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.
Tag Archives: bank examiners
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:
- 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