Is it acceptable to use tax assessment for real estate value as an inhouse evaluation or must an in house evaluation be more formal than an assessment?

25. Does a tax-assessment value from the local taxing authority constitute an evaluation? Can a loan officer who approves and/or recommends a loan conduct an evaluation if the market value that the officer develops in the evaluation does not exceed the tax-assessment value?

Answer: A value from the taxing authority alone is insufficient to be considered an evaluation. An evaluation report should include calculations, supporting assumptions, and, if utilized, a discussion of comparable sales. If tax assessment information is used as part of an evaluation, the regulated institution should document the facts and analysis used to demonstrate that there is a valid correlation between the assessed values of the taxing authority and the property's market value. In addition, an evaluation should describe the real estate collateral, its condition, and its current and projected use.


http://www.fdic.gov/news/news/financial/2005/fil2005a.html

We just had this occur during our compliance exam a couple weeks ago. Our Fed Examiner would not accept the tax assessed value as the basis for flood insurance, so we had to use the regular appraisal and obtain more flood insurance from the customer.

You can also review the new proposal on Appraisals and Evaluations for guidance:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081113a1.pdf

Getting back to flood insurance purposes; the tax assessments that I have seen are based on comparable RE sales in the neighborhood - similar to brokers price opinions. The market sales value could be too low - particulary if the comparables include foreclosures.

If a flood washes the building away, you may not be able to rebuild that structure with that amount.

I would push to get the replacement cost of the structure.

Randy - what do you think?