Part 323 - Appraisals

Question 1

Which transactions do not require an appraisal ?

Answer 1

1. $250,000 or less – transaction amount
2. Fiduciary Capacity - Institution is acting in a fiduciary capacity
3. No New Monies Advanced – other than reasonable closing costs
4. No Obvious and Material Change in a) Market Conditions or b) Physical Aspects of Property
5. FDIC Determines - that the services of an appraiser are not necessary in order to protect federal financial and public policy interests or to protect the safety and soundness of the institution
6. Gty by US Government (& Sponsored) Agency - Transactions wholly or partially insured or guaranteed by US government agency
7. Original Appraisal Acceptable - Transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan (or similar) and each loan met FDIC regulatory requirements for appraisals at origination
8. Transaction of $1MM or less AND repayment not dependent on a) sale of or b) rental income from RE
9. Lease of RE - entered into, unless economically equivalent to purchase or sale of RE
10. Purposes other than the RE’s value – lien not taken for real estate
11. Abundance of caution - Lien on RE has been taken as collateral in an abundance of caution
12. Sold to FNMA / FHLMC & Meets Stds - Transaction qualifies for sale to a government agency or is a residential real estate transaction in which the appraisal conforms to FNMA or FHMLC standards
13. Not secured by RE

Question 2

What are the 5 minimum appraisal standards?

Answer 2

1. State licensed or certified appraisers
2. USPAP – conform to USPAP standards (Preamble – Ethics; Standard 1- Appraisal Techniques; Standard 2- Report Content; Standard 3- Review Procedures)
3. Market Value - Be based on the definition of market value
4. Written and contain sufficient information to support the institutions decision
5. Appropriate deductions and discounts – analyze and review for proposed improvements, non-market terms, etc

Question 3

When do you need a state certified appraiser vs a state licensed appraiser?

Answer 3

• Part 323 required a state certified appraiser for all loans > $1,000,000
• If an appraisal is required, a state licensed (only) appraiser is only acceptable for a non-complex 1-4, otherwise need certified.

Question 4

What are the three types of appraisal reports (RM Manual)

Answer 4

1. Self-Contained - This is a full report and provides the most detail
2. Summary - Presents information in a condensed manner
3. Restricted Report - Capsulated report with supporting details in appraisers files (usually not appropriate)

Question 5

What are the three valuation approaches (RM Manual)

Answer 5

1. Cost Approach - reproduction cost of building and improvements, less estimated depreciation, plus land value (best approach to value construction loans)
2. Market Data or Direct Sales Comparison Approach - examines the price of similar properties that have sold in the local market, estimating value based on comparable properties selling price (best approach to value owner occupied residential property)
3. Income Approach - Discounted value of future net operating income, including any reversion value, or capitalization of all future income streams after occupancy is achieved (best approach to value income producing properties).