MARCH 14, 2025 – The following is from the Appraisal Institute’s ‘Appraisal Now’ email newsletter. The first time I saw regulators focus on Appraisal Review was during the 2005-2010 Financial Crisis. This is the second time. As such, appraisers should include more expense comparable data specifically (especially re Insurance!). Reviewers should focus more intently on expenses. Trust me, with bank examiners being given this guidance they are going to be laser focused on expenses in the Income Approach!! My experience is about 50% of appraisers provide a table of expense comparables with the individual expenses listed and then an analysis of each for estimating the individual subject expenses. About 50% do not provide any support and maybe will say maintenance typically ranges from $0.50 to $1.50/sf and I conclude at X. That is not support. I encourage those appraisers to step up their game. Because if examiners come across those appraisal reports with no detailed support, they will have that bank or credit union remove that appraiser from their approved list! And bank examiners only see black and white. They are not appraisers. They will see those appraisals with a table of 4 or 5 expense comparables and individual expenses listed. Then they will see those reports that do not have such tables. The latter is in trouble. Obviously, you should also have a table of subject actuals for the past 1-3 years, when available. Just my advice from 33 years of being in the bank appraisal review world and dealing with examiners and regulators.
Shalom,
The Mann
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Bank Examiners Highlight Key Appraisal Issues for 2025
Recent industry meetings between bank chief appraisers and bank examiner policy specialists have brought to light several key issues that appraisers should be aware of in 2025. These discussions reflect the evolving expectations and regulatory scrutiny surrounding appraisals, particularly in the banking sector. Below are the primary points of emphasis that emerged from these meetings.
Appraisal Quality Remains a Top Concern
Bank examiners continue to stress the importance of appraisal quality, underscoring the need for well-supported valuations that withstand regulatory and client scrutiny. Ensuring compliance with professional standards, proper market analysis, and credible adjustments remain critical in maintaining confidence in appraisal reports.
The Ongoing Concern Over Engaged Appraisers Not Signing Reports
A recurring complaint in these discussions—brought up annually—is the issue of appraisers engaged for assignments not signing their reports. This raises concerns about accountability, potential outsourcing issues, and the integrity of appraisal reports. Examiners urge banks and appraisal firms to reinforce best practices and ensure that the responsible appraiser is clearly identified in every report.
Data Center Appraisal Issues Persist
Data center valuations continue to pose challenges, with bank examiners revisiting concerns from previous years. These properties have unique valuation factors, including high infrastructure costs, evolving technology, and variable market demand. Appraisers working in this niche should stay updated on emerging valuation methodologies and market trends to address examiner expectations.
Ongoing Scrutiny of Participation Deals
Participation deals remain an area of focus, as they were last year. The complexity of these deals can introduce valuation challenges and potential risk exposure for financial institutions. Examiners urge appraisers to ensure transparency, provide thorough documentation, and carefully analyze risk factors when handling such assignments.
Increased Expectation for Reviewers to Challenge Assumptions
Another significant takeaway is that examiners expect review appraisers to question and push back on key assumptions made in appraisal reports. This aligns with a broader push for stronger due diligence and critical analysis. Appraisers should be prepared for increased scrutiny of their market assumptions, income projections, and comparable selection.
Heightened Focus on Expenses, Particularly Insurance Costs
Bank examiners also emphasized the need for greater attention to expenses in appraisal reports, particularly related to insurance. Rising insurance costs have become a growing concern, impacting property valuations and financial risk assessments. Appraisers should ensure that expense projections, including insurance, reflect current market conditions and provide adequate justification.
What This Means for Appraisers
With these continued and emerging concerns, appraisers should take proactive steps to ensure their reports meet heightened expectations. Strengthening report quality, addressing recurring industry concerns, and preparing for increased review scrutiny will help appraisers navigate the evolving regulatory landscape in 2025.
Category Archives: Reviewer Thoughts & Tips
The main attempt of this blog is for me to give back to the real property valuation industry. I can’t take my knowledge with me when I leave this world. So, my goal is to share everything I know through writing articles, teaching classes and seminars, and this blog.
I usually receive several questions a week from fee appraisers, appraisal reviewers, and chief appraisers regarding appraisal reports, FIRREA, or USPAP. Hopefully, these will provide most of the content for this blog. In this way, we can all learn from the same issue under discussion. Obviously, items will be redacted as needed to maintain confidentiality.
If I hit a lull in inquiries, I have a huge treasure trove of topics to draw on. I will try to discuss interesting topics I have encountered in international reports. It is a neat world out there and us American valuers should be amazed at how the rest of the world handles various items.
Yes, I will give my interpretation of FIRREA and USPAP. Everyone knows I am not shy. However, to CYA, I need to give the standard verbiage that my interpretations are not legal interpretations….they have not and cannot be approved by examiners and regulators. Each Bank should contact their specific examiner and/or the appropriate regulator in Washington DC that interprets FIRREA.
FINRA ENDS PANDEMIC EXEMPTION
DECEMBER 4, 2024 – Between this and the new administration demanding government workers be in the office 5 days a week, the demand for office buildings may rebound. Personally, every 100,000sf+ multi-tenant office building appraisal (buildings are typically of 1970s and 1980s construction….old and outdated they say) I have reviewed over the past two years has had occupancy from 96%-100%. Demand remains high for those that must use office space for their business.
Shalom,
The Mann
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FINRA ending the pandemic exemption for home office inspections could be a real game changer for remote work in the banking and broader financial services industry.
“Work-from-home regulations for banks are changing, and some of the industry’s biggest players would rather bring employees in five days a week than make the effort to comply—including making regular inspections of workers’ homes.”
During the pandemic, brokerage industry watchdog the Financial Industry Regulatory Authority (FINRA), suspended rules on workplace inspections to make it easier for banks to allow their employees to work from home. The agency is now moving back to its pre-pandemic requirements for monitoring workplaces, meaning some home offices will have to be registered with regulators and remotely inspected at least every three years under a new pilot program.
https://finance.yahoo.com/news/banks-don-t-want-inspect-093400950.html
Shalom,
The Mann
==================================
FINRA ending the pandemic exemption for home office inspections could be a real game changer for remote work in the banking and broader financial services industry.
“Work-from-home regulations for banks are changing, and some of the industry’s biggest players would rather bring employees in five days a week than make the effort to comply—including making regular inspections of workers’ homes.”
During the pandemic, brokerage industry watchdog the Financial Industry Regulatory Authority (FINRA), suspended rules on workplace inspections to make it easier for banks to allow their employees to work from home. The agency is now moving back to its pre-pandemic requirements for monitoring workplaces, meaning some home offices will have to be registered with regulators and remotely inspected at least every three years under a new pilot program.
https://finance.yahoo.com/news/banks-don-t-want-inspect-093400950.html
EUROPEAN BANK REGULATORS GET IT
OCTOBER 17, 2024 – Fifteen years ago, I was hopeful that American bank regulators would research the concept of Mortgage Lending Value (MLV) and make lenders adopt it for real estate loans. Of course, there was little chance as us Americans love booms and busts (ok, some don’t like this part of the cycle). Lenders live off of the fees they generate. Lots of money to be made when asset prices skyrocket. And, as the movie The Big Short showed, lots of money to be made when asset prices crash.
First the Germans (around the 1890’s), and now all of Europe, decided the crazy cycle of boom and bust was not ideal for its citizens. The following excerpts are from the 2025 European Valuation Standards (EVS). Maybe one day America will also decide to rid itself of the concept of Market Price (we do not have Market Value in USA real estate appraisals).
Shalom,
The Mann
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At least as far as the valuation of bank collateral is concerned, the European authorities are no longer satisfied with a stand-alone ‘Market Value’ that they correctly view as a ‘spot value’ at the date of valuation. They want to ‘secure the future’ by excluding expected price increases and internalising the potential for future lower market prices/values.
———–
The CRR lays down that in valuation according to ‘prudently conservative valuation criteria’, “the value excludes
expectations on price increases”. EVS 2025’s EVGN 2 addresses the issues arising from this in the contexts of:
• Valuation under the income approach.
• Using the direct capitalisation model.
• Valuations carried out by means of a DCF model.
• Treatment of rental increases.
• And the developer’s profit in the residual method of valuation.
————
The second CRR requirement for appraisal according to ‘prudently conservative valuation criteria’ is that
“the value is adjusted to take into account the potential for the current Market Value to be significantly above
the value that would be sustainable over the life of the loan”.
▶ HERE EVGN 2 HIGHLIGHTS ISSUES OF:
• Assessing the sustainability of the value over the life of the loan.
• The impact of oversupply of a particular type of property on prices and value.
• The impact on future value of declining population of a given locality and
other negative factors changing the surroundings of the real estate.
First the Germans (around the 1890’s), and now all of Europe, decided the crazy cycle of boom and bust was not ideal for its citizens. The following excerpts are from the 2025 European Valuation Standards (EVS). Maybe one day America will also decide to rid itself of the concept of Market Price (we do not have Market Value in USA real estate appraisals).
Shalom,
The Mann
=======================================
At least as far as the valuation of bank collateral is concerned, the European authorities are no longer satisfied with a stand-alone ‘Market Value’ that they correctly view as a ‘spot value’ at the date of valuation. They want to ‘secure the future’ by excluding expected price increases and internalising the potential for future lower market prices/values.
———–
The CRR lays down that in valuation according to ‘prudently conservative valuation criteria’, “the value excludes
expectations on price increases”. EVS 2025’s EVGN 2 addresses the issues arising from this in the contexts of:
• Valuation under the income approach.
• Using the direct capitalisation model.
• Valuations carried out by means of a DCF model.
• Treatment of rental increases.
• And the developer’s profit in the residual method of valuation.
————
The second CRR requirement for appraisal according to ‘prudently conservative valuation criteria’ is that
“the value is adjusted to take into account the potential for the current Market Value to be significantly above
the value that would be sustainable over the life of the loan”.
▶ HERE EVGN 2 HIGHLIGHTS ISSUES OF:
• Assessing the sustainability of the value over the life of the loan.
• The impact of oversupply of a particular type of property on prices and value.
• The impact on future value of declining population of a given locality and
other negative factors changing the surroundings of the real estate.
FINAL RULE ON AVM QUALITY CONTROL STANDARDS
JULY 25, 2024 – The Federal Agencies have issued the Final Rule on Real Estate Valuations: Quality Control Standards for Automated Valuation Models. Hopefully, you can cut and paste the URL below. If not, go to an Agency website and type in the above words in Search and it should come up.
https://www.fdic.gov/news/financial-institution-letters/2024/final-rule-real-estate-valuations-quality-control-standards?source=govdelivery&utm_medium=email&utm_source=govdelivery
This guidance was desperately needed because we all know computer models actively seek out the skin color and/or gender of borrowers. Once they find this information and the borrower(s) is not of a specific hated class, then the AVM will apply a -20% adjustment to whatever initial value it generates. If the borrower is of a specific hated class, then obviously no downward adjustment is applied. Who knows, maybe even an upward adjustment is applied heh heh
Yes, sarcasm intended. What a freakin’ joke! Gotta watch out for them darn racist and sexist computer models;)
Shalom,
The Mann
https://www.fdic.gov/news/financial-institution-letters/2024/final-rule-real-estate-valuations-quality-control-standards?source=govdelivery&utm_medium=email&utm_source=govdelivery
This guidance was desperately needed because we all know computer models actively seek out the skin color and/or gender of borrowers. Once they find this information and the borrower(s) is not of a specific hated class, then the AVM will apply a -20% adjustment to whatever initial value it generates. If the borrower is of a specific hated class, then obviously no downward adjustment is applied. Who knows, maybe even an upward adjustment is applied heh heh
Yes, sarcasm intended. What a freakin’ joke! Gotta watch out for them darn racist and sexist computer models;)
Shalom,
The Mann
Reconsiderations of Value for Residential Real Estate Valuations
JULY 21, 2024 – The Federal Agencies have issued the ‘Interagency Guidance on Reconsiderations of Value for Residential Real Estate Valuations.’ You can cut and paste this link to get to the website that will provide you additional information.
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240718a.htm
The only item I will point is the following quote:
“This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions.”
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20240718a.htm
The only item I will point is the following quote:
“This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions.”
APPRAISER SELECTION PROCESS
NOVEMBER 26, 2023 – I received the following question from a staff appraiser with a bank. My answer follows his email.
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I am looking for direction/clarification on the regulations that discuss how an appraiser should be selected (specifically for commercial FRT’s). I work in the appraisal department of a bank and I need to prepare some internal policies/procedures/discussions on selecting an appraiser to engage. Many lenders feel they should be provided three choices and allow them or their customers to select the appraiser based on the lowest fee or the quickest turn time for the appraisal. They think that all that should be done is to not disclose the appraiser names and everything will be okay. However, my interpretation is that the appraiser should be selected based on their experience with the property type and the location in which the property is located. The regulations never appear to be direct enough, or all in one document to show how allowing lenders or borrower to participate in the selection would be viewed by bank examiners and regulatory agencies.
=================================
We start with the following requirement from the 2010 Interagency Appraisal and Evaluation Guidelines (IAEG):
An institution’s selection process should ensure that a qualified, competent and
independent person is selected to perform a valuation assignment. An institution should
maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area.
The other pertinent quote follows:
Moreover, the Guidelines stress that an institution should not select a valuation method or tool solely because it provides the highest value, the lowest cost, or the fastest response or
turnaround time.
Besides independence, the next most important item is to select an appraiser (or evaluator) that is competent in regard to the property type and subject market. That much is a given. There is no gray area.
So, the question becomes how can we BOTH select a competent appraiser AND allow the loan officer (and usually the borrower) to select from among several fee quotes?
Financial institutions accomplish this by bidding assignments to a group of competent appraisers. For example, the subject is a basic 5,000 SF, owner-occupied warehouse in a city of 100,000 people. It is likely the financial institution has 3 or 5 or more appraisers on their approved list that are competent to appraise this property in this market. So, we send out an RFP to three appraisers. All are equally competent to perform this assignment. We get the following bids:
Appraiser A – $2,500 / 3 Weeks
Appraiser B – $3,000 / 2 Weeks
Appraiser C – $2,000 / 4 Weeks
Over the past 3 decades, 95%+ of the banks and credit unions I have worked with forward the quotes exactly as shown above to the loan officer. The key is to not disclose the appraiser names. Borrowers and loan officers cannot suggest appraisers to use or not use. But, examiners and regulators are ok with them choosing from the anonymous quotes shown above.
Have we met the requirement of engaging a competent appraiser? Yes.
Have we helped the loan officer (and borrower) have enough information to make a time and price decision? Yes.
Are the examiners and regulators ok with this process? In my 30+ years of being involved in the appraisal process with financial institutions, I have not heard of a single objection.
There are two keys to making this acceptable:
- You can show that you only bid the assignment to competent appraisers; and,
- You do not disclose the appraiser names when sharing the bid information with the loan officer.
Maybe you are asking what the other 5% of financial institutions do. It may be less than that actually. This small group includes how I did things when I was Chief Appraiser. The appraisal department selected the best bid to go with. When requesting an appraisal to be ordered, the loan officer would let us know if time or cost was more important. This method speeds up the process and also allows us to spread the work around to the approved appraisers. The appraisal time is delayed when the loan officer/borrower make the selection. I have seen delays of weeks or longer. Also, through the blind selection process one appraiser may get too many assignments at once. Some appraisers have a habit of always bidding low and quick, even when swamped with work and knowing they cannot meet their deadlines.
As usual, feel free to send me follow-up questions. Or suggestions to add to this post or clarify something I said. My email is GeorgeRMann@Aol.Com.
The Mann
STATE OF WASHINGTON ALLOWS NON-USPAP EVALUATIONS
JULY 2023 – The following is from the Appraisal Institute’s ‘Washington Report & State News.’ A big welcome to appraisers in Washington finally being able to perform non-USPAP Evaluations.
“Washington Gov. Jay Inslee on May 15 signed HB 1797, legislation that allows real estate appraisers to complete evaluations for federally regulated financial institutions. It was amended to include a “trigger” mechanism whereby the bill will not take effect until the state adopts administrative rules related to fair housing and valuation bias established by the Department of Licensing that require appraisers and appraiser trainees to complete nondiscrimination and fair housing training as dictated by the Appraiser Qualifications Board. “
STEP 3 IN THE HOUSING MARKET HAS OCCURRED
OCTOBER 3, 2022 – My June 14th post about Step 2 occurring said it would be easy to look back in 3 months and see that the housing market had peaked. Sure enough, 3 months later everyone can now see a top is in place and a correction has been well underway.
Step 3 is an acceleration in the slowdown of price appreciation. A summary of indicators follows.
The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index peaked at 17.0% in March and declined to 11.3% in August. AEI projects it will decline to 4%-6% by December.
The S&P Corelogic Case-Shiller House Price Index fell 0.4% on a month-over-month basis in July for the first time in 10 years. On a year-over-year basis, the increase in home prices decelerated by the most in the index’s history, said Craig J. Lazzara, managing director at S&P DJI.
Lastly, the FHFA House Price Index dropped 0.6% in July vs. June.
These are early signs that Step 4 will be upon us sooner than later. That is when the annual change goes from appreciation to depreciation. With mortgage rates soaring towards 7% the decline in home prices is more certain than ever.
What will baffle people is the continued low supply of available housing combined with prices declining. As I have long said, you don’t have to buy, but often you do have to sell. With a lack of buyers, sellers will continue to lower prices. In September, the number of households likely to buy a house in the next 6 months fell to its lowest level since 2010.
Shalom,
The Mann
APPRAISAL REVIEW QUESTION
FEBRUARY 22, 2022 – I received the following question:
Q: If I as a bank appraiser chose to do an in-house appraisal, will it need to be reviewed? If so, what is the benefit and why not just use one of my vendors?
As appraisals are rarely done in-house, I have never thought about this situation. I contacted the Regulators and received the following answer.
A: When the residential threshold was increased it also amended the agencies’ appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for
compliance with USPAP. This became effective January 1, 2020 and is now part of the regulation. As such, a bank can be cited for a violation of law if the review is not completed.
We do not dictate who performs the review only that the reviewer is competent and independent of the transaction; the reviewer can be from the same appraisal department as the individual who performed the appraisal. The bank may perform the review internally or out-source the review.
Now we all know. As always, feel free to ask me any question regarding FIRREA. If I don’t know the answer, I will find it out.
Stay well and safe out there,
The Mann
DATE OF VALUE DIFFERS FOR APPRAISALS AND EVALUATIONS
JANUARY 8, 2021 – It only took the Interagency Appraisal and Evaluation Guidelines (IAEG) document being out for a full 10 years for me to be made aware of the difference in Date of Value for Appraisals versus Evaluations. As they say, you learn something every day!
For Appraisals, the IAEG states:
The estimate of market value should consider the real property’s actual physical condition, use, and zoning as of the effective date of the appraiser’s opinion of value. (emphasis added)
In my 35 years of doing appraisals and appraisal reviews, the ‘Date of Value’ has always been the last date the appraiser(s) inspected the subject. Usually, there is only one inspection and that is the Date of Value. Of course, this is for Market Value and Market Value ‘As Is.’ We are not talking about prospective values.
For Evaluations, the IAEG states:
Provide an estimate of the property’s market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions. (emphasis added)
‘The date that the analysis was completed’ is what us valuers call the Date of Report. The Date of Report can be the same as the Date of Value, but that rarely occurs. For appraisals, nearly 100% of the time the Date of Report comes after the Date of Value.
In conclusion, the IAEG wording indicates that the Date of Value for an Appraisal is what it has always been. However, the Date of Value for an Evaluation is the Date of Report.
For Evaluations, I have always assumed the Date of Report was also my Date of Value. I am not sure why. I just felt that my analysis did indeed go thru the day I was finishing the Evaluation. So, that was my Date of Value. Blind luck I guess.
As an aside, it has been suggested that Evaluators add an Extraordinary Assumption to their Evaluation Report that assumes no material changes have occurred between the date the subject was inspected and the Date of Report. Probably not a bad idea. I won’t digress into my rant that I don’t like including Appraisal/USPAP items (e.g. Certification, Hypothetical Conditions, Extraordinary Assumptions, et al) in Evaluations. It’s your Evaluation, do what you want to CYA.
Lastly, I have checked with the Regulators and sure enough this is a difference that was overlooked. Hopefully, in the next revision this will be addressed.
Happy New Year!
The Mann