Regulators Said To Weigh Appraisal Change That May Spur Lending

[Jim Bartley]

As President Donald Trump seeks to knock down government constraints on business loans, U.S. bank regulators have tentatively agreed to ease an appraisal requirement that could help commercial real estate borrowers, said people familiar with talks among the agencies.

Regulators have decided the threshold for requiring appraisals on commercial property should be increased to $400,000 from $250,000, according to two people who asked that they not be identified because the discussions aren’t public. The threshold for residential real restate would remain at $250,000, they said.

https://www.bloomberg.com/news/arti...-weigh-appraisal-change-that-may-spur-lending

 

[Randolph Kinney]

Nibbling at the edges to pump up volume. Wonder if no appraisal increases risk? If not, why stop at $400,000?

 

[Michael S]

Can't remember the last appraisal I did for a property that was under $400,000. Usually lose out on those smaller jobs to local appraisers with much lower fees. Those jobs that have been under that amount have usually been somewhat unusual such as veterinary clinics or a proposed brewery. Overall I don’t see this having much effect on anything.

 

[Red Flint]

Could mean more openings at lending institutions for people to do 'evaluations' of less than $400,000 commercial value, brush off those wingtips.

 

[Michael S]

Could mean more openings at lending institutions for people to do 'evaluations' of less than $400,000 commercial value, brush off those wingtips.

I do have one client that orders evaluations for smaller properties. The fees aren't great but the scope of work is minimal (restricted report - almost always sales comparison approach only) and usually the jobs are pretty easy because there's plenty of data for a single office condo or a small commercial building.

 

[alex gilbert]

Can't remember the last appraisal I did for a property that was under $400,000.

The transaction value is not the property value. "The regulations define transaction value as the amount of the loan or extension of credit, not the value of the property."

 

[RebelNYC]

The transaction value is not the property value. "The regulations define transaction value as the amount of the loan or extension of credit, not the value of the property."

I did not know this. This actually would be a disaster in most of middle America.

 

[Gobears81]

I did not know this. This actually would be a disaster in most of middle America.

It would hurt. As much as all of us like to associate ourselves with the $20,000,000 plus appraisals, you can't live in a tertiary or depressed market and not do appraisals that have loan amounts lower than this level. I have been fortunate to stay busy for several years, but there are already trainees from other towns that are causing me to lose out on roughly 90% of the bids for one client in the town I reside that awards strictly on a lowest cost/ fastest turn time basis. I remember losing out on a bid for an appraisal of a 45,000 SF multi-tenant MOB selling for $11,000,000 and found out that the winning bid was $1,700. Increasing the loan/ appraisal threshold might cause even lower fees, which in some cases is already too low.

 

[Michael S]

It would hurt. As much as all of us like to associate ourselves with the $20,000,000 plus appraisals, you can't live in a tertiary or depressed market and not do appraisals that have loan amounts lower than this level. I have been fortunate to stay busy for several years, but there are already trainees from other towns that are causing me to lose out on roughly 90% of the bids for one client in the town I reside that awards strictly on a lowest cost/ fastest turn time basis. I remember losing out on a bid for an appraisal of a 45,000 SF multi-tenant MOB selling for $11,000,000 and found out that the winning bid was $1,700. Increasing the loan/ appraisal threshold might cause even lower fees, which in some cases is already too low.

The only way to win being the cheapest is to have enough volume to make up for the low margins. Usually that means cutting corners and not producing as good quality as the person who takes more time. Eventually the person will do perform that kind of assignment for the kind of fee is either going to starve or produce some bad reports and get dropped by the client. Or it may be that you just have to write that client off and try to find someone willing to pay higher fees for better work.

Even if that property was next door to my office I probably wouldn't quote a fee any less than double that.

 

[Gobears81]

Or it may be that you just have to write that client off and try to find someone willing to pay higher fees for better work.

There is truth to that. They do quite a bit here but the only orders I seem to get are ones that I've done previously that they already knew about and either award directly or I am in a position to bid lower due to it being appraised recently. Actually, I received an acceptable fee from them on something a few months ago that I haven't appraised in the past and was surprised that I received it. It was with them that I came to the realization that bidding low to get clients acquainted with your work is not a loss leader strategy, but somewhat of a waste of time/money that could be better spent elsewhere. I hope that isn't a cocky statement, but if we aren't proud of our own work product, perhaps we should be in another line of work.