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.
