Federal regulators issued a proposal Tuesday that would increase the threshold at which commercial real estate transactions require an appraisal, a move that could give some lenders sizable relief.
“Bankers in rural parts of the country [have] expressed significant concerns with delays in completing real estate transactions due to a scarcity of appraisers in those areas,” Federal Deposit Insurance Corp. Chairman Martin Gruenberg said at a board meeting to discuss the plan on Tuesday. “I think it is fair to say that this proposal will be responsive to those concerns, raising the commercial real estate threshold from $250,000 to $400,000 as proposed, and thus increasing the overall percentage of commercial real estate transactions exempt from needing appraisals from 17% to 28%.”
The proposal is an outshoot of the Economic Growth and Regulatory Paperwork Reduction Act process, a comprehensive review of financial regulations that ended earlier this year.
Acting Comptroller of the Currency Keith Noreika said he had signed off on the rule on behalf of his agency, in addition to voting for it at the FDIC meeting.
“I believe the proposed rule contributes to reducing regulatory burden and promoting economic growth, while maintaining the safety and soundness of our banking system,” he said.
The Federal Reserve Board is expected to sign off on the plan soon.
In their presentation to the board, FDIC staff suggested that the $400,000 threshold had been calculated based on a study of the Federal Reserve Commercial Real Estate Price Index, which evaluates how prices evolve over time.
“The [proposal] would raise the threshold to a level approximating prices at the low point of the recent cycle,” Doreen Eberly, the director of the FDIC’s division of risk management supervision, said in a prepared statement.
“This more conservative approach is appropriate for a one-time threshold change," the statement said, "as it takes into consideration the highly cyclical nature of the commercial real estate market and volatility in actual prices of commercial real estate over time.”
The proposal will be open for public comment for two months after its publication in the Federal Register. Regulators are also asking for feedback on whether to raise the appraisal threshold for one- to four-family residential properties.