Tag Archives: appraisals

Reviewer Thoughts & Tips

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.
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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:

  1. You can show that you only bid the assignment to competent appraisers; and,
  2. 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


Mann Overboard

JEREMY BAGOTT EXPOSES NPR AND FREDDIE MAC

FEBRUARY 24, 2023 – Mr. Bagott was kind of enough to give me permission to post his article to my blog. I could not say it any better than he has. The studies continue to pile up that PROVE there is no bias (systemic or otherwise) in the real estate appraisal industry. Of course, the Fake News Media and racist organizations put out misleading headlines to fool the masses. I hope you enjoy Mr. Bagott’s article.
Shalom,
The Mann
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Contact: Jeremy Bagott, MAI, AI-GRS
Tel: 805-794-0555
email: jbagott@gmail.com

*** FOR IMMEDIATE RELEASE ***

FREDDIE’S SLANTED STUDY, NPR STORY RECALL NOTABLE ACADEMIC HOAX

VENTURA, Calif. (February 24, 2023) – Almost 30 years ago, Alan Sokal, now a professor of mathematics at University College London, perpetrated a memorable hoax. He submitted a pseudoscientific article to a cultural studies journal called Social Text. By design, his paper was strewn with nonsense. Titled “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity,” the article held that physical reality was merely a social construct.

The nation’s 80,000 state-licensed real property appraisers will recognize elements of Sokal’s hoax as crusaders — appointees at places like the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development – perpetuate a false narrative that is weakening a critical guardrail in the nation’s $11 trillion mortgage market.

At the time of Sokal’s hoax, so-called “postmodernists” in higher education were waging a crusade against scientific objectivity. The “science wars” of the mid-1990s saw academics in the fields of cultural studies, comparative literature, media studies, cultural anthropology, feminist studies, and science and technology studies attacking scientists. Most in the former group knew almost nothing of the sciences they criticized.

Sokal’s aim was to see whether such a hoax paper would be published if it 1) sounded legitimate and 2) stoked the vanities and ideological preconceptions of the editors.

As professor Sokal predicted, his article gained publication in the 1996 spring/summer issue of Social Text, published by Duke University Press. His paper briefly became the toast of certain academic circles, but it was never peer-reviewed by an actual scientist.

Sokal quickly set the record straight in the May 1996 edition of the Lingua Franca journal in the article “A Physicist Experiments with Cultural Studies.” He concluded that editors at the first publication ignored the required intellectual rigor of verification and “felt comfortable publishing an article on quantum physics without bothering to consult anyone knowledgeable in the subject.”

Fast-forward to September 2021. Mortgage giant Freddie Mac scoured 12 million appraisals between 2015 and 2020 and published a study that found the sales of homes in black- and Latino-majority census tracts were more likely to appraise below the negotiated sale price than sales of homes in white-majority tracts.

While appearing to reveal something sinister about the nation’s real property appraisers, buried in the report was the begrudging acknowledgment that the comparables selected by appraisers to value homes owned by people of various racial groups tended to be reconciled within a range that differed little from one another statistically.

Tucked well into the report was the recognition, “Appraisals for properties in Black and Latino tracts tend to be slightly closer to the lower end of the [comparable] range. But the report then conceded, “the average dollar impact is less than $500.”

An impact of $500 or less off the median U.S. home sales price of $428,700 around the time of the study represented a departure of about 0.1% or less. The amount fails to rise to even a rounding error. Analysts at the mortgage giant seemed to be grasping at straws to find something – anything – wrong with the appraisals but, as they conceded, couldn’t. Systemic bias, the study found, was a phantom issue.

So, instead, the study trumpeted a finding that 7.4% of appraisals in majority-white census tracts appraised below the property’s negotiated sale price, while 12.5% appraised below the negotiated sale price in black-majority census tracts with an even wider 15.4% gap for Latino-majority census tracts.

Since Freddie Mac concedes it found no problem with the valuations beyond a statistical aberration, its finding of a contract-price-vs.-actual-value gap points to a more complicated issue in which brokers in minority areas seem to be more likely to advise buyers to agree to values that were above market. Whether this is due to inexperienced buyers, inexperienced brokers representing them, a greater proportion of brokers conflicted by dual agency, sellers with unrealistic expectations, home sales kept out of MLS systems or the prevalence of so-called affinity schemes is anyone’s guess.
Freddie dishonestly left this question unacknowledged.

The 2007-2008 financial crisis exposed the degree to which low-income borrowers were preyed upon by bad actors. Fannie and Freddie drove the exploitation by buying or guaranteeing so-called Alt-A, negative-amortizing and stated-income mortgages that proved toxic to minority homeownership in communities from Modesto, California, to Hartford, Connecticut.

But back to Freddie’s study. On the heels of its release, editors at National Public Radio misreported the findings. NPR topped the online edition of its article with the headline, “Black and Latino Homeowners are About Twice as Likely as Whites To Get Low Appraisals.” The problem? Freddie never called the appraisals “low.”

While the Freddie Mac study finds no evidence of undervaluation, the NPR story about the study somehow does. NPR’s headline should have read, “Minority Buyers Twice as Likely to be Advised to Overbid on Homes.”

Both the Freddie Mac study, along with the misreported NPR story, were seized on by disrupters in government. This group is seeking to eliminate appraisals in federally related mortgages in a misguided attempt at erasing the racial wealth gap in America. It’s the equivalent of eliminating reading tests as a way to solve illiteracy. Quietly stoking these fires have been the nonbank lenders, the fintechs, the homebuilders and the Realtors, who have been trying to weaken appraisers for decades related more to issues like bonuses, commissions and the transference of risk to the U.S. taxpayer than ideology.

The mortgage giant, which is under federal conservatorship, is no doubt being pressured by its regulator, the Federal Housing Finance Agency, to play ball and adhere to Executive Order 13985, an early Biden administration directive titled “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.” Freddie’s study appears to have been shaded by an overarching need to find something.

Commenting on the study was Michael Bradley, a senior vice president at Freddie Mac. “An appraisal falling below the contracted sale price may allow a buyer to renegotiate with a seller,” he told NPR.

But then he seemed to come out in favor of minority buyers overpaying (and overborrowing) if that’s what it takes, “it could also mean families might miss out on the full wealth-building benefits of homeownership or may be unable to get the financing needed to achieve the American dream in the first place.”

Or perhaps Bradley was just fuzzy on which party in the transaction would be experiencing the American dream and the full wealth-building benefits of homeownership – the seller receiving a double-digit premium above the home’s market value or the buyer, who appears to be at a disadvantage in Bradley’s world view.

Professor Sokal no doubt saw the publication of his hoax paper with some degree of vindication and ironic satisfaction. Appraisers, who have been maligned by Freddie’s study and NPR’s incompetence in reporting it, are unsatisfied and haven’t yet been vindicated.

# # #

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

# # #

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Mann Overboard, Reviewer Thoughts & Tips

IT IS TIME FOR APPRAISALLAND TO FACE REALITY

FEBRUARY 3, 2023 – As I review appraisal reports, I continue to see appraisers remain in the fantasy AppraisalLand regarding cap rates and values. When asked about declining values and increasing cap rates, I get the NIMBY reply. No decline in our market. Must be occurring everywhere else:)
Although the GreenStreet CPPI is for investment-grade properties, it is still an indicator of the overall CRE market.

file:///C:/Users/Owner/Desktop/2023%202%20Feb%202%20-%20GreenStreet%20CPPI%20update.pdf

Overall prices have declined back to pre-pandemic levels. Have you been adjusting 2021 and 2022 sale prices downward at least 10%-20%? Have you been using cap rates 75-100bp higher than those shown in 2021 and 2022 sales? Are you forecasting residential lot and home price declines of 10%-20%+ (should be WAY more for finished lots) over the next 1-2 years? Have you adjusted absorption rates in 2022 downward 50%-75%+?
As me and my wife have joked for decades, in AppraisalLand every subdivision sells out quickly….office buildings in markets that literally haven’t seen vacancy rates below 10% since the 1980’s will lease up to 95%…on and on. Vacant land that has been for sale for 30 years will have a marketing time of 12 months. AppraisalLand is a very, very happy place to be in lol
It is up to reviewers to start pushing back hard on conclusions that don’t reflect current and future market conditions. Market Value is based on looking forward thru the windshield, not looking in the rear-view mirror. Data from the rear-view mirror must be adjusted to reflect current and future market conditions.
The above has been a broken record for my entire 36-year career. You would think the industry would learn from past cycles and change quickly when the market changes. It is not acceptable to wait until sales data is available to show the decline has occurred. Sales volume dries up in a declining market. By the time you have sales data the bottom has probably occurred and the market is starting to turn up. Reports like this one from GreenStreet provide the data needed to reflect current and upcoming market conditions. The data proving a decline has occurred and may continue is readily available. Use it.
I have a dream that one day AppraisalLand will no longer exist.
Shalom,
The Mann

Reviewer Thoughts & Tips

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

 

Reviewer Thoughts & Tips

GEORGIA CLARIFIES LAW ON EVALUATIONS

SEPTEMBER 26, 2020 – The following is from the Appraisal Institute’s Washington Report:

The Georgia Real Estate Commission & Appraisers Board on July 30 adopted a rule change that “eliminates language that has caused confusion in the industry concerning when Georgia appraisers can conduct evaluations.” The change addresses the reporting format for evaluations that are prepared by appraisers for financial institutions that are not regulated by a federal financial institution’s regulatory agency.
The previous rule stated that evaluations are allowed to be “prepared in any reporting format, such as, but not limited to, a self-contained appraisal report, a summary appraisal report and a restricted use appraisal report if the reporting format meets the requirements of the nonfederal financial institution.”
The updated rule, which took effect Aug. 19, removes specific references to the transactions for which an appraiser may provide an evaluation, stating instead that appraisers can provide evaluations “for any transaction that qualifies to be performed as an evaluation under the Interagency Appraisal and Evaluation Guidelines.”
The rule also eliminates enumeration of an evaluation’s required content in favor of language that states, “at a minimum, the development and content of an Evaluation Appraisal shall comply with the guidelines set forth in the Interagency Appraisal and Evaluation Guidelines.”
Reviewer Thoughts & Tips

VALIDATIONS

MAY 29, 2020 – Validations are the little known and little used product that get overlooked in the world of Appraisals and Evaluations.  The December 2010 Interagency Appraisals and Evaluations Guidelines (IAEG) document has the following section that addresses Validations:

XIV. Validity of Appraisals and Evaluations
The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as:
 Passage of time.
 Volatility of the local market.
 Changes in terms and availability of financing.
 Natural disasters.
 Limited or over supply of competing properties.
 Improvements to the subject property or competing properties.
 Lack of maintenance of the subject or competing properties.
 Changes in underlying economic and market assumptions, such as capitalization rates and lease terms.
 Changes in zoning, building materials, or technology.
 Environmental contamination.

Validations answer one simple question – is the value of the real estate collateral equal to or greater than the value in a prior Appraisal or Evaluation?  If so, then that value can be brought up to today.  If not, then a new Appraisal or Evaluation is needed.

Validations are useful in level to rising markets.  They are not very useful in the current market conditions.

However, not all property types have experienced a value decline this year.  In general, industrial properties and national tenant leased properties where the tenant has a bond rating A and above, are still candidates for Validations.  Apartments might be depending on the age of the prior Appraisal or Evaluation and the property location.

I have updated the Validation Report that I originally developed in 1994.  This report is intended to be used by internal bank employees.  It is not for use by fee appraisers, as it does not comply with USPAP.  If you are a bank employee and want a copy of my report template, just email me at GeorgeRMann@Aol.Com.  I will send it to you for free:)

It took me 25 years to finally get Evaluations to be mainstream.  Validations are next.  They are under utilized.  Albeit, today’s market is not ideal for them.  But, we will get back to market conditions where they are useful again.  My plan is to design a Restricted Appraisal Report (RAR) specific to the Validations need for fee appraisers to use.  But, at this time, this is not needed for the most part.

Again, bank staff please contact me if you want a copy of my template.

Everyone stay safe.

The Mann

Reviewer Thoughts & Tips

Facilitating Real Estate-Related Transactions Affected by COVID-19

Summary

The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve System (collectively, the agencies) issued an interim final rule (IFR) that allows institutions supervised by the agencies to defer obtaining an appraisal or evaluation for up to 120 days after the closing of certain residential and commercial real estate loans. The agencies, with the National Credit Union Administration and the Consumer Financial Protection Bureau, in consultation with the state financial regulators, also issued an Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (Statement). The Statement outlines existing flexibilities provided by industry appraisal standards and the agencies’ appraisal regulations and highlights temporary changes to Fannie Mae and Freddie Mac appraisal standards to facilitate real estate transactions.

Statement of Applicability to Institutions under $1 Billion in Total Assets:

This Financial Institution Letter (FIL) applies to all FDIC-supervised institutions.

Suggested Distribution

FDIC-Supervised Banks

Highlights:

The agencies recognize that the National Emergency declared in connection with coronavirus disease 2019 (COVID-19) presents challenges for individuals performing appraisals and evaluations to perform inspections and complete valuation assignments in a timely manner.

  • The IFR:
    • Defers the requirement to obtain an appraisal or evaluation for up to 120 days following the closing of a transaction for certain residential and commercial real estate transactions, excluding transactions for acquisition, development, and construction of real estate
    • States that the agencies are providing this relief to allow regulated institutions to expeditiously extend liquidity to creditworthy households and businesses in light of recent strains on the U.S. economy as a result of COVID-19.
    • Indicates regulated institutions should make best efforts to obtain a credible valuation of real property collateral before the loan closing, and otherwise underwrite loans consistent with the principles in the agencies’ Standards for Safety and Soundness and Real Estate Lending Standards.
    • States that this temporary change to the appraisal rules expires on December 31, 2020.
  • The Statement:
    • Outlines existing flexibilities in the Uniform Standards of Professional Appraisal Practice and the agencies’ appraisal regulations.
    • Advises that there are temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during this challenging time.

 

Mann Overboard, Reviewer Thoughts & Tips

NCUA RAISED DE MINIMUS TO $1,000,000

July 19, 2019 – See the link below for more info about the NCUA’s decision to one up banks and raise the commercial appraisal threshold from $250,000 to $1,000,000.  Banks recently had their threshold for this loan category raised to $500,000.  The obvious question is will banks be able to get their regulators to follow what the NCUA did….we shall see.

For those who are jumping on my Evaluation bandwagon after 25+ years, this only means more work for you.  If your State does not allow licensed/certified appraisers to perform non-USPAP Evaluations, you need to get them moving on this.  Can you hear me North and South Carolina:)

The Mann

https://www.ncua.gov/newsroom/press-release/2019/appraisal-rule-will-help-boost-economic-activity-job-creation-communities

Mann Overboard

A NICE WIN FOR ZILLOW

February 12, 2019 – The following article details a major court victory for Zillow.  This is great to see.  Zillow is needed as an alternative to NAR.

Zillow has been right on target for the last 3 houses that I have owned.  It has been nice to see the monthly change and ebb and flow of value.  Obviously others have had not seen the accuracy that I have encountered.  Of course, the same occurs with actual real estate appraisals, too:)

https://cookcountyrecord.com/stories/511770943-appeals-panel-zillow-s-zestimate-online-home-value-estimations-just-opinion-not-illegal-appraisals

Reviewer Thoughts & Tips

THE ‘ERROR’ IN THE 2010 INTERAGENCY APPRAISAL GUIDELINES

July 30, 2018 – The following wording from the December 2010 IAEG suggests that property value be used to determine if an appraisal or evaluation is needed.  Obviously, this is not possible since property value is not known at the time a decision is made.

The text appears next followed by a reply from G. Kevin Lawton with the OCC.  Mr. Lawton was kind enough to provide the response and allow it to be credited to him.

Text from Item 1 in Appendix A:

1. Appraisal Threshold
For transactions with a transaction value equal to or less than $250,000, the Agencies’ appraisal regulations, at a minimum, require an evaluation consistent with safe and sound banking practices.54 If an institution enters into a transaction that is secured by several individual properties that are not part of a tract development, the estimate of value of each individual property should determine whether an appraisal or evaluation would be required for that property. For example, an institution makes a loan secured by seven commercial properties in different markets with two properties valued in excess of the appraisal threshold and five properties valued less than the appraisal threshold. An institution would need to obtain an appraisal on the two properties valued in excess of the appraisal threshold and evaluations on the five properties below the appraisal threshold, even though the aggregate loan commitment exceeds the appraisal threshold.

Mr. Lawton’s response:

This is one of those areas in the Guidelines where the wording, which mixes the concept of “value” and “transaction value,” can create a problem that is confusing and not consistent with the regulation, and I have had banks and examiners complain about the inconsistency.

The solution is to have banks allocate “transaction value” among the individual properties rather than “property value.”  The bank should allocate the entire aggregate commitment among properties.  Doing this allocation of “transaction value” rather than expected “property value,” sticks to the spirit of the regulation itself.  There is another, bigger advantage of using transaction value as the driver: it avoids the Catch‐22 problem that some banks have brought up: “what if I allocate property value to one property of $200,000, obtain an evaluation, and the evaluation result shows a market value (property value) of $260,000, do I then need to go get an appraisal?”  In other words, “I estimated the property value to be $200,000 and I was wrong. The property value is $260,000 and since, using the “property value” as the driver for what is needed, I now need an appraisal because the property value is above the threshold. This, in itself, is an area where the Guidelines are not consistent with the regulation, since the Guidelines talk about property values “less than the appraisal threshold” (Appendix A, Section 1). That sentence, and the following sentence in the Guidelines mix the concept of “property value” and “transaction value” (last two sentences in Section 1).

The “appraisal threshold” deals with transaction value, not property value.  So, back to the example above, if the banker estimates (allocates) $200,000 of the transaction value to the property (rather than “guessing” a $200,000 property value) then an evaluation is allowable and if the evaluation result shows a property value of $260,000 there is no Catch‐22.  It does not matter what the property value result is because property value does not drive what is needed.  So when a bank addresses “property value” as the driver of what product (appraisal or evaluation) is the minimum product required under the regulation they may need an evaluation (based on a guess of property value of $200,000) followed by an appraisal (because the evaluation shows a property value of $260,000). This is not what the Guidelines intended.

One could probably argue this several ways, but the “allocation of transaction value” among the individual properties, accomplishes the following:  1) it is consistent with the intent of the regulation, 2) doesn’t jumble the concepts of property value and transaction value, 3) avoids the “what if’s” when property value is the driver, 4) is understandable, and, 5) is a practical solution for our bankers.

Hope this provides some clarity to this issue.

The Mann