$50,000 Too Low

Appraisals of real estate are made before a financial institution can lend money for the purchase of property.

After the 1989 Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) was enacted, the FDIC and the OCC proposed that all real estate transactions of $50,000 or more would be required to have a written appraisal completed by a state-certified or licensed appraiser. Financial institutions had been using other appraisers to do their evaluations, not necessarily certified or licensed individuals. Over 950 bankers from all over the United States (from institutions regulated by FDIC) wrote to FDIC objecting to the $50,000 threshold as being too low. They said the expense of using these appraisers was too high for the amount of the loan, and would put a burden on the borrower. The bankers also pointed out that there would be significant delays.

In early March, the FDIC Board agreed and raised the threshold to $100,000, restoring the practices and procedures that were in place before the proposal was made. This means institutions regulated by FDIC may continue to use "the same reliable individuals to evaluate real estate transactions" as they had been using, according to FDIC's release. These appraisers do not necessarily have to be licensed or certified.

The banking industry is now hoping for the same decision from the Office of the Controller of the Currency (OCC). The Federal Reserve Board has maintained its $100,000 level.

Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 1, 5/92