Valuation road-blocks plague local lenders
In rural America, it’s common to see local lenders (and their borrowers) wait longer and pay more for real estate valuations… and it’s only getting worse. With fewer licensed appraisers every year, lenders are more frequently turning to evaluations to meet their demand for valuations. And with historically even fewer providers of evaluations, many of those lenders have turned to completing their own evaluations internally. While this practice is permitted by the Interagency Guidelines, it has also led to increased risk and higher efficiency ratios for these financial institutions. As a compliant appraisal and evaluation program is required by the federal regulators, what choices do lenders have?
Evaluations vs. Appraisals
On the surface, real estate evaluations are similar to appraisals in that both are reports that determine a property’s value based on comparables taken from the market. But there are two significant differences: who can write them, and what they can be used for.
Appraisals are reports that can only be written by licensed or certified appraisers, and that can be used by anyone for any purpose in lending and beyond. These tend to be high-cost and take weeks, if not months, to complete.
Evaluations are reports that can be written by any “competent” person, but that can only be used by lending institutions for certain low-risk transactions that qualify. These reports carry substantially lower costs and can be turned much faster than appraisals.
The applicability of evaluations is defined in the 2010 Interagency Appraisal and Evaluation Guidelines:
- TRANSACTIONS THAT REQUIRE EVALUATIONS
The Agencies’ appraisal regulations permit an institution to obtain an appropriate evaluation of real property collateral in lieu of an appraisal for transactions that qualify for certain exemptions. These exemptions include a transaction that:
- Has a transaction value equal to or less than the appraisal threshold of $400,000 for residential, $500,000 for commercial (banks) or $1,000,000 for commercial (credit unions).
- Is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.
- Involves an existing extension of credit at the lending institution, provided that:
– There has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or
– There is no advancement of new monies other than funds necessary to cover reasonable closing costs.
For those institutions looking for options, Eval.com is an innovative platform that brings experienced appraisers and qualified analysts together to provide lenders with the highest quality real estate evaluations in the industry. With a 5-day turn-around time (yes, really), their commercial, agricultural, and residential reports are prepared using the best available market data at a fraction of the cost of a full appraisal. This way, your loan process gets streamlined so your costs are lower, your risks are diminished, and your examiners are happy. Call or email to find out how Eval.com can help you get better valuations and do better business.