When it comes to what a non-appraiser needs to know about appraisals and evaluations, there’s a lot of different opinions. Some say you should know EVERYTHING, some think you should leave it up to the appraisers to do their job. At MountainSeed we like to take the middle ground: Know the essentials so that you can be efficient and informed, but not too much that you distract from your primary objective. After all, you’re not an appraiser, so you don’t need to know the nitty-gritty details.
To that point, we’ve taken apart the Office of the Comptroller of the Currency’s (OCC) latest guidelines to get to the basics that a non-appraiser needs to know. Check out questions below to see if you know the answers to these five essential appraisal and evaluation questions.
1. Do you know what should go in an evaluation?
As outlined by the Interagency Appraisal & Evaluation Guidelines, an evaluation should contain the necessary analysis and information that will be able to support a strong credit decision. Outside of that, appraisal and evaluation requirements state that as long as the evaluation is appropriate for the task and is consistent with the content and development requirements that support secure banking practices, they are good to go.
2. Do you know when a financial institution should use a tax assessed value (TAV) to develop an evaluation?
There are a number of factors that meditate when a financial institution should use a TAV as a necessary piece of an evaluation. Especially as it pertains to the market value of the property, a TAV could be applicable in the following instances:
- When determining how frequently property revolutions occur and how the tax jurisdiction affect this;
- When documenting an analysis to figure out the relationship when the market values and TAV for properties within a certain tax jurisdiction;
- When checking how a TAV (or how multiple TAVs) coordinate with market value based on the sales date, and whether it’s still applicable per the evaluation’s effective date.
While TAV’s help to inform market value conclusions, they are not themselves market value conclusions. They can be helpful as supporting evidence for an evaluation, however they are not a replacement for an evaluation and should not be considered such.
3. When can a financial institution who enters in an FRT with an intermediate lender accept appraisals completed by the intermediate lender for the real estate collateral in question?
There are three instances when a financial institution can accept appraisals from an intermediate lender. All must be true to be accepted, and they are:
- When the lender is a financial services institution, such as a bank or credit union;
- When the appraiser has no interest in the property, either direct or indirect;
- And when all appraisal regulations are accurate and regarded in the report.
4. When can a financial institution make a final credit decision prior to the appraisal or evaluation being obtained?
While conditional approvals may be granted to potential borrowers prior to seeing the full appraisal or evaluation, final action should ONLY occur after a financial institution has seen a full report. This applies to both residential and commercial real estate transactions.
5. When is an appraisal required as part of the work-out plan on a problem loan?
An evaluation is required in certain loan workout situations because this situation is technically considered a real-estate-related financial transaction. However, a financial institution has the flexibility to choose to get a new appraisal if they so desire in addition to the evaluation.
While we only went through the basics of appraisals and evaluations, we hope you feel better prepared as a non-appraiser to manage your daily tasks. Interested in learning more about appraisals? Check out our blog 4 Things You Need To Know About Appraisal Exemptions, 6 Essential Appraisal Regulations That you Need To Prep For, or get in touch with one of our appraisal experts to get insight on how appraisal and evaluations affect your financial institution.