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MONTH-IN-BRIEF (Apr 2018)

Banking Law

Increase to Appraisal Threshold for Commercial Real Estate Transactions

By A. Elena Prucyk, Rabobank, N.A.

On April 2, 2018, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency jointly issued a final rule to exempt commercial real estate (CRE) transactions of $500,000 or less from appraisal requirements. Regulated institutions may use an evaluation that is consistent with safe and sound banking practices, rather than an appraisal, for the exempted CRE transactions. The rule is in response, in part, to industry concerns that the threshold level had not kept pace with price appreciation in the CRE market (the prior $250,000 threshold had been in place since 1994). The agencies determined that a $500,000 threshold “will provide regulatory relief for financial institutions by removing the appraisal requirement for a material number of transactions without threatening the safety and soundness of financial institutions.” The rule became effective April 9, 2018, upon publication in the Federal Register.

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