Regulators recently proposed raising the threshold on real estate transactions needing an appraisal. The new requirements could save borrowers both time and money.
Federal regulatory agencies, such as the OCC and the FDIC, are proposing raising the value threshold at which commercial properties be must appraised. Currently any commercial property valued above 250,000 must get a detailed appraisal before any mortgage can be approved. The new threshold would require commercial properties valued above 400,000 dollars to get an appraisal. The revision was spurred by EGPRA (Economic Growth and Paperwork Reduction Act), an act that requires financial regulators to reconsider existing regulations every decade..The American Bankers Association in particular advocated for this change. The new appraisal standard is meant to reflect both inflation and the increased price of Texas Commercial Real Estate since the threshold was last revised over two decades ago.
According to the FDIC the new guidelines will ensure that roughly 28 percent of Texas Commercial Real Estate transactions won't require an appraisal. Under the new guidelines properties like farms, warehouses and small storefronts valued under 400,000 dollars would only be required to get an evaluation. This process is less detailed and doesn't require a certified appraiser. The change will certainly make things easier for buyers and banks in rural areas where certified appraisers are hard to come by. According to FDIC Chairman Martin Gruenburg, “(This) will be a meaningful reduction in regulatory burden, particularly for rural banks who would be expected to originate many of these smaller transactions.”
The revised appraisal threshold could benefit both banks and
borrowers involved in Texas Commercial Real Estate
An appraisal on a commercial property is both expensive and time consuming. A thorough appraisal can cost upwards of 25,000 dollars depending on the property. Appraisers are certainly against the proposed change claiming it could undermine the soundness of the market. Jim Amorin head of the Appraisal Institute claims “The agencies’ proposal contradicts federal bank regulators’ concerns regarding the state of the Texas Commercial Real Estate market and the quality of evaluation reports.” However raising the threshold will likely only smooth out Texas Commercial Real Estate transactions in the future. Potentially making the Texas Commercial Mortgage process faster and less expensive. Considering how the market has changed since the threshold was last raised, It is unlikely the change will threaten the soundness of the real estate market.
It is important that regulations adapt to the market, revising the appraisal threshold does just that.
Whether or not the proposed change goes into effect it seems necessary that regulations reflect the dynamic and continuously changing Texas Commercial Real Estate market. In spite of the firm objections of appraisers who claim a thorough appraisal is necessary to establish the value of a property, the soundness of the real estate market will likely only be minimally impacted by the proposed change. Factors like inflation have raised the value of Texas Commercial Real Estate transactions since the guidelines were last revised. Eliminating the need for an appraisal in transactions of less than 400,000 dollars may be a small step but it will undoubtedly save banks and borrowers both time and money.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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