

Distribution:

  • FDIC-Supervised Institutions

Suggested Routing:

  • Chief Executive Officer
  • Chief Lending Officer

Paper copies may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).

  • 1

    The Federal banking agencies include the Federal Deposit Insurance Corporation, the Board of the Federal Reserve System, and the Office of the Comptroller of the Currency

Attachment(s)
Part 323 of the FDIC Rules and Regulations

Last Updated: March 4, 2016