Appraisals for OREO properties

Is it stated anywhere that an annual appraisal is required for OREO properties? I can't find it anywhere, but I keep thinking that I heard or read this somewhere.

We have OREO appraisals addressed in our policy. We're a Fed bank and the exam manual says:

A bank should have a policy for periodically determining the fair value of its OREO property by obtaining an appraisal or an evaluation, as appropriate. While the Federal Reserve has no prescribed time frame for when a bank should reappraise or reevaluate its OREO property, the bank’s policy should conform to state law, if applicable, and take into account the volatility of the local real estate market. A bank should determine whether there have been material changes to the underlying assumptions in the appraisal or valuation that have affected the original estimate of value. If material changes have occurred, the bank should obtain a new appraisal or evaluation based on assumptions that reflect the changed conditions.

Hope that helps. And do check your state law.

Depends on your regulator - for example OCC from their exam manual:

2. Determine whether the bank’s processes include periodic reviews of OREO. Such
reviews should address the following:
ï‚·
A valid appraisal or evaluation that supports the property’s carrying value. This
review should be completed at least annually.

If you are a State bank, look at State law or regulation.

Thanks! Our policy states that annual appraisals are no longer required. We only have three properties in OREO at this time and I don't think there has ever been more than five.

If you are in Kentucky, it would appear that State law requires you to write down those properties at 10% a year regardless of current value. However, I would think that if you had knowledge of potential larger declines, GAAP would require you to perform an actual evaluation.

Plus I think you have to take a reasonable approach. For instance during the last banking crisis, I think it was important to have a new appraisal annually.

We write down 10% annually. I recommended a bank-performed evaluation annually if we still have the property. I hate to have to pay for an appraisal on property we're already taking a loss on.