77450 Federal Register / Vol. 75, No. 237 / Friday, December 10, 2010 / Notices 

1OCC: 12 CFR part 34, subpart C: FRB: 12 CFR 

part 208, subpart E and 12 CFR part 225; subpart 

G; FDIC: 12 CFR part 323; OTS: 12 CFR part 564; 

and NCUA: 12 CFR part 722. 

2Public Law 101–73, Title XI, 103 Stat. 511 

(1989); 12 U.S.C. 3331, et seq. 

3 12 U.S.C. 3339. 

4 12 U.S.C. 3350(4). 

5See OCC: Comptroller’s Handbook, Commercial 

Real Estate and Construction Lending (1998) 

(Appendix E); FRB: 1994 Interagency Appraisal and 

Evaluation Guidelines (SR letter 94–55); FDIC: FIL– 

74–94; and OTS: 1994 Interagency Appraisal and 

Evaluation Guidelines (Thrift Bulletin 55a). 

6OCC: 12 CFR part 34, subpart D; FRB: 12 CFR 

part 208, Appendix C; FDIC: 12 CFR part 365; and 

OTS: 12 CFR 560.100 and 560.101. NCUA’s general 

lending regulation addresses residential real estate 

lending by Federal credit unions, and its member 

business loan regulation addresses commercial real 

estate lending. 12 CFR 701.21; 12 CFR part 723. 

7The 2003 Interagency Statement on Independent 

Appraisal and Evaluation Functions, OCC: 

Advisory Letter 2003–9; FRB: SR letter 03–18; FDIC: 

FIL–84–2003; OTS: CEO Memorandum No.184; and 

NCUA: NCUA Letter to Credit Unions 03–CU–17. 

The 2005 Frequently Asked Questions on the 

Appraisal Regulations and the Interagency 

Statement on Independent Appraisal and 

Evaluation Functions, OCC: OCC Bulletin 2005–6; 

FRB: SR letter 05–5; FDIC: FIL–20–2005; OTS: CEO 

Memorandum No. 213; and NCUA: NCUA Letter to 

Credit Unions 05–CU–06. The 2006 Interagency 

Statement on the 2006 Revisions to the Uniform 

Standards of Professional Appraisal Practice, OCC: 

OCC Bulletin 2006–27; FRB: SR letter 06–9; FDIC: 

FIL–53–2006; OTS: CEO Memorandum No. 240; 

and NCUA: Regulatory Alert 06–RA–04. The 2005 

Interagency FAQs on Residential Tract 

Development Lending, OCC: OCC Bulletin 2005–32; 

FRB: SR letter 05–14; FDIC: FIL–90–2005; OTS: 

CEO Memorandum No. 225; and NCUA: NCUA 

Letter to Credit Unions 05–CU–12. 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

[Docket ID OCC–2010–0012] 

FEDERAL RESERVE SYSTEM 

[Docket No. OP–1338] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[Docket No. 2010–0018] 

NATIONAL CREDIT UNION 

ADMINISTRATION 

RIN 3133–AD38 

Interagency Appraisal and Evaluation 

Guidelines 

AGENCY: Office of the Comptroller of the 

Currency, Treasury (OCC); Board of 

Governors of the Federal Reserve 

System (FRB); Federal Deposit 

Insurance Corporation (FDIC); Office of 

Thrift Supervision, Treasury (OTS); and 

National Credit Union Administration 

(NCUA) (collectively, the Agencies). 

ACTION: Final guidance. 

SUMMARY: The Agencies are issuing final 

Interagency Appraisal and Evaluation 

Guidelines (Guidelines) to provide 

further clarification of the Agencies’ 

appraisal regulations and supervisory 

guidance to institutions and examiners 

about prudent appraisal and evaluation 

programs. The Guidelines, including 

their appendices, update and replace 

existing supervisory guidance 

documents to reflect developments 

concerning appraisals and evaluations, 

as well as changes in appraisal 

standards and advancements in 

regulated institutions’ collateral 

valuation methods. The Guidelines 

clarify the Agencies’ longstanding 

expectations for an institution’s 

appraisal and evaluation program to 

conduct real estate lending in a safe and 

sound manner. Further, the Guidelines 

promote consistency in the application 

and enforcement of the Agencies’ 

appraisal regulations and safe and 

sound banking practices. The Agencies 

recognize that revisions to the 

Guidelines may be necessary to address 

future regulations implementing the 

provisions of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010. 

DATES: The Guidelines are effective on 

December 10, 2010. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Robert L. Parson, Appraisal Policy 

Specialist, (202) 874–5411, or Darrin L. 

Benhart, Director, Credit and Market 

Risk Division, (202) 874–4564; or 

Christopher C. Manthey, Special 

Counsel, Bank Activities and Structure 

Division, (202) 874–5300, or Mitchell 

Plave, Counsel, Legislative and 

Regulatory Activities Division, (202) 

874–5090. 

FRB: Virginia M. Gibbs, Senior 

Supervisory Financial Analyst, (202) 

452–2521, or T. Kirk Odegard, Manager, 

Policy Implementation and 

Effectiveness, (202) 530–6225, Division 

of Banking Supervision and Regulation; 

or Walter R. McEwen, Senior Counsel, 

(202) 452–3321, or Benjamin W. 

McDonough, Counsel, (202) 452–2036, 

Legal Division. For users of 

Telecommunications Device for the Deaf 

(‘‘TDD’’) only, contact (202) 263–4869. 

FDIC: Beverlea S. Gardner, Senior 

Examination Specialist, Division of 

Supervision and Consumer Protection, 

(202) 898–6790; or Janet V. Norcom, 

Counsel, (202) 898–8886, or Mark 

Mellon, Counsel, (202) 898–3884, Legal 

Division. 

OTS: Deborah S. Merkle, Senior 

Project Manager, Credit Risk, Risk 

Management, (202) 906–5688; or Marvin 

L. Shaw, Senior Attorney, Regulations 

and Legislation Division (202) 906– 

6639. 

NCUA: Vincent H. Vieten, Member 

Business Loan Program Officer, Office of 

Examination and Insurance, (703) 518– 

6396; or Sheila A. Albin, Staff Attorney, 

Office of General Counsel, (703) 518– 

6547. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Agencies’ appraisal regulations 1

implementing Title XI of the Financial 

Institutions Reform, Recovery, and 

Enforcement Act of 1989 (FIRREA) 2 set 

forth, among other requirements, 

minimum standards for the performance 

of real estate appraisals in connection 

with ‘‘federally related transactions,’’ 3

which are defined as those real estaterelated financial transactions that an 

Agency engages in, contracts for, or 

regulates and that require the services of 

an appraiser.4 These regulations also 

specify the requirement for evaluations 

of real estate collateral in certain 

transactions that do not require an 

appraisal. 

In October 1994, the OCC, FRB, FDIC 

and OTS jointly issued the Interagency 

Appraisal and Evaluation Guidelines 5

(1994 Guidelines) to provide further 

guidance to regulated financial 

institutions on prudent appraisal and 

evaluation policies, procedures and 

practices. Further, under the Agencies’ 

real estate lending regulations,6

federally regulated institutions must 

adopt and maintain written real estate 

lending policies that are consistent with 

safe and sound lending practices and 

should reflect consideration of the 

Interagency Guidelines for Real Estate 

Lending Policies (Lending Guidelines). 

The Lending Guidelines state that an 

institution is responsible for 

establishing a real estate appraisal and 

evaluation program, including the type 

and frequency of collateral valuations. 

Since the issuance of the 1994 

Guidelines, the Agencies have issued 

additional supervisory guidance 

documents 7 to promote sound practices 

in regulated institutions’ appraisal and 

evaluation programs, including 

independence in the collateral valuation 

function, the appraisal of residential 

tract developments, and compliance 

with revisions to the Uniform Standards 

of Professional Appraisal Practice 

(USPAP). There also have been 

significant industry developments, such 

as advancements in information 

technology that have affected the 

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8 73 FR 69647 (Nov. 19, 2008). 

9 59 FR 29481 (Jun. 7, 1994). 

10Public Law 111–203, 124 Stat. 1376 (2010). 

11See, for example, Title IV of Division A of the 

Housing and Economic Recovery Act of 2008, 

Public Law 110–289, Title IV, Division A, 122 Stat. 

2800 (2008); 12 U.S.C. 1707, et seq., and FRB 

Regulation Z, 12 CFR 226.36 and 226.42. 

development and delivery of appraisals 

and evaluations. 

In response to these developments, 

the Agencies published for comment the 

Proposed Interagency Appraisal and 

Evaluation Guidelines (Proposal) on 

November 19, 2008.8 After considering 

the comments on the Proposal, the 

Agencies made revisions to the Proposal 

and are now issuing the Guidelines. The 

Guidelines apply to all real estate 

lending functions and real estate-related 

financial transactions originated or 

purchased by a regulated institution for 

its own portfolio or for assets held for 

sale. The changes provide updates to 

and consolidate some of the existing 

supervisory issuances. The Guidelines 

track the format and substance of the 

1994 Guidelines and existing 

interpretations as reflected in 

supervisory guidance documents and 

the preamble that accompanies and 

describes amendments to the Agencies’ 

appraisal regulations as published in 

June 1994.9 The Guidelines also reflect 

refinements made by the Agencies in 

the supervision of institutions’ appraisal 

and evaluation programs. Since the 

issuance of the Proposal, changes in 

market conditions underscore the 

importance of institutions following 

sound collateral valuation practices 

when originating or modifying real 

estate loans and monitoring portfolio 

risk. 

In implementing the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010 (the Dodd-Frank Act),10 the 

Agencies will determine whether future 

revisions to the Guidelines may be 

necessary. However, the Agencies are 

issuing the Guidelines to promote 

consistency in the application and 

enforcement of the Agencies’ current 

appraisal requirements and related 

supervisory guidance. In finalizing the 

Guidelines, the Agencies considered the 

Dodd-Frank Act, other Federal statutory 

and regulatory changes affecting 

appraisals,11 and the public comment 

process. The Guidelines are also 

responsive to the majority of comments, 

which expressed support for the 

Proposal and confirmed that additional 

clarification of existing regulatory and 

supervisory standards serve to 

strengthen the real estate collateral 

valuation and risk management 

practices across insured depository 

institutions. 

The Guidelines contain four 

appendices that clarify current 

regulatory requirements and supervisory 

guidance. Appendix A provides further 

clarification on real estate-related 

financial transactions that are exempt 

from the Agencies’ appraisal 

regulations. Appendix B addresses an 

institution’s use of analytical methods 

or technological tools in the 

development of an evaluation. 

Appendix C clarifies the minimum 

appraisal standards required by the 

Agencies’ appraisal regulations for 

analyzing and reporting appropriate 

deductions and discounts in appraisals. 

Based on comments on the Proposal, the 

Agencies added this additional 

appendix. Appendix D (previously 

Appendix C in the Proposal) provides a 

glossary of terms. 

II. Comments on the Proposal 

The Agencies requested comment on 

all aspects of the Proposal, and 

specifically requested comment on: (1) 

The clarity of the Proposal regarding 

interpretations of the appraisal 

exemptions discussed in Appendix A; 

(2) the appropriateness of risk 

management expectations and controls 

in the evaluation process, including 

those discussed in Appendix B; and (3) 

the expectations in the Proposal on 

reviewing appraisals and evaluations. In 

particular, the Agencies requested 

comment on whether automated tools or 

sampling methods used to review 

appraisals and evaluations supporting 

lower risk single-family residential 

mortgages are appropriate for other low 

risk mortgage transactions, and whether 

appropriate constraints can be placed on 

the use of these tools and methods to 

ensure the overall integrity of an 

institution’s appraisal process for those 

low risk mortgage transactions. 

The Agencies collectively received 

157 unique comments on the Proposal. 

Comments were received from financial 

institutions, appraisers, collateral 

valuation service providers, industryrelated trade associations (industry 

groups), consumer groups, government 

officials, and individuals. 

The majority of financial institution 

and industry group commenters 

supported the Proposal and the 

Agencies’ efforts to update existing 

guidance in this area. Many commenters 

recognized that additional clarification 

of existing regulatory and supervisory 

expectations strengthen the real estate 

collateral valuation and risk 

management practices across federally 

regulated institutions. These 

commenters were in general agreement 

that the Proposal adequately addressed 

developments in collateral valuation 

practices, but also raised technical 

issues and requested that the Agencies 

provide further clarification on a variety 

of topics. 

Some commenters did not support the 

Proposal for various reasons, including 

the need to study the effect of the recent 

market challenges on appraisal practices 

or a request to require appraisals on all 

real estate lending activity conducted by 

federally regulated institutions. Other 

commenters recommended revisions to 

the Agencies’ appraisal regulations that 

cannot be changed with the issuance of 

the Guidelines. Some commenters 

encouraged the Agencies to incorporate 

additional safeguards for consumers in 

the Guidelines. In response, the 

Agencies note that these commenters’ 

suggestions address statutes and 

regulations that are generally beyond 

the scope of the Guidelines, such as the 

Real Estate Settlement Procedures Act 

(RESPA) and the FRB’s Regulation B 

(implementing the Equal Credit 

Opportunity Act). 

Other commenters urged the Agencies 

to work with other Federal agencies and 

government-sponsored enterprises (such 

as Freddie Mac and Fannie Mae) in an 

effort to harmonize standards for 

appraisals and other collateral 

valuations across all channels of 

mortgage lending, not just lending by 

federally regulated institutions. A few 

commenters recommended broad 

initiatives for the Agencies to undertake 

in the context of mitigating mortgage 

fraud and promoting appraisal quality 

through, for example, information 

sharing in the form of national data 

bases. While the Agencies recognize the 

significance of these issues in the 

ongoing public debate on appraisal 

reform through various initiatives, such 

matters are beyond the scope of the 

Guidelines. 

A few commenters questioned the 

timing of the Proposal given the stress 

in the current real estate market. For 

example, one commenter suggested that 

the Agencies withdraw the Proposal to 

allow additional time to study the 

lessons learned from the recent stress in 

the residential mortgage markets. The 

Agencies believe that the timing of the 

release of the Guidelines is appropriate 

to emphasize existing requirements, 

clarify expectations, and ensure 

consistency in the application of the 

Agencies’ appraisal regulations, thereby 

promoting safe and sound collateral 

valuation practices across federally 

regulated institutions. 

Virtually all of the commenters either 

offered suggestions for strengthening or 

clarifying technical aspects of the 

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12 73 FR 44522, 44604 (Jul. 30, 2008); 75 FR 

66554 (Oct. 28, 2010). 

Proposal. The following discussion 

summarizes significant comments on 

specific provisions of the Proposal, the 

Agencies’ responses, and major changes 

to the Proposal as reflected in the 

Guidelines. 

Discussion on the Comments and 

Guidelines 

Supervisory Policy. The Proposal 

addressed the supervisory process for 

assessing the adequacy of an 

institution’s appraisal and evaluation 

program to conduct its real estate 

lending activities consistent with safe 

and sound underwriting practices. It 

also reaffirmed that, when examining an 

institution’s real estate lending activity, 

supervisory staff will review an 

institution’s appraisal and evaluation 

program for compliance with the 

Agencies’ appraisal regulations and 

consistency with related guidance. 

Appraisers and appraisal groups 

asked for further explanation on the 

enforceability of the Guidelines and the 

distinction between supervisory 

guidance and regulatory requirements. 

These commenters expressed the view 

that the Proposal gave too much 

discretion to regulated institutions in 

the development and implementation of 

their appraisal and evaluation programs. 

In particular, these commenters raised 

concerns over the enforcement of the 

Guidelines by the Agencies. Conversely, 

financial institutions found the Proposal 

to be an improvement over existing 

guidance and indicated that it would 

promote consistent application of the 

Agencies’ appraisal requirements. 

The Agencies believe that the 

Proposal adequately addressed the issue 

of enforceability and their supervisory 

process. The Agencies note that their 

appraisal regulations and guidance have 

been in place since the early 1990s and 

that financial institutions are familiar 

with the regulatory and supervisory 

framework. The Agencies believe that 

the Proposal reaffirmed existing 

guidance addressing their supervisory 

expectations for prudent appraisal and 

evaluation policies, procedures, and 

practices. Moreover, an institution’s 

compliance with the regulatory 

requirements and consistency with 

supervisory expectations is considered 

during an Agency’s on-site review of an 

institution’s real estate lending 

activities. However, to address 

commenters’ concerns, the Agencies 

incorporated minor edits to better 

distinguish between regulatory 

requirements and prudent banking 

practices in the Guidelines. In addition, 

the Agencies expanded certain sections 

to provide further clarification in an 

effort to promote consistency in the 

application and enforcement of their 

regulatory requirements and supervisory 

expectations. 

Independence of the Appraisal and 

Evaluation Program. The Proposal 

reaffirmed that an institution’s collateral 

valuation function should be 

independent of the loan production 

process. The Proposal addressed 

longstanding supervisory expectations 

that an institution should implement 

procedures to affirm its program’s 

independence. In response to 

commenters, the Agencies expanded 

this section in the Guidelines to further 

detail their expectations for appropriate 

communication and information sharing 

with persons performing collateral 

valuation assignments. The Guidelines 

address the types of communications 

that would not be construed as coercion 

or undue influence on appraisers and 

persons performing evaluations, as well 

as examples of actions that would 

compromise independence. The 

Guidelines also reference the FRB’s 

Regulation Z (implementing the Truth 

in Lending Act), which was amended in 

2008 and 2010 to include provisions 

regarding appraiser independence.12

Some commenters did not support the 

longstanding flexibility afforded to 

small and rural institutions when 

absolute lines of independence cannot 

be achieved. The Agencies believe that 

small and rural institutions can have 

acceptable risk management practices to 

support their appraisal function and 

conduct their real estate lending activity 

in a safe and sound manner. Therefore, 

the Guidelines, like the Proposal, allow 

for some flexibility to exist so long as an 

institution can demonstrate the 

independence of its collateral valuation 

function from the final credit decision. 

A few commenters asked the Agencies 

to provide further clarification on the 

types of employees who would be 

considered as loan production staff. The 

Agencies note that both the Proposal 

and Guidelines include a definition in 

Appendix D for loan production staff. 

The Agencies believe that the definition 

adequately describes loan production 

staff for purposes of the Guidelines. 

During the supervisory review of an 

institution’s real estate lending 

activities, the Agencies’ examiners 

assess the adequacy of risk management 

practices, including the independence 

of the collateral valuation function. 

Selection of Appraisers and 

Individuals Who Perform Evaluations. 

In the Proposal, this section addressed 

the competency and qualifications of 

appraisers and persons who perform an 

evaluation. Several commenters asked 

for clarification on the factors 

institutions should consider in assessing 

an appraiser’s competency. A few 

commenters also noted that certain 

factors, such as cost and turnaround 

time, should not influence the selection 

of appraisers. Other commenters asked 

the Agencies to clarify certain aspects of 

the process for engaging an appraiser 

and when the appraiser/client 

relationship is established. To address 

these comments, the Agencies 

incorporated clarifying edits in the 

Guidelines to emphasize the importance 

of appraiser competency for a particular 

assignment relative to both the property 

type and geographic market. Moreover, 

the Guidelines stress that an institution 

should not select a valuation method or 

tool solely because it provides the 

highest value, the lowest cost, or the 

fastest response or turnaround time. 

To eliminate redundancies, the 

Guidelines incorporate the discussion in 

the Proposal’s section on qualifications 

of persons who perform evaluations into 

a new section that addresses both the 

qualifications and selection of an 

appraiser and a person who performs an 

evaluation. Further, the Guidelines no 

longer refer to ‘‘a nonpreferential and 

unbiased process’’ for selecting 

appraisers or persons who perform 

evaluations, which could be 

misconstrued in a way that would not 

ensure that a competent person is 

selected for a valuation assignment. 

A few institution commenters asked 

the Agencies to address whether loan 

production staff can recommend an 

appraiser for a particular assignment or 

inclusion on the institution’s list of 

approved appraisers. Staff performing 

the collateral valuation function is 

responsible for selecting an appraiser. 

The Guidelines provide further 

clarification on an institution’s 

procedures for the selection of an 

appraiser for an assignment, including 

the development, administration, and 

maintenance of an approved appraiser 

list, if used. 

Minimum Appraisal Standards. To 

promote the quality of appraisals, the 

Proposal and the Guidelines provide 

further clarification of the minimum 

appraisal standards in the Agencies’ 

appraisal regulations and contain 

guidance on appraisal development and 

reporting to reflect revisions to USPAP. 

Most commenters found the Proposal’s 

additional explanation on these 

standards helpful, particularly the 

discussion on deductions and discounts 

in an appraisal for a residential tract 

development. While this section in the 

Guidelines generally tracks the 

Proposal, the detailed discussion on 

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13 Dodd-Frank Act, Section 1473(r). 

analyzing deductions and discounts has 

been moved to a new appendix. Given 

the importance of these concepts, the 

appendix contains an expanded 

discussion of the appraisal standard for 

deductions and discounts in a 

discounted cash flow analysis. 

Further, several commenters 

addressed the topic of assessment of an 

appraiser’s competency in the context of 

ensuring compliance with the minimum 

appraisal standards. The Guidelines 

reaffirm that a state certification or 

license is a minimum credentialing 

requirement and that an appraiser must 

be selected based on his or her 

competency to perform a particular 

assignment, including knowledge of the 

specific property type and market. 

Further, the Agencies revised the 

Guidelines to confirm that the result of 

an automated valuation model (AVM), 

in and of itself, does not meet the 

Agencies’ minimum appraisal 

standards, regardless of whether the 

results are signed by an appraiser. 

Transactions that Require 

Evaluations. Financial institutions 

appreciated the flexibility contained in 

the Proposal that permitted the use of 

evaluations for low-risk transactions, 

consistent with the Agencies’ appraisal 

regulations. These commenters 

contended that appropriate risk 

management practices provide sufficient 

safeguards to elevate their collateral 

valuation methods (that is, obtaining an 

appraisal instead of an evaluation) when 

warranted. Several appraiser and 

appraisal organization commenters 

expressed their longstanding opposition 

to institutions’ use of evaluations in lieu 

of appraisals for exempt transactions. 

This section in the Guidelines 

references Appendix A, Appraisal 

Exemptions, which has been revised in 

response to comments on the Proposal. 

The Agencies note that the Guidelines 

do not expand the categories of 

appraisal exemptions set forth in the 

Agencies’ appraisal regulations. 

For further clarity, this section 

incorporates certain technical edits to 

address specific comments. For 

instance, the dollar amount of the 

appraisal threshold and of the business 

loan threshold from the Agencies’ 

appraisal regulations were incorporated 

in the text of this section. This section 

also addresses the factors that an 

institution should consider in 

determining whether to obtain an 

appraisal, even though an evaluation is 

permitted. This topic was moved from 

the Evaluation Content section in the 

Proposal to this section, as it relates to 

the regulatory requirement that 

evaluations reflect safe and sound 

banking practices. In particular, 

comments from appraisers and appraisal 

organizations noted that the Agencies 

should not permit evaluations, even 

detailed ones, to substitute for 

appraisals in higher risk real estate 

loans. The Agencies believe that the 

Guidelines adequately address an 

institution’s responsibility to maintain 

policies and procedures for obtaining an 

appropriate appraisal or evaluation to 

support its credit decision. 

Evaluation Development and 

Evaluation Content. As noted above, 

some appraiser and appraisal group 

commenters expressed their views that 

evaluations generally do not provide an 

adequate assessment of a property’s 

market value and requested that the 

Agencies provide additional guidance 

on the content of evaluations and the 

level of detail to be included in 

evaluations supporting higher risk 

transactions. Comments provided by 

financial institutions support the 

approach taken in the Proposal, which 

establishes minimum supervisory 

expectations for an evaluation and is 

designed to ensure an institution 

obtains a more detailed evaluation, or 

possibly an appraisal, when additional 

information is necessary to assess 

collateral risk in the credit decision. 

In response to comments, the 

Agencies revised the Guidelines to 

stress that an institution should 

consider transaction risk when it is 

evaluating the appropriate collateral 

valuation method and level of 

documentation for an evaluation. The 

Guidelines also now provide additional 

clarification on the Agencies’ 

supervisory expectations for the 

development and content of 

evaluations. A new section on 

Evaluation Development provides 

guidance on the requirement in the 

Agencies’ appraisal regulations that 

evaluations must be consistent with safe 

and sound banking practices. These 

revisions incorporate and clarify certain 

supervisory expectations from the 

Evaluation Content section of the 

Proposal, and emphasize an institution’s 

responsibility to establish criteria 

addressing the appropriate level of 

analysis and information necessary to 

support the estimate of market value in 

an evaluation. 

Clarifying edits also reaffirm that 

valuation methods used to develop an 

evaluation must be consistent with safe 

and sound banking practices. For 

example, an AVM may be used for a 

transaction provided the resulting 

evaluation meets all of the supervisory 

expectations in the Evaluation 

Development and Evaluation Content 

sections in the Guidelines, is consistent 

with safe and sound banking practices, 

and produces a credible market value 

conclusion. In response to comments, 

the Guidelines clarify how institutions 

can use analytical methods or 

technological tools to develop an 

evaluation. The Guidelines, for instance, 

emphasize the importance of 

considering the property’s condition in 

the development of an evaluation, 

regardless of the method or tool used. 

Further, technical edits were 

incorporated in the Evaluation Content 

section of the Guidelines to address 

commenters’ questions regarding the 

appropriate level of documentation in 

an evaluation. 

The Guidelines also address questions 

from several commenters on the 

appropriate use of broker price opinions 

(BPOs) in the context of the Agencies’ 

appraisal regulations. The Proposal did 

not specifically address the use of BPOs 

or similar valuation methods. The 

Guidelines confirm that BPOs and other 

similar valuation methods, in and of 

themselves, do not comply with the 

minimum appraisal standards in the 

Agencies’ appraisal regulations and are 

not consistent with the Agencies’ 

minimum supervisory expectations for 

evaluations. A BPO or other valuation 

method may provide useful information 

in developing an appraisal or 

evaluation, for monitoring collateral 

values for existing loans, or in 

modifying loans in certain 

circumstances. Further, the Dodd-Frank 

Act provides, ‘‘[i]n conjunction with the 

purchase of a consumer’s principal 

dwelling, broker price opinions may not 

be used as the primary basis to 

determine the value of a piece of 

property for the purpose of a loan 

origination of a residential mortgage 

loan secured by such piece of 

property.’’ 13

Reviewing Appraisals and 

Evaluations. This section in the 

Proposal and the Guidelines provides 

the Agencies’ expectations for an 

institution to establish an effective, riskfocused process for reviewing appraisals 

and evaluations prior to a final credit 

decision. In the Proposal, the Agencies 

specifically requested comment on the 

Agencies’ expectations for reviewing 

appraisals and evaluations. In 

particular, the Agencies sought 

comment in the Proposal on whether 

the use of automated tools or sampling 

methods for reviewing appraisals or 

evaluations supporting lower risk 

residential mortgages are appropriate for 

other low risk mortgage transactions. 

The Agencies also requested comment 

on whether appropriate constraints can 

be placed on the use of these tools and 

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methods to ensure the overall integrity 

of the institution’s appraisal review 

process for other low risk mortgage 

transactions. Commenters requested 

further clarification on the process for 

institutions to obtain approval to use 

automated tools and sampling methods 

in the review process. The Proposal 

noted that each Agency would address 

the approval process through 

established processes for 

communicating with its regulated 

institutions. 

Several commenters requested further 

clarification on appropriate policies and 

procedures for the review function. 

Some commenters also asked the 

Agencies to address the expectations for 

reviews by property type and risk 

factors. In response to these comments, 

the Guidelines were expanded to clarify 

the Agencies’ expectations for an 

appropriate depth of review, the 

educational and training qualifications 

for reviewers, the resolution of 

valuation deficiencies, and related 

documentation standards. Further, the 

Guidelines now discuss the appropriate 

depth of review by property type, 

including factors to consider in the 

review of appraisals and evaluations of 

commercial and single-family 

residential real estate. The Guidelines 

retain the possible use of automated 

tools and sampling methods in the 

review of appraisals and evaluations 

supporting lower risk residential 

mortgages. With prior approval from its 

primary Federal regulator, an institution 

may use such tools or methods for its 

review process. 

This revised section also incorporates 

the section on Accepting Appraisals 

from Other Financial Services 

Institutions in the Proposal. The 

guidance addresses the authority as set 

forth in the Agencies’ appraisal 

regulations for an institution to use an 

appraisal that was performed by an 

appraiser engaged directly by another 

regulated institution or financial 

services institution (including mortgage 

brokers), provided certain conditions 

are met. Some commenters contend that 

regulated institutions should not be 

allowed to accept appraisals from 

mortgage brokers so as to ensure 

compliance with applicable appraisal 

independence standards. In response to 

these comments, the Guidelines confirm 

that appraisals obtained from other 

financial services institutions must 

comply with the Agencies’ appraisal 

regulations and be consistent with 

supervisory guidance, including the 

standards of independence. Moreover, 

the Guidelines remind institutions that 

they generally should not rely on 

evaluations prepared by another 

financial services institution. 

With regard to relying on appraisals 

supporting underlying loans in a pool of 

1-to-4 family mortgage loans, the 

Guidelines also confirm that an 

institution may use sampling and audit 

procedures to determine whether the 

appraisals in a pool of residential loans 

satisfy the Agencies’ appraisal 

regulations and are consistent with 

supervisory guidance. When 

compliance cannot be confirmed, 

institutions are reminded that they must 

obtain an appraisal(s) prior to engaging 

in the transaction. Finally, minor edits 

were made to this section to reaffirm 

that small institutions should ensure 

that reviewers are independent and 

appropriately qualified, and may need 

to employ additional personnel or 

engage a third party to perform the 

review function. 

Third Party Arrangements. This 

section in the Guidelines addresses the 

risk management practices that an 

institution should consider if it uses a 

third party to manage or conduct all or 

part of its collateral valuation function. 

In the Guidelines, this section was 

expanded to provide additional 

specificity on an institution’s 

responsibilities for the selection, 

monitoring, and management of 

arrangements with third parties. 

Revisions to this section reflect requests 

from commenters for clarification on the 

relationship between regulated 

institutions and third parties. 

Commenters also asked the Agencies to 

reaffirm that an institution cannot 

outsource its responsibility to maintain 

an effective and independent collateral 

valuation function. The Proposal and 

Guidelines reference each Agency’s 

guidance on third party arrangements. 

Revisions to this section summarize key 

considerations from those issuances and 

state that institutions should use 

caution in determining whether to 

engage a third party. In response to 

several comments regarding an 

institution’s use of appraisal 

management companies, this section 

addresses the due diligence procedures 

for selecting a third party, including an 

effective risk management system and 

internal controls. 

Program Compliance. A few 

commenters suggested that the Agencies 

incorporate certain clarifying edits with 

regard to the independence of the 

collateral valuation process, staff 

reporting relationships, and internal 

quality control practices. Several 

commenters asked the Agencies to 

clarify their expectations for 

demonstrating compliance and offered 

recommendations on sound practices, 

including appropriate staff reporting 

relationships and the depth of the 

process and procedures for verifying 

and testing compliance (such as 

sampling procedures). In response, the 

Agencies have revised the Guidelines to 

reflect a principles-based approach to 

ensure that an institution’s collateral 

valuation program complies with the 

Agencies’ appraisal regulations and is 

consistent with supervisory guidance 

and an institution’s internal policies. 

In the Guidelines, this section also 

was reorganized to list the minimum 

program compliance standards and to 

incorporate clarifying text. Institutions 

are reminded that the results of their 

review process and other relevant 

information should be used as a basis 

for considering persons for future 

collateral valuation assignments and 

that collateral valuation deficiencies 

should be reported to appropriate 

internal parties, and if applicable, to 

external authorities in a timely manner. 

The Guidelines should be considered by 

an institution in establishing effective 

internal controls over its collateral 

valuation function, including the 

verification and testing of its processes. 

Monitoring Collateral Value. The 

majority of commenters agreed with the 

Proposal and the expectations for 

determining when an institution should 

obtain a new appraisal or evaluation for 

monitoring asset quality of its portfolio 

and collateral risk in a particular credit. 

While some commenters cautioned that 

the Agencies’ examiners should not be 

overly aggressive in requiring 

institutions to obtain new appraisals on 

existing loans, a few commenters asked 

for clarification on what would 

constitute a change in market condition 

and when an institution should re-value 

collateral. 

In addition to certain clarifying edits, 

language was added in the Guidelines to 

confirm that an institution may employ 

a variety of techniques for monitoring 

the effect of collateral valuation trends 

on portfolio risk and that such 

information should be timely and 

sufficient to understand the risk 

associated with its lending activity. In 

response to commenters, the Guidelines 

now provide examples of factors for an 

institution to consider in assessing 

whether a significant change in market 

conditions has occurred. The Guidelines 

also emphasize the importance of 

monitoring collateral values in the 

institution’s lending markets, consistent 

with the Agencies’ real estate lending 

regulations and guidelines. 

To eliminate redundancies, the 

revised section incorporates from 

Appendix A of the Proposal the 

discussion of an institution’s 

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14 75 FR 66554 (Oct. 28, 2010). 

responsibility to obtain current 

collateral valuation information for loan 

modifications and workouts of existing 

credits. As in the Proposal, the 

Guidelines address when an institution 

may modify an existing credit without 

obtaining either an appraisal or an 

evaluation. The revisions reflect 

clarifying text in response to comments 

from institutions on the regulatory 

requirements for reappraisals of real 

estate collateral for existing credits, 

particularly in modification and 

workout situations. 

The Agencies also revised the 

Guidelines to reaffirm an institution’s 

responsibility to maintain policies and 

procedures that establish standards for 

obtaining current collateral valuation 

information to facilitate its decision to 

engage in a loan modification or 

workout. In response to comments, the 

Guidelines address the Agencies’ 

expectations for institutions to elevate 

the collateral valuation method as 

appropriate to address safety and 

soundness concerns, particularly in 

those loan workout situations where 

repayment becomes more dependent on 

the sale of collateral. 

Referrals. The Proposal confirmed 

that an institution should make referrals 

to state appraiser regulatory authorities 

when it suspects that a state licensed or 

certified appraiser failed to comply with 

USPAP, applicable state laws, or 

engaged in unethical or unprofessional 

conduct. Some commenters referenced 

industry efforts to mitigate fraud in real 

estate transactions. In response to these 

comments, the Agencies revised the 

Guidelines to address an institution’s 

responsibility to file a suspicious 

activity report (SAR) with the Financial 

Crimes Enforcement Network of the 

Department of Treasury when it 

suspects inappropriate appraisal-related 

activity that meets the SAR filing 

criteria. The revisions also confirm that 

examiners will forward such findings to 

their supervisory office for appropriate 

disposition if there are concerns with an 

institution’s ability or willingness to 

make a referral or file a SAR. 

Institutions also should be aware of the 

recent amendments to Regulation Z, 

which address mandatory reporting 

provisions.14

Appendix A—Appraisal Exemptions. 

The Guidelines contain a new 

introduction to the Appendix in 

response to commenters’ questions 

regarding the authority of the Agencies 

to establish exemptions from their 

appraisal regulations. The discussion of 

loan modifications in the Proposal was 

incorporated in the section on 

Monitoring Collateral Value. The 

revisions reflect clarifying text in 

response to comments from institutions 

on the regulatory requirements for 

reappraisals of real estate collateral for 

existing credits and subsequent 

transactions, particularly loan workout 

situations. 

Notwithstanding the exemption on 

renewals, refinancings, and subsequent 

transactions, some industry groups and 

appraiser organizations recommended 

that the Agencies address the 

circumstances under which institutions 

are to obtain appraisals even though 

evaluations are permitted. The Agencies 

believe that the Proposal adequately 

addressed an institution’s responsibility 

to maintain a risk-focused process for 

elevating its collateral valuation 

methods consistent with safe and sound 

banking practices. 

Appendix B—Evaluations Based on 

Analytical Methods or Technological 

Tools. In response to commenters, the 

Appendix was revised to provide 

clarification on the appropriate use of 

analytical methods or technological 

tools to develop an evaluation. The 

Appendix clarifies that an institution 

may not rely solely on the results of a 

method or tool to develop an evaluation 

unless the resulting evaluation meets all 

of the supervisory expectations for an 

evaluation and is consistent with safe 

and sound banking practices. 

As in the Proposal, the Appendix in 

the Guidelines provides guidance on the 

Agencies’ supervisory expectations 

regarding an institution’s process for 

selecting, using, validating, and 

monitoring a valuation method or tool. 

The Appendix also addresses the 

process that institutions are expected to 

establish for determining whether a 

method or tool may be used in the 

preparation of an evaluation and the 

supplemental information that may be 

necessary to comply with the minimum 

supervisory expectations for an 

evaluation, as set forth in the 

Guidelines. 

The Appendix also has been revised 

to respond to comments regarding the 

appropriate use of an AVM or tax 

assessment value (TAV) to develop an 

evaluation. Some commenters did not 

agree that institutions should be 

permitted to use AVMs to develop an 

evaluation. Some small institutions 

noted that they could be placed at a 

competitive disadvantage with larger 

institutions that use AVMs. The 

Guidelines make it clear that an 

institution is responsible for meeting 

supervisory expectations regarding the 

selection, use, and validation of an 

AVM and maintaining an effective 

system of internal controls. Moreover, 

an AVM or TAV is not, in and of itself, 

an alternative to an evaluation. 

Therefore, when using an AVM or TAV, 

the resulting evaluation should be 

consistent with the supervisory 

expectations in the Evaluation 

Development and Evaluation Content 

sections in the Guidelines. The 

Appendix also addresses the expertise 

necessary to manage the use of a method 

or tool, which may require an 

institution to employ additional 

personnel or engage a third party. 

Recognizing that technology may 

change, the Guidelines address an 

institution’s responsibility for ensuring 

that an evaluation based on an 

analytical method or technological tool 

is consistent with the Agencies’ 

supervisory expectations in the 

Evaluation Content section. 

Appendix C—Deductions and 

Discounts. This is a new Appendix in 

the Guidelines that is based on the 

discussion in the Proposal on the 

Agencies’ minimum appraisal 

standards. Most commenters 

appreciated the additional explanation 

in the Proposal on the appraisal 

standard to analyze deductions and 

discounts for residential tract 

developments. However, these 

commenters provided technical 

comments on appraisal practices that 

might assist one in understanding this 

appraisal concept. In light of these 

comments, the Agencies have expanded 

the discussion in the Guidelines and 

moved the discussion to a separate 

Appendix. 

Appendix D—Glossary of Terms. In 

response to commenters’ suggestions, 

additional terms were incorporated in 

the Guidelines, including appraisal 

management company, broker price 

opinion, credit file, going concern value, 

presold unit, and unsold units. 

Other Comments on the Proposal 

Other Interagency Appraisal-Related 

Guidance Documents. Several 

commenters asked whether other 

guidance documents issued by the 

Agencies on appraisal-related issues 

would be rescinded with the issuance of 

the Guidelines. The following guidance 

documents have been incorporated in 

the Guidelines and are now being 

rescinded: (1) The 1994 Interagency 

Appraisal and Evaluation Guidelines; 

(2) the 2003 Interagency Statement on 

Independent Appraisal and Evaluation 

Functions; (3) and the Interagency 

Statement on the 2006 Revisions to the 

Uniform Standards of Professional 

Appraisal Practice. The following 

guidance documents continue to be in 

effect: The 2005 Interagency FAQs on 

Residential Tract Development Lending 

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15These Guidelines pertain to all real estaterelated financial transactions originated or 

purchased by a regulated institution or its operating 

subsidiary for its own portfolio or as assets held for 

sale, including activities of commercial and 

residential real estate mortgage operations, capital 

markets groups, and asset securitization and sales 

units. 

16Public Law 101–73, Title XI, 103 Stat. 511 

(1989); 12 U.S.C. 3331, et seq. 

17 12 U.S.C. 3339. 

18 12 U.S.C. 3350(4). 

19Supra Note 3. 20 Id. 21OCC: 12 CFR part 34, subpart C; FRB: 12 CFR 

part 208, subpart E, and 12 CFR part 225, subpart 

G; FDIC: 12 CFR part 323; OTS: 12 CFR part 564; 

and NCUA: 12 CFR part 722. 22OCC: 12 CFR part 34, subpart C; FRB: 12 CFR 

part 208, subpart E; FDIC: 12 CFR part 365; and 

OTS: 12 CFR 560.100 and 560.101. 23Public Law 102–242, § 304, 105 Stat. 2354; 12 

U.S.C. 1828(o). 24NCUA’s general lending regulation addresses 

residential real estate lending by Federal credit 

unions, and its member business loan regulation 

addresses commercial real estate lending. 12 CFR 

701.21; 12 CFR part 723. 

and the 2005 Frequently Asked 

Questions on the Appraisal Regulations 

and the Interagency Statement on 

Independent Appraisal and Evaluation 

Functions. 

Agencies’ Appraisal Regulations. In 

the notice for comment on the Proposal, 

the Agencies requested comment on the 

appraisal regulatory exemption for 

residential real estate transactions 

involving U.S. government sponsored 

enterprises (GSEs). In the Guidelines, 

the Agencies clarified their expectations 

that while a loan qualifying for sale to 

a GSE is exempted from the appraisal 

regulations, an institution is expected to 

have appropriate policies to confirm 

their compliance with the GSEs’ 

underwriting and appraisal standards. 

Further, the Agencies recognize that the 

Dodd-Frank Act directs the Agencies to 

address in their safety and soundness 

regulations the appraisal requirements 

for 1-to-4 family residential mortgages. 

Any amendment to the Agencies’ 

appraisal regulations is beyond the 

scope of the Guidelines. The 

information provided by commenters 

will be considered in assessing the need 

to revise these regulations. 

III. Final Interagency Guidelines 

The Guidelines are effective upon 

publication in the Federal Register. 

However, on a case-by-case basis, an 

institution needing to improve its 

appraisal and evaluation program may 

be granted some flexibility from its 

primary Federal regulator on the 

timeframe for revising its procedures to 

be consistent with the Guidelines. This 

timeframe should be commensurate 

with the level and nature of the 

institution’s real estate lending activity. 

The final Interagency Appraisal and 

Evaluation Guidelines appear below. 

Interagency Appraisal and Evaluation 

Guidelines 

Table of Contents 

I. Purpose 

II. Background 

III. Supervisory Policy 

IV. Appraisal and Evaluation Program 

V. Independence of the Appraisal and 

Evaluation Program 

VI. Selection of Appraisers or Persons Who 

Perform Evaluations 

A. Approved Appraiser List 

B. Engagement Letters 

VII. Transactions That Require Appraisals 

VIII. Minimum Appraisal Standards 

IX. Appraisal Development 

X. Appraisal Reports 

XI. Transactions That Require Evaluations 

XII. Evaluation Development 

XIII. Evaluation Content 

XIV. Validity of Appraisals and Evaluations 

XV. Reviewing Appraisals and Evaluations 

A. Reviewer Qualifications 

B. Depth of Review 

C. Resolution of Deficiencies 

D. Documentation of the Review 

XVI. Third Party Arrangements 

XVII. Program Compliance 

A. Monitoring Collateral Values 

B. Portfolio Collateral Risk 

C. Modifications and Workouts of Existing 

Credits 

XVIII. Referrals 

Appendix A, Appraisal Exemptions 

Appendix B, Evaluations Based on Analytical 

Methods and Technological Tools 

Appendix C, Deductions and Discounts 

Appendix D, Glossary of Terms 

I. Purpose 

The Office of the Comptroller of the 

Currency (OCC), the Board of Governors 

of the Federal Reserve System (FRB), the 

Federal Deposit Insurance Corporation 

(FDIC), the Office of Thrift Supervision 

(OTS), and the National Credit Union 

Administration (NCUA) (the Agencies) 

are jointly issuing these Interagency 

Appraisal and Evaluation Guidelines 

(Guidelines), which supersede the 1994 

Interagency Appraisal and Evaluation 

Guidelines. These Guidelines, including 

their appendices, address supervisory 

matters relating to real estate appraisals 

and evaluations used to support real 

estate-related financial transactions.15

Further, these Guidelines provide 

federally regulated institutions and 

examiners clarification on the Agencies’ 

expectations for prudent appraisal and 

evaluation policies, procedures, and 

practices. 

II. Background 

Title XI of the Financial Institutions 

Reform, Recovery, and Enforcement Act 

of 1989 (FIRREA) 16 requires each 

Agency to prescribe appropriate 

standards for the performance of real 

estate appraisals in connection with 

‘‘federally related transactions,’’ 17 which 

are defined as those real estate-related 

financial transactions that an Agency 

engages in, contracts for, or regulates 

and that require the services of an 

appraiser.18 The Agencies’ appraisal 

regulations must require, at a minimum, 

that real estate appraisals be performed 

in accordance with generally accepted 

uniform appraisal standards as 

evidenced by the appraisal standards 

promulgated by the Appraisal Standards 

Board, and that such appraisals be in 

writing.19 An Agency may require 

compliance with additional appraisal 

standards if it makes a determination 

that such additional standards are 

required to properly carry out its 

statutory responsibilities.20 Each of the 

Agencies has adopted additional 

appraisal standards.21

The Agencies’ real estate lending 

regulations and guidelines,22 issued 

pursuant to section 304 of the Federal 

Deposit Insurance Corporation 

Improvement Act of 1991 (FDICIA),23

require each institution to adopt and 

maintain written real estate lending 

policies that are consistent with 

principles of safety and soundness and 

that reflect consideration of the real 

estate lending guidelines issued as an 

appendix to the regulations.24 The real 

estate lending guidelines state that an 

institution’s real estate lending program 

should include an appropriate real 

estate appraisal and evaluation program. 

III. Supervisory Policy 

An institution’s real estate appraisal 

and evaluation policies and procedures 

will be reviewed as part of the 

examination of the institution’s overall 

real estate-related activities. Examiners 

will consider the size and the nature of 

an institution’s real estate-related 

activities when assessing the 

appropriateness of its program. 

While borrowers’ ability to repay their 

real estate loans according to reasonable 

terms remains the primary 

consideration in the lending decision, 

an institution also must consider the 

value of the underlying real estate 

collateral in accordance with the 

Agencies’ appraisal regulations. 

Institutions that fail to comply with the 

Agencies’ appraisal regulations or to 

maintain a sound appraisal and 

evaluation program consistent with 

supervisory guidance will be cited in 

supervisory letters or examination 

reports and may be criticized for unsafe 

and unsound banking practices. 

Deficiencies will require appropriate 

corrective action. 

When analyzing individual 

transactions, examiners will review an 

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25The Agencies’ appraisal regulations set forth 

specific appraiser independence requirements that 

exceed those set forth in the Uniform Standards of 

Professional Appraisal Practice (USPAP). 

Institutions also should be aware of separate 

requirements on conflicts of interest under 

Regulation Z (Truth in Lending), 12 CFR 226.42(d). 

26NCUA has recognized that it may be necessary 

for credit union loan officers or other officials to 

participate in the appraisal or evaluation function 

although it may be sound business practice to 

ensure no single person has the sole authority to 

make credit decisions involving loans on which the 

person ordered or reviewed the appraisal or 

evaluation. 55 FR 5614, 5618 (February 16, 1990), 

55 FR 30193, 30206 (July 25, 1990). 

27Refer to USPAP Standards Rule 1–5(a) and the 

Ethics Rule. 28For mortgage transactions secured by a 

consumer’s principal dwelling, refer to 12 CFR 

226.36(b) under Regulation Z (Truth in Lending) 

through March 31, 2011. Also refer to 12 CFR 

226.42, which is mandatory beginning on April 1, 

2011. Regulation Z also prohibits a creditor from 

extending credit when it knows that the appraiser 

independence standards have been violated, unless 

the creditor determines that the value of the 

property is not materially misstated. 

29See 12 CFR 226.42(c). 30This provision does not preclude an institution 

from withholding compensation from an appraiser 

or person who provided an evaluation based on a 

breach of contract or substandard performance of 

services under a contractual provision. 

appraisal or evaluation to determine 

whether the methods, assumptions, and 

value conclusions are reasonable. 

Examiners also will determine whether 

the appraisal or evaluation complies 

with the Agencies’ appraisal regulations 

and is consistent with supervisory 

guidance as well as the institution’s 

policies. Examiners will review the 

steps taken by an institution to ensure 

that the persons who perform the 

institution’s appraisals and evaluations 

are qualified, competent, and are not 

subject to conflicts of interest. 

IV. Appraisal and Evaluation Program 

An institution’s board of directors or 

its designated committee is responsible 

for adopting and reviewing policies and 

procedures that establish an effective 

real estate appraisal and evaluation 

program. The program should: 

• Provide for the independence of the 

persons ordering, performing, and 

reviewing appraisals or evaluations. 

• Establish selection criteria and 

procedures to evaluate and monitor the 

ongoing performance of appraisers and 

persons who perform evaluations. 

• Ensure that appraisals comply with 

the Agencies’ appraisal regulations and 

are consistent with supervisory 

guidance. 

• Ensure that appraisals and 

evaluations contain sufficient 

information to support the credit 

decision. 

• Maintain criteria for the content 

and appropriate use of evaluations 

consistent with safe and sound banking 

practices. 

• Provide for the receipt and review 

of the appraisal or evaluation report in 

a timely manner to facilitate the credit 

decision. 

• Develop criteria to assess whether 

an existing appraisal or evaluation may 

be used to support a subsequent 

transaction. 

• Implement internal controls that 

promote compliance with these program 

standards, including those related to 

monitoring third party arrangements. 

• Establish criteria for monitoring 

collateral values. 

• Establish criteria for obtaining 

appraisals or evaluations for 

transactions that are not otherwise 

covered by the appraisal requirements 

of the Agencies’ appraisal regulations. 

V. Independence of the Appraisal and 

Evaluation Program 

For both appraisal and evaluation 

functions, an institution should 

maintain standards of independence as 

part of an effective collateral valuation 

program for all of its real estate lending 

activity. The collateral valuation 

program is an integral component of the 

credit underwriting process and, 

therefore, should be isolated from 

influence by the institution’s loan 

production staff. An institution should 

establish reporting lines independent of 

loan production for staff who administer 

the institution’s collateral valuation 

program, including the ordering, 

reviewing, and acceptance of appraisals 

and evaluations. Appraisers must be 

independent of the loan production and 

collection processes and have no direct, 

indirect or prospective interest, 

financial or otherwise, in the property 

or transaction.25 These standards of 

independence also should apply to 

persons who perform evaluations. 

For a small or rural institution or 

branch, it may not always be possible or 

practical to separate the collateral 

valuation program from the loan 

production process. If absolute lines of 

independence cannot be achieved, an 

institution should be able to 

demonstrate clearly that it has prudent 

safeguards to isolate its collateral 

valuation program from influence or 

interference from the loan production 

process. In such cases, another loan 

officer, other officer, or director of the 

institution may be the only person 

qualified to analyze the real estate 

collateral. To ensure their 

independence, such lending officials, 

officers, or directors must abstain from 

any vote or approval involving loans on 

which they ordered, performed, or 

reviewed the appraisal or evaluation.26

Communication between the 

institution’s collateral valuation staff 

and an appraiser or person performing 

an evaluation is essential for the 

exchange of appropriate information 

relative to the valuation assignment. An 

institution’s policies and procedures 

should specify methods for 

communication that ensure 

independence in the collateral valuation 

function. These policies and procedures 

should foster timely and appropriate 

communications regarding the 

assignment and establish a process for 

responding to questions from the 

appraiser or person performing an 

evaluation. 

An institution may exchange 

information with appraisers and persons 

who perform evaluations, which may 

include providing a copy of the sales 

contract 27 for a purchase transaction. 

However, an institution should not 

directly or indirectly coerce, influence, 

or otherwise encourage an appraiser or 

a person who performs an evaluation to 

misstate or misrepresent the value of the 

property.28 Consistent with its policies 

and procedures, an institution also may 

request the appraiser or person who 

performs an evaluation to: 

• Consider additional information 

about the subject property or about 

comparable properties. 

• Provide additional supporting 

information about the basis for a 

valuation. 

• Correct factual errors in an 

appraisal. 

An institution’s policies and 

procedures should ensure that it avoids 

inappropriate actions that would 

compromise the independence of the 

collateral valuation function,29

including: 

• Communicating a predetermined, 

expected, or qualifying estimate of 

value, or a loan amount or target loanto-value ratio to an appraiser or person 

performing an evaluation. 

• Specifying a minimum value 

requirement for the property that is 

needed to approve the loan or as a 

condition of ordering the valuation. 

• Conditioning a person’s 

compensation on loan consummation. 

• Failing to compensate a person 

because a property is not valued at a 

certain amount.30

• Implying that current or future 

retention of a person’s services depends 

on the amount at which the appraiser or 

person performing an evaluation values 

a property. 

• Excluding a person from 

consideration for future engagement 

because a property’s reported market 

value does not meet a specified 

threshold. 

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31Although not required, an institution may use 

state certified or licensed appraisers to perform 

evaluations. Institutions should refer to USPAP 

Advisory Opinion 13 for guidance on appraisers 

performing evaluations of real property collateral. 

32See 12 CFR 226.42. 

33 In order to facilitate recovery in designated 

major disaster areas, subject to safety and 

soundness considerations, the Depository 

Institutions Disaster Relief Act of 1992 provides the 

Agencies with the authority to waive certain 

appraisal requirements for up to three years after a 

Presidential declaration of a natural disaster. Public 

Law 102–485, § 2, 106 Stat. 2771 (October 23, 1992); 

12 U.S.C. 3352. 

34As a matter of policy, OTS uses its supervisory 

authority to require problem associations and 

associations in troubled condition to obtain 

appraisals for all real estate-related transactions 

over $100,000 (unless the transaction is otherwise 

exempt). NCUA requires a written estimate of 

market value for all real estate-related transactions 

valued at the appraisal threshold or less, or that 

involve an existing extension of credit where there 

is either an advancement of new monies or a 

material change in the condition of the property. 12 

CFR 722.3(d). 

After obtaining an appraisal or 

evaluation, or as part of its business 

practice, an institution may find it 

necessary to obtain another appraisal or 

evaluation of a property and would be 

expected to adhere to a policy of 

selecting the most credible appraisal or 

evaluation, rather than the appraisal or 

evaluation that states the highest value. 

(Refer to the Reviewing Appraisals and 

Evaluations section in these Guidelines 

for additional information on 

determining and documenting the 

credibility of an appraisal or 

evaluation.) Further, an institution’s 

reporting of a person suspected of noncompliance with the Uniform Standards 

of Professional Appraisal Practice 

(USPAP), and applicable Federal or 

state laws or regulations, or otherwise 

engaged in other unethical or 

unprofessional conduct to the 

appropriate authorities would not be 

viewed by the Agencies as coercion or 

undue influence. However, an 

institution should not use the threat of 

reporting a false allegation in order to 

influence or coerce an appraiser or a 

person who performs an evaluation. 

VI. Selection of Appraisers or Persons 

Who Perform Evaluations 

An institution’s collateral valuation 

program should establish criteria to 

select, evaluate, and monitor the 

performance of appraisers and persons 

who perform evaluations. The criteria 

should ensure that: 

• The person selected possesses the 

requisite education, expertise, and 

experience to competently complete the 

assignment. 

• The work performed by appraisers 

and persons providing evaluation 

services is periodically reviewed by the 

institution. 

• The person selected is capable of 

rendering an unbiased opinion. 

• The person selected is independent 

and has no direct, indirect, or 

prospective interest, financial or 

otherwise, in the property or the 

transaction. 

• The appraiser selected to perform 

an appraisal holds the appropriate state 

certification or license at the time of the 

assignment. Persons who perform 

evaluations should possess the 

appropriate appraisal or collateral 

valuation education, expertise, and 

experience relevant to the type of 

property being valued. Such persons 

may include appraisers, real estate 

lending professionals, agricultural 

extension agents, or foresters.31

An institution or its agent must 

directly select and engage appraisers. 

The only exception to this requirement 

is that the Agencies’ appraisal 

regulations allow an institution to use 

an appraisal prepared for another 

financial services institution provided 

certain conditions are met. An 

institution or its agents also should 

directly select and engage persons who 

perform evaluations. Independence is 

compromised when a borrower 

recommends an appraiser or a person to 

perform an evaluation. Independence is 

also compromised when loan 

production staff selects a person to 

perform an appraisal or evaluation for a 

specific transaction. For certain 

transactions, an institution also must 

comply with the provisions addressing 

valuation independence in Regulation Z 

(Truth in Lending).32

An institution’s selection process 

should ensure that a qualified, 

competent and independent person is 

selected to perform a valuation 

assignment. An institution should 

maintain documentation to demonstrate 

that the appraiser or person performing 

an evaluation is competent, 

independent, and has the relevant 

experience and knowledge for the 

market, location, and type of real 

property being valued. Further, the 

person who selects or oversees the 

selection of appraisers or persons 

providing evaluation services should be 

independent from the loan production 

area. An institution’s use of a borrowerordered or borrower-provided appraisal 

violates the Agencies’ appraisal 

regulations. However, a borrower can 

inform an institution that a current 

appraisal exists, and the institution may 

request it directly from the other 

financial services institution. 

A. Approved Appraiser List 

If an institution establishes an 

approved appraiser list for selecting an 

appraiser for a particular assignment, 

the institution should have appropriate 

procedures for the development and 

administration of the list. These 

procedures should include a process for 

qualifying an appraiser for initial 

placement on the list, as well as 

periodic monitoring of the appraiser’s 

performance and credentials to assess 

whether to retain the appraiser on the 

list. Further, there should be periodic 

internal review of the use of the 

approved appraiser list to confirm that 

appropriate procedures and controls 

exist to ensure independence in the 

development, administration, and 

maintenance of the list. For residential 

transactions, loan production staff can 

use a revolving, pre-approved appraiser 

list, provided the development and 

maintenance of the list is not under 

their control. 

B. Engagement Letters 

An institution should use written 

engagement letters when ordering 

appraisals, particularly for large, 

complex, or out-of-area commercial real 

estate properties. An engagement letter 

facilitates communication with the 

appraiser and documents the 

expectations of each party to the 

appraisal assignment. In addition to the 

other information, the engagement letter 

will identify the intended use and 

user(s), as defined in USPAP. An 

engagement letter also may specify 

whether there are any legal or 

contractual restrictions on the sharing of 

the appraisal with other parties. An 

institution should include the 

engagement letter in its credit file. To 

avoid the appearance of any conflict of 

interest, appraisal or evaluation 

development work should not 

commence until the institution has 

selected and engaged a person for the 

assignment. 

VII. Transactions That Require 

Appraisals 

Although the Agencies’ appraisal 

regulations exempt certain real estaterelated financial transactions from the 

appraisal requirement, most real estaterelated financial transactions over the 

appraisal threshold are considered 

federally related transactions and, thus, 

require appraisals.33 The Agencies also 

reserve the right to require an appraisal 

under their appraisal regulations to 

address safety and soundness concerns 

in a transaction. (See Appendix A, 

Appraisal Exemptions.) 34

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35Public Law 111–203, 124 Stat. 1376 (2010). 

36 Dodd-Frank Act, Section 1473(r). 

37Under the law, the provisions are effective 12 

months after final regulations to implement the 

provisions are published. See Dodd-Frank Act, 

Section 1400(c)(1). 

38Section 1471 of the Dodd-Frank Act added a 

new section 129H to the Truth-in-Lending Act (15 

U.S.C. 1631 et seq.). 

39Under NCUA regulations, ‘‘market value’’ of a 

construction and development project is the value 

at the time a commercial real estate loan is made, 

which includes ‘‘the appraised value of land owned 

by the borrower on which the project is to be built, 

less any liens, plus the cost to build the project.’’ 

68 FR 56537, 56540 (October 1, 2003) (referring to 

Office of General Counsel Opinion 01–0422 (June 

7, 2001)); 12 CFR 723.3(b). 

40See USPAP, Statement 4 on Prospective Value 

Opinions, for further explanation. 

VIII. Minimum Appraisal Standards 

The Agencies’ appraisal regulations 

include minimum standards for the 

preparation of an appraisal. (See 

Appendix D, Glossary of Terms, for 

terminology used in these Guidelines.) 

The appraisal must: 

• Conform to generally accepted 

appraisal standards as evidenced by the 

USPAP promulgated by the Appraisal 

Standards Board of the Appraisal 

Foundation unless principles of safe 

and sound banking require compliance 

with stricter standards. 

Although allowed by USPAP, the 

Agencies’ appraisal regulations do not 

permit an appraiser to appraise any 

property in which the appraiser has an 

interest, direct or indirect, financial or 

otherwise in the property or transaction. 

Further, the appraisal must contain an 

opinion of market value as defined in 

the Agencies’ appraisal regulations. (See 

discussion on the definition of market 

value below.) Under USPAP, the 

appraisal must contain a certification 

that the appraiser has complied with 

USPAP. An institution may refer to the 

appraiser’s USPAP certification in its 

assessment of the appraiser’s 

independence concerning the 

transaction and the property. Under the 

Agencies’ appraisal regulations, the 

result of an Automated Valuation Model 

(AVM), by itself or signed by an 

appraiser, is not an appraisal, because a 

state certified or licensed appraiser must 

perform an appraisal in conformance 

with USPAP and the Agencies’ 

minimum appraisal standards. Further, 

the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (DoddFrank Act) 35 provides ‘‘[i]n conjunction 

with the purchase of a consumer’s 

principal dwelling, broker price 

opinions may not be used as the 

primary basis to determine the value of 

a piece of property for the purpose of 

loan origination of a residential 

mortgage loan secured by such piece of 

property.’’ 36

• Be written and contain sufficient 

information and analysis to support the 

institution’s decision to engage in the 

transaction. 

An institution should obtain an 

appraisal that is appropriate for the 

particular federally related transaction, 

considering the risk and complexity of 

the transaction. The level of detail 

should be sufficient for the institution to 

understand the appraiser’s analysis and 

opinion of the property’s market value. 

As provided by the USPAP Scope of 

Work Rule, appraisers are responsible 

for establishing the scope of work to be 

performed in rendering an opinion of 

the property’s market value. An 

institution should ensure that the scope 

of work is appropriate for the 

assignment. The appraiser’s scope of 

work should be consistent with the 

extent of the research and analyses 

employed for similar property types, 

market conditions, and transactions. 

Therefore, an institution should be 

cautious in limiting the scope of the 

appraiser’s inspection, research, or other 

information used to determine the 

property’s condition and relevant 

market factors, which could affect the 

credibility of the appraisal. 

According to USPAP, appraisal 

reports must contain sufficient 

information to enable the intended user 

of the appraisal to understand the report 

properly. An institution should specify 

the use of an appraisal report option 

that is commensurate with the risk and 

complexity of the transaction. The 

appraisal report should contain 

sufficient disclosure of the nature and 

extent of inspection and research 

performed by the appraiser to verify the 

property’s condition and support the 

appraiser’s opinion of market value. 

(See Appendix D, Glossary of Terms, for 

the definition of appraisal report 

options.) 

Institutions should be aware that 

provisions in the Dodd-Frank Act 

address appraisal requirements for a 

higher-risk mortgage to a consumer.37

To implement these provisions, the 

Agencies recognize that future 

regulations will address the requirement 

that the appraiser conduct a physical 

property visit of the interior of the 

mortgaged property.38

• Analyze and report appropriate 

deductions and discounts for proposed 

construction or renovation, partially 

leased buildings, non-market lease 

terms, and tract developments with 

unsold units. 

Appraisers must analyze, apply, and 

report appropriate deductions and 

discounts when providing an estimate 

of market value based on demand for 

real estate in the future. This standard 

is designed to avoid having appraisals 

prepared using unrealistic assumptions 

and inappropriate methods in arriving 

at the property’s market value. (See 

Appendix C, Deductions and Discounts, 

for further explanation on deductions 

and discounts.) 

• Be based upon the definition of 

market value set forth in the appraisal 

regulation. 

Each appraisal must contain an 

estimate of market value, as defined by 

the Agencies’ appraisal regulations. The 

definition of market value assumes that 

the price is not affected by undue 

stimulus, which would allow the value 

of the real property to be increased by 

favorable financing or seller 

concessions. Value opinions such as 

‘‘going concern value,’’ ‘‘value in use,’’ or 

a special value to a specific property 

user may not be used as market value 

for federally related transactions. An 

appraisal may contain separate opinions 

of such values so long as they are clearly 

identified and disclosed. 

The estimate of market value should 

consider the real property’s actual 

physical condition, use, and zoning as 

of the effective date of the appraiser’s 

opinion of value. For a transaction 

financing construction or renovation of 

a building, an institution would 

generally request an appraiser to 

provide the property’s current market 

value in its ‘‘as is’’ condition, and, as 

applicable, its prospective market value 

upon completion and/or prospective 

market value upon stabilization.39

Prospective market value opinions 

should be based upon current and 

reasonably expected market conditions. 

When an appraisal includes prospective 

market value opinions, there should be 

a point of reference to the market 

conditions and time frame on which the 

appraiser based the analysis.40 An 

institution should understand the real 

property’s ‘‘as is’’ market value and 

should consider the prospective market 

value that corresponds to the credit 

decision and the phase of the project 

being funded, if applicable. 

• Be performed by state certified or 

licensed appraisers in accordance with 

requirements set forth in the appraisal 

regulation. 

In determining competency for a 

given appraisal assignment, an 

institution must consider an appraiser’s 

education and experience. While an 

institution must confirm that the 

appraiser holds a valid credential from 

the appropriate state appraiser 

regulatory authority, a state certification 

or license is a minimum credentialing 

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41See USPAP, Scope of Work Rule, Advisory 

Opinions 28 and 29. 

42NCUA regulations do not contain an exemption 

from the appraisal requirements specific to member 

business loans. 

43NCUA’s appraisal regulation requires credit 

unions to meet both conditions to avoid the need 

for an appraisal as set forth in 12 CFR 722.3(d). 

requirement. Appraisers are expected to 

be selected for individual assignments 

based on their competency to perform 

the appraisal, including knowledge of 

the property type and specific property 

market. As stated in the Agencies’ 

appraisal regulations, a state certified or 

licensed appraiser may not be 

considered competent solely by virtue 

of being certified or licensed. In 

communicating an appraisal 

assignment, an institution should 

convey to the appraiser that the 

Agencies’ minimum appraisal standards 

must be followed. 

IX. Appraisal Development 

The Agencies’ appraisal regulations 

require appraisals for federally related 

transactions to comply with the 

requirements in USPAP, some of which 

are addressed below. Consistent with 

the USPAP Scope of Work Rule,41 the 

appraisal must reflect an appropriate 

scope of work that provides for 

‘‘credible’’ assignment results. The 

appraiser’s scope of work should reflect 

the extent to which the property is 

identified and inspected, the type and 

extent of data researched, and the 

analyses applied to arrive at opinions or 

conclusions. Further, USPAP requires 

the appraiser to disclose whether he or 

she previously appraised the property. 

While an appraiser must comply with 

USPAP and establish the scope of work 

in an appraisal assignment, an 

institution is responsible for obtaining 

an appraisal that contains sufficient 

information and analysis to support its 

decision to engage in the transaction. 

Therefore, to ensure that an appraisal is 

appropriate for the intended use, an 

institution should discuss its needs and 

expectations for the appraisal with the 

appraiser. Such discussions should 

assist the appraiser in establishing the 

scope of work and form the basis of the 

institution’s engagement letter, as 

appropriate. These communications 

should adhere to the institution’s 

policies and procedures on 

independence of the appraiser and not 

unduly influence the appraiser. An 

institution should not allow lower cost 

or the speed of delivery time to 

inappropriately influence its appraisal 

ordering procedures or the appraiser’s 

determination of the scope of work for 

an appraisal supporting a federally 

related transaction. 

As required by USPAP, the appraisal 

must include any approach to value 

(that is, the cost, income, and sales 

comparison approaches) that is 

applicable and necessary to the 

assignment. Further, the appraiser 

should disclose the rationale for the 

omission of a valuation approach. The 

appraiser must analyze and reconcile 

the information from the approaches to 

arrive at the estimated market value. 

The appraisal also should include a 

discussion on market conditions, 

including relevant information on 

property value trends, demand and 

supply factors, and exposure time. 

Other information might include the 

prevalence and effect of sales and 

financing concessions, the list-to-sale 

price ratio, and availability of financing. 

In addition, an appraisal should reflect 

an analysis of the property’s sales 

history and an opinion as to the highest 

and best use of the property. USPAP 

requires the appraiser to disclose 

whether or not the subject property was 

inspected and whether anyone provided 

significant assistance to the appraiser 

signing the appraisal report. 

X. Appraisal Reports 

An institution is responsible for 

identifying the appropriate appraisal 

report option to support its credit 

decisions. The institution should 

consider the risk, size, and complexity 

of the transaction and the real estate 

collateral when determining the 

appraisal report format to be specified 

in its appraisal engagement instructions 

to an appraiser. 

USPAP provides various appraisal 

report options that an appraiser may use 

to present the results of appraisal 

assignments. The major difference 

among these report options is the level 

of detail presented in the report. A 

report option that merely states, rather 

than summarizes or describes the 

content and information required in an 

appraisal report, may lack sufficient 

supporting information and analysis to 

explain the appraiser’s opinions and 

conclusions. 

Generally, a report option that is 

restricted to a single client and intended 

user will not be appropriate to support 

most federally related transactions. 

These reports lack sufficient supporting 

information and analysis for 

underwriting purposes. These less 

detailed reports may be appropriate for 

real estate portfolio monitoring 

purposes. (See Appendix D, Glossary of 

Terms, for the definition of appraisal 

report options.) 

Regardless of the report option, the 

appraisal report should contain 

sufficient detail to allow the institution 

to understand the scope of work 

performed. Sufficient information 

should include the disclosure of 

research and analysis performed, as well 

as disclosure of the research and 

analysis typically warranted for the type 

of appraisal, but omitted, along with the 

rationale for its omission. 

XI. Transactions That Require 

Evaluations 

The Agencies’ appraisal regulations 

permit an institution to obtain an 

appropriate evaluation of real property 

collateral in lieu of an appraisal for 

transactions that qualify for certain 

exemptions. These exemptions include 

a transaction that: 

• Has a transaction value equal to or 

less than the appraisal threshold of 

$250,000. 

• Is a business loan with a transaction 

value equal to or less than the business 

loan threshold of $1 million, and is not 

dependent on the sale of, or rental 

income derived from, real estate as the 

primary source of repayment.42

• Involves an existing extension of 

credit at the lending institution, 

provided that: 

Æ There has been no obvious and 

material change in market conditions or 

physical aspects of the property that 

threaten the adequacy of the 

institution’s real estate collateral 

protection after the transaction, even 

with the advancement of new monies; 

or 

Æ There is no advancement of new 

monies other than funds necessary to 

cover reasonable closing costs.43

For more information on real estaterelated financial transactions that are 

exempt from the appraisal requirement, 

see Appendix A, Appraisal Exemptions. 

For a discussion on changes in market 

conditions, see the section on Validity 

of Appraisals and Evaluations in these 

Guidelines. 

Although the Agencies’ appraisal 

regulations allow an institution to use 

an evaluation for certain transactions, 

an institution should establish policies 

and procedures for determining when to 

obtain an appraisal for such 

transactions. For example, an institution 

should consider obtaining an appraisal 

as an institution’s portfolio risk 

increases or for higher risk real estaterelated financial transactions, such as 

those involving: 

• Loans with combined loan-to-value 

ratios in excess of the supervisory loanto-value limits. 

• Atypical properties. 

• Properties outside the institution’s 

traditional lending market. 

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44 Dodd-Frank Act, Section 1473(r). 

• Transactions involving existing 

extensions of credit with significant risk 

to the institution. 

• Borrowers with high risk 

characteristics. 

XII. Evaluation Development 

An evaluation must be consistent 

with safe and sound banking practices 

and should support the institution’s 

decision to engage in the transaction. 

An institution should be able to 

demonstrate that an evaluation, whether 

prepared by an individual or supported 

by an analytical method or a 

technological tool, provides a reliable 

estimate of the collateral’s market value 

as of a stated effective date prior to the 

decision to enter into a transaction. 

(Refer to Appendix B, Evaluations 

Based on Analytical Methods or 

Technological Tools.) 

A valuation method that does not 

provide a property’s market value or 

sufficient information and analysis to 

support the value conclusion is not 

acceptable as an evaluation. For 

example, a valuation method that 

provides a sales or list price, such as a 

broker price opinion, cannot be used as 

an evaluation because, among other 

things, it does not provide a property’s 

market value. Further, the Dodd-Frank 

Act provides ‘‘[i]n conjunction with the 

purchase of a consumer’s principal 

dwelling, broker price opinions may not 

be used as the primary basis to 

determine the value of a piece of 

property for the purpose of loan 

origination of a residential mortgage 

loan secured by such piece of 

property.’’ 44 Likewise, information on 

local housing conditions and trends, 

such as a competitive market analysis, 

does not contain sufficient information 

on a specific property that is needed, 

and therefore, would not be acceptable 

as an evaluation. The information 

obtained from such sources, while 

insufficient as an evaluation, may be 

useful to develop an evaluation or 

appraisal. 

An institution should establish 

policies and procedures for determining 

an appropriate collateral valuation 

method for a given transaction 

considering associated risks. These 

policies and procedures should address 

the process for selecting the appropriate 

valuation method for a transaction 

rather than using the method that 

renders the highest value, lowest cost, 

or fastest turnaround time. 

A valuation method should address 

the property’s actual physical condition 

and characteristics as well as the 

economic and market conditions that 

affect the estimate of the collateral’s 

market value. It would not be acceptable 

for an institution to base an evaluation 

on unsupported assumptions, such as a 

property is in ‘‘average’’ condition, the 

zoning will change, or the property is 

not affected by adverse market 

conditions. Therefore, an institution 

should establish criteria for determining 

the level and extent of research or 

inspection necessary to ascertain the 

property’s actual physical condition, 

and the economic and market factors 

that should be considered in developing 

an evaluation. An institution should 

consider performing an inspection to 

ascertain the actual physical condition 

of the property and market factors that 

affect its market value. When an 

inspection is not performed, an 

institution should be able to 

demonstrate how these property and 

market factors were determined. 

XIII. Evaluation Content 

An evaluation should contain 

sufficient information detailing the 

analysis, assumptions, and conclusions 

to support the credit decision. An 

evaluation’s content should be 

documented in the credit file or 

reproducible. The evaluation should, at 

a minimum: 

• Identify the location of the 

property. 

• Provide a description of the 

property and its current and projected 

use. 

• Provide an estimate of the 

property’s market value in its actual 

physical condition, use and zoning 

designation as of the effective date of 

the evaluation (that is, the date that the 

analysis was completed), with any 

limiting conditions. 

• Describe the method(s) the 

institution used to confirm the 

property’s actual physical condition and 

the extent to which an inspection was 

performed. 

• Describe the analysis that was 

performed and the supporting 

information that was used in valuing the 

property. 

• Describe the supplemental 

information that was considered when 

using an analytical method or 

technological tool. 

• Indicate all source(s) of information 

used in the analysis, as applicable, to 

value the property, including: 

Æ External data sources (such as 

market sales databases and public tax 

and land records); 

Æ Property-specific data (such as 

previous sales data for the subject 

property, tax assessment data, and 

comparable sales information); 

Æ Evidence of a property inspection; 

Æ Photos of the property; 

Æ Description of the neighborhood; or 

Æ Local market conditions. 

• Include information on the preparer 

when an evaluation is performed by a 

person, such as the name and contact 

information, and signature (electronic or 

other legally permissible signature) of 

the preparer. 

(See Appendix B, Evaluations Based 

on Analytical Methods or Technological 

Tools, for guidance on the appropriate 

use of analytical methods and 

technological tools for developing an 

evaluation.) 

XIV. Validity of Appraisals and 

Evaluations 

The Agencies allow an institution to 

use an existing appraisal or evaluation 

to support a subsequent transaction in 

certain circumstances. Therefore, an 

institution should establish criteria for 

assessing whether an existing appraisal 

or evaluation continues to reflect the 

market value of the property (that is, 

remains valid). Such criteria will vary 

depending upon the condition of the 

property and the marketplace, and the 

nature of the transaction. The 

documentation in the credit file should 

provide the facts and analysis to support 

the institution’s conclusion that the 

existing appraisal or evaluation may be 

used in the subsequent transaction. A 

new appraisal or evaluation is necessary 

if the originally reported market value 

has changed due to factors such as: 

• Passage of time. 

• Volatility of the local market. 

• Changes in terms and availability of 

financing. 

• Natural disasters. 

• Limited or over supply of 

competing properties. 

• Improvements to the subject 

property or competing properties. 

• Lack of maintenance of the subject 

or competing properties. 

• Changes in underlying economic 

and market assumptions, such as 

capitalization rates and lease terms. 

• Changes in zoning, building 

materials, or technology. 

• Environmental contamination. 

XV. Reviewing Appraisals and 

Evaluations 

The Agencies’ appraisal regulations 

specify that appraisals for federally 

related transactions must contain 

sufficient information and analysis to 

support an institution’s decision to 

engage in the credit transaction. For 

certain transactions that do not require 

an appraisal, the Agencies’ regulations 

require an institution to obtain an 

appropriate evaluation of real property 

collateral that is consistent with safe 

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and sound banking practices. As part of 

the credit approval process and prior to 

a final credit decision, an institution 

should review appraisals and 

evaluations to ensure that they comply 

with the Agencies’ appraisal regulations 

and are consistent with supervisory 

guidance and its own internal policies. 

This review also should ensure that an 

appraisal or evaluation contains 

sufficient information and analysis to 

support the decision to engage in the 

transaction. Through the review 

process, the institution should be able to 

assess the reasonableness of the 

appraisal or evaluation, including 

whether the valuation methods, 

assumptions, and data sources are 

appropriate and well-supported. An 

institution may use the review findings 

to monitor and evaluate the competency 

and ongoing performance of appraisers 

and persons who perform evaluations. 

(See the discussion in these Guidelines 

on Selection of Appraisers or Persons 

Who Perform Evaluations.) 

When an institution identifies an 

appraisal or evaluation that is 

inconsistent with the Agencies’ 

appraisal regulations and the 

deficiencies cannot be resolved with the 

appraiser or person who performed the 

evaluation, the institution must obtain 

an appraisal or evaluation that meets the 

regulatory requirements prior to making 

a credit decision. Though a reviewer 

cannot change the value conclusion in 

the original appraisal, an appraisal 

review performed by an appropriately 

qualified and competent state certified 

or licensed appraiser in accordance with 

USPAP may result in a second opinion 

of market value. An institution may rely 

on the second opinion of market value 

obtained through an acceptable USPAPcompliant appraisal review to support 

its credit decision. 

An institution’s policies and 

procedures for reviewing appraisals and 

evaluations, at a minimum, should: 

• Address the independence, 

educational and training qualifications, 

and role of the reviewer. 

• Reflect a risk-focused approach for 

determining the depth of the review. 

• Establish a process for resolving any 

deficiencies in appraisals or 

evaluations. 

• Set forth documentation standards 

for the review and the resolution of 

noted deficiencies. 

A. Reviewer Qualifications 

An institution should establish 

qualification criteria for persons who 

are eligible to review appraisals and 

evaluations. Persons who review 

appraisals and evaluations should be 

independent of the transaction and have 

no direct or indirect interest, financial 

or otherwise, in the property or 

transaction, and be independent of and 

insulated from any influence by loan 

production staff. Reviewers also should 

possess the requisite education, 

expertise, and competence to perform 

the review commensurate with the 

complexity of the transaction, type of 

real property, and market. Further, 

reviewers should be capable of assessing 

whether the appraisal or evaluation 

contains sufficient information and 

analysis to support the institution’s 

decision to engage in the transaction. 

A small or rural institution or branch 

with limited staff should implement 

prudent safeguards for reviewing 

appraisals and evaluations when 

absolute lines of independence cannot 

be achieved. Under these circumstances, 

the review may be part of the originating 

loan officer’s overall credit analysis, as 

long as the originating loan officer 

abstains from directly or indirectly 

approving or voting to approve the loan. 

An institution should assess the level 

of in-house expertise available to review 

appraisals for complex projects, highrisk transactions, and out-of-market 

properties. An institution may find it 

appropriate to employ additional 

personnel or engage a third party to 

perform the reviews. When using a third 

party, an institution remains responsible 

for the quality and adequacy of the 

review process, including the 

qualification standards for reviewers. 

(See the discussion in these Guidelines 

on Third Party Arrangements.) 

B. Depth of Review 

An institution should implement a 

risk-focused approach for determining 

the depth of the review needed to 

ensure that appraisals and evaluations 

contain sufficient information and 

analysis to support the institution’s 

decision to engage in the transaction. 

This process should differentiate 

between high- and low-risk transactions 

so that the review is commensurate with 

the risk. The depth of the review should 

be sufficient to ensure that the methods, 

assumptions, data sources, and 

conclusions are reasonable, wellsupported, and appropriate for the 

transaction, property, and market. The 

review also should consider the process 

through which the appraisal or 

evaluation is obtained, either directly by 

the institution or from another financial 

services institution. The review process 

should be commensurate with the type 

of transaction as discussed below: 

• Commercial Real Estate. An 

institution should ensure that appraisals 

or evaluations for commercial real estate 

transactions are subject to an 

appropriate level of review. 

Transactions involving complex 

properties or high-risk commercial loans 

should be reviewed more 

comprehensively to assess the technical 

quality of the appraiser’s analysis. For 

example, an institution should perform 

a more comprehensive review of 

transactions involving large-dollar 

credits, loans secured by complex or 

specialized properties, and properties 

outside the institution’s traditional 

lending market. Persons performing 

such reviews should have the 

appropriate expertise and knowledge 

relative to the type of property and its 

market. 

The depth of the review of appraisals 

and evaluations completed for 

commercial properties securing lower 

risk transactions may be less technical 

in nature, but still should provide 

meaningful results that are 

commensurate with the size, type, and 

complexity of the underlying credit 

transaction. In addition, an institution 

should establish criteria for when to 

expand the depth of the review. 

• 1-to-4 Family Residential Real 

Estate. The reviews for residential real 

estate transactions should reflect a riskfocused approach that is commensurate 

with the size, type, and complexity of 

the underlying credit transaction, as 

well as loan and portfolio risk 

characteristics. These risk factors could 

include debt-to-income ratios, loan-tovalue ratios, level of documentation, 

transaction dollar amount, or other 

relevant factors. With prior approval 

from its primary Federal regulator, an 

institution may employ various 

techniques, such as automated tools or 

sampling methods, for performing prefunding reviews of appraisals or 

evaluations supporting lower risk 

residential mortgages. When using such 

techniques, an institution should 

maintain sufficient data and employ 

appropriate screening parameters to 

provide adequate quality assurance and 

should ensure that the work of all 

appraisers and persons performing 

evaluations is periodically reviewed. In 

addition, an institution should establish 

criteria for when to expand the depth of 

the review. 

An institution may use sampling and 

audit procedures to verify the seller’s 

representations and warranties that the 

appraisals for the underlying loans in a 

pool of residential loans satisfy the 

Agencies’ appraisal regulations and are 

consistent with supervisory guidance 

and an institution’s internal policies. If 

an institution is unable to confirm that 

the appraisal meets the Agencies’ 

appraisal requirements, then the 

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45An institution generally should not rely on an 

evaluation prepared by or for another financial 

services institution because it will not have 

sufficient information relative to the other 

institution’s risk management practices for 

developing evaluations. 

46See, for example, FFIEC Statement on Risk 

Management of Outsourced Technology Service 

(November 28, 2000) for guidance on the 

assessment, selection, contract review, and 

monitoring of a third party that provides services 

to a regulated institution. Refer to the institution’s 

primary Federal regulator for additional guidance 

on third party arrangements: OCC Bulletin 2001–47, 

Third-Party Relationships (November 1, 2001); OTS 

Thrift Bulletin 82a, Third Party Arrangements 

(September 1, 2004); NCUA Letter to Credit Unions: 

01–CU–20, Due Diligence Over Third Party Service 

Arrangements (November 2001), 07–CU–13, 

Supervisory Letter—Evaluation Third Party 

Relationships (December 2007), 08–CU–09, 

Evaluating Third Party Relationships Questionnaire 

(April 2008); and FDIC Financial Institution Letter 

44–2008, Guidance for Managing Third-Party Risk 

(June 2008). 

institution must obtain an appraisal 

prior to engaging in the transaction. 

• Appraisals From Other Financial 

Services Institutions.45 The Agencies’ 

appraisal regulations specify that an 

institution may use an appraisal that 

was prepared by an appraiser engaged 

directly by another financial services 

institution, provided the institution 

determines that the appraisal conforms 

to the Agencies’ appraisal regulations 

and is otherwise acceptable. An 

institution should assess whether to use 

the appraisal prior to making a credit 

decision. An institution should subject 

such appraisals to at least the same level 

of review that the institution performs 

on appraisals it obtains directly for 

similar properties and document its 

review in the credit file. The 

documentation of the review should 

support the institution’s reliance on the 

appraisal. Among other considerations, 

an institution should confirm that: 

Æ The appraiser was engaged directly 

by the other financial services 

institution. 

Æ The appraiser had no direct, 

indirect, or prospective interest, 

financial or otherwise, in the property 

or transaction. 

Æ The financial services institution 

(not the borrower) ordered the appraisal. 

For example, an engagement letter 

should show that the financial services 

institution, not the borrower, engaged 

the appraiser. 

An institution must not accept an 

appraisal that has been readdressed or 

altered by the appraiser with the intent 

to conceal the original client. Altering 

an appraisal report in a manner that 

conceals the original client or intended 

users of the appraisal is misleading, 

does not conform to USPAP, and 

violates the Agencies’ appraisal 

regulations. 

C. Resolution of Deficiencies 

An institution should establish 

policies and procedures for resolving 

any inaccuracies or weaknesses in an 

appraisal or evaluation identified 

through the review process, including 

procedures for: 

• Communicating the noted 

deficiencies to and requesting correction 

of such deficiencies by the appraiser or 

person who prepared the evaluation. An 

institution should implement adequate 

internal controls to ensure that such 

communications do not result in any 

coercion or undue influence on the 

appraiser or person who performed the 

evaluation. 

• Addressing significant deficiencies 

in the appraisal that could not be 

resolved with the original appraiser by 

obtaining a second appraisal or relying 

on a review that complies with 

Standards Rule 3 of USPAP and is 

performed by an appropriately qualified 

and competent state certified or licensed 

appraiser prior to the final credit 

decision. 

• Replacing evaluations prior to the 

credit decision that do not provide 

credible results or lack sufficient 

information to support the final credit 

decision. 

D. Documentation of the Review 

An institution should establish 

policies for documenting the review of 

appraisals and evaluations in the credit 

file. Such policies should address the 

level of documentation needed for the 

review, given the type, risk and 

complexity of the transaction. The 

documentation should describe the 

resolution of any appraisal or evaluation 

deficiencies, including reasons for 

obtaining and relying on a second 

appraisal or evaluation. The 

documentation also should provide an 

audit trail that documents the resolution 

of noted deficiencies or details the 

reasons for relying on a second opinion 

of market value. 

XVI. Third Party Arrangements 

An institution that engages a third 

party to perform certain collateral 

valuation functions on its behalf is 

responsible for understanding and 

managing the risks associated with the 

arrangement. An institution should use 

caution if it engages a third party to 

administer any part of its appraisal and 

evaluation function, including the 

ordering or reviewing of appraisals and 

evaluations, selecting an appraiser or 

person to perform evaluations, or 

providing access to analytical methods 

or technological tools. An institution is 

accountable for ensuring that any 

services performed by a third party, 

both affiliated and unaffiliated entities, 

comply with applicable laws and 

regulations and are consistent with 

supervisory guidance.46 Therefore, an 

institution should have the resources 

and expertise necessary for performing 

ongoing oversight of third party 

arrangements. 

An institution should have internal 

controls for identifying, monitoring, and 

managing the risks associated with 

using a third party arrangement for 

valuation services, including 

compliance, legal, reputational, and 

operational risks. While the 

arrangement may allow an institution to 

achieve specific business objectives, 

such as gaining access to expertise that 

is not available internally, the reduced 

operational control over outsourced 

activities poses additional risk. 

Consistent with safe and sound 

practices, an institution should have a 

written contract that clearly defines the 

expectations and obligations of both the 

financial institution and the third party, 

including that the third party will 

perform its services in compliance with 

the Agencies’ appraisal regulations and 

consistent with supervisory guidance. 

Prior to entering into any arrangement 

with a third party for valuation services, 

an institution should compare the risks, 

costs, and benefits of the proposed 

relationship to those associated with 

using another vendor or conducting the 

activity in-house. The decision to 

outsource any part of the collateral 

valuation function should not be unduly 

influenced by any short-term cost 

savings. An institution should take into 

account all aspects of the long-term 

effect of the relationship, including the 

managerial expertise and associated 

costs for effectively monitoring the 

arrangement on an ongoing basis. 

If an institution outsources any part of 

the collateral valuation function, it 

should exercise appropriate due 

diligence in the selection of a third 

party. This process should include 

sufficient analysis by the institution to 

assess whether the third party provider 

can perform the services consistent with 

the institution’s performance standards 

and regulatory requirements. An 

institution should be able to 

demonstrate that its policies and 

procedures establish effective internal 

controls to monitor and periodically 

assess the collateral valuation functions 

performed by a third party. 

An institution also is responsible for 

ensuring that a third party selects an 

appraiser or a person to perform an 

evaluation who is competent and 

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47OCC: 12 CFR part 34, subpart D; FRB: 12 CFR 

part 208, subpart E; FDIC: 12 CFR part 365; OTS: 

12 CFR 560.100 and 560.101; and NCUA: 12 CFR 

701.21. 

48A loan modification that entails a decrease in 

the interest rate or a single extension of a limited 

or short-term nature would not be viewed as a 

subsequent transaction. For example, an extension 

arising from a short-term delay in the full 

repayment of the loan when there is documented 

evidence that payment from the borrower is 

forthcoming, or a brief delay in the scheduled 

closing on the sale of a property when there is 

evidence that the closing will be completed in the 

near term. 

independent, has the requisite 

experience and training for the 

assignment, and thorough knowledge of 

the subject property’s market. 

Appraisers must be appropriately 

certified or licensed, but this minimum 

credentialing requirement, although 

necessary, is not sufficient to determine 

that an appraiser is competent to 

perform an assignment for a particular 

property or geographic market. 

An institution should ensure that 

when a third party engages an appraiser 

or a person who performs an evaluation, 

the third party conveys to that person 

the intended use of the appraisal or 

evaluation and that the regulated 

institution is the client. For example, an 

engagement letter facilitates the 

communication of this information. 

An institution’s risk management 

system should reflect the complexity of 

the outsourced activities and associated 

risk. An institution should document 

the results of ongoing monitoring efforts 

and periodic assessments of the 

arrangement(s) with a third party for 

compliance with applicable regulations 

and consistency with supervisory 

guidance and its performance standards. 

If deficiencies are discovered, an 

institution should take remedial action 

in a timely manner. 

XVII. Program Compliance 

Deficiencies in an institution’s 

appraisal and evaluation program that 

result in violations of the Agencies’ 

appraisal regulations or contraventions 

of the Agencies’ supervisory guidance 

reflect negatively on management. An 

institution’s appraisal and evaluation 

policies should establish internal 

controls to promote an effective 

appraisal and evaluation program. The 

compliance process should: 

• Maintain a system of adequate 

controls, verification, and testing to 

ensure that appraisals and evaluations 

provide credible market values. 

• Insulate the persons responsible for 

ascertaining the compliance of the 

institution’s appraisal and evaluation 

function from any influence by loan 

production staff. 

• Ensure the institution’s practices 

result in the selection of appraisers and 

persons who perform evaluations with 

the appropriate qualifications and 

demonstrated competency for the 

assignment. 

• Establish procedures to test the 

quality of the appraisal and evaluation 

review process. 

• Use, as appropriate, the results of 

the institution’s review process and 

other relevant information as a basis for 

considering a person for a future 

appraisal or evaluation assignment. 

• Report appraisal and evaluation 

deficiencies to appropriate internal 

parties and, if applicable, to external 

authorities in a timely manner. 

A. Monitoring Collateral Values 

Consistent with the Agencies’ real 

estate lending regulations and 

guidelines,47 an institution should 

monitor collateral risk on a portfolio 

and on an individual credit basis. 

Therefore, an institution should have 

policies and procedures that address the 

need for obtaining current collateral 

valuation information to understand its 

collateral position over the life of a 

credit and effectively manage the risk in 

its real estate credit portfolios. The 

policies and procedures also should 

address the need to obtain current 

valuation information for collateral 

supporting an existing credit that may 

be modified or considered for a loan 

workout. 

Under their appraisal regulations, the 

Agencies reserve the right to require an 

institution to obtain an appraisal or 

evaluation when there are safety and 

soundness concerns on an existing real 

estate secured credit. Therefore, an 

institution should be able to 

demonstrate that sufficient information 

is available to support the current 

market value of the collateral and the 

classification of a problem real estate 

credit. When such information is not 

available, an examiner may direct an 

institution to obtain a new appraisal or 

evaluation in order to have sufficient 

information to understand the current 

market value of the collateral. 

Examiners would be expected to 

provide an institution with a reasonable 

amount of time to obtain a new 

appraisal or evaluation. 

B. Portfolio Collateral Risk 

Prudent portfolio monitoring 

practices include criteria for 

determining when to obtain a new 

appraisal or evaluation. Among other 

considerations, the criteria should 

address deterioration in the credit since 

origination or changes in market 

conditions. Changes in market 

conditions could include material 

changes in current and projected 

vacancy, absorption rates, lease terms, 

rental rates, and sale prices, including 

concessions and overruns and delays in 

construction costs. Fluctuations in 

discount or direct capitalization rates 

also are indicators of changing market 

conditions. 

In assessing whether changes in 

market conditions are material, an 

institution should consider the 

individual and aggregate effect of these 

changes on its collateral protection and 

the risk in its real estate lending 

programs or credit portfolios. Moreover, 

as an institution’s reliance on collateral 

becomes more important, its policies 

and procedures should: 

• Ensure that timely information is 

available to management for assessing 

collateral and associated risk. 

• Specify when new or updated 

collateral valuations are appropriate or 

desirable to understand collateral risk in 

the transaction(s). 

• Delineate the valuation method to 

be employed after considering the 

property type, current market 

conditions, current use of the property, 

and the relevance of the most recent 

appraisal or evaluation in the credit file. 

Consistent with sound collateral 

valuation monitoring practices, an 

institution can use a variety of 

techniques for monitoring the effect of 

collateral valuation trends on portfolio 

risk. Sources of relevant information 

may include external market data, 

internal data, or reviews of recently 

obtained appraisals and evaluations. An 

institution should be able to 

demonstrate that it has sufficient, 

reliable, and timely information on 

market trends to understand the risk 

associated with its lending activity. 

C. Modifications and Workouts of 

Existing Credits 

An institution may find it appropriate 

to modify a loan or to engage in a 

workout with an existing borrower. The 

Agencies expect an institution to 

consider current collateral valuation 

information to assess its collateral risk 

and facilitate an informed decision on 

whether to engage in a modification or 

workout of an existing real estate credit. 

(See the discussion above on Portfolio 

Collateral Risk.) 

• Loan Modifications. A loan 

modification to an existing credit that 

involves a limited change(s) 48 in the 

terms of the note or loan agreement and 

that does not adversely affect the 

institution’s real estate collateral 

protection after the modification does 

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49Under the NCUA’s appraisal regulation, a 

credit union must meet both conditions to avoid the 

need for an appraisal. If a transaction does not 

involve an advancement of new monies and there 

have been no obvious and material changes in 

market or property conditions, a credit union must 

obtain a written estimate of market value that is 

consistent with the standards for evaluations as 

discussed in these Guidelines. 12 CFR 722.3(d). 

50For example, if the transaction value is below 

the appraisal threshold of $250,000. 

51See 12 CFR 226.42(g). 

52Refer to Federal regulations at FRB: 12 CFR 

208.62, 211.5(k), 211.24(f), and 225.4(f); FDIC: 12 

CFR part 353; NCUA: 12 CFR part 748; OCC: 12 

CFR 21.11; OTS: 12 CFR 563.180; and FinCEN: 31 

CFR 103.18. Refer also to the Federal Financial 

Institutions Examination Council Bank Secrecy Act/ 

Anti-Money Laundering Examination Manual 

(Revised April 29, 2010) to review the general 

criteria, but note that instructions on filing a SAR 

through the Financial Crime Enforcement Network 

(FinCEN) of the Department of the Treasury are 

attached to the SAR form. The SAR form is 

available on FinCEN’s Web site. 

53NCUA’s regulations do not provide an 

exemption from the appraisal requirements specific 

to member business loans. 

54NCUA’s appraisal regulation requires a written 

estimate of market value, performed by a qualified 

and experienced person who has no interest in the 

property, for transactions equal to or less than the 

appraisal threshold and transactions involving an 

existing extension of credit. 12 CFR 722.3(d). 

related financial transaction for 

purposes of the Agencies’ appraisal 

regulations. As a result, an institution 

would not be required to obtain either 

a new appraisal or evaluation to comply 

with the Agencies’ appraisal 

regulations, but should have an 

understanding of its collateral risk. For 

example, institutions can use automated 

valuation models or other valuation 

techniques when considering a 

modification to a residential mortgage 

loan. An institution should have 

procedures for ensuring an alternative 

collateral valuation method provides 

reliable information. In addition, an 

institution should be able to 

demonstrate that a modification reflects 

prudent underwriting standards and is 

consistent with safe and sound lending 

practices. Examiners will assess the 

adequacy of valuation information an 

institution uses for loan modifications. 

• Loan Workouts. As noted under 

‘‘Monitoring Collateral Values,’’ an 

institution’s policies and procedures 

should address the need for current 

information on the value of real estate 

collateral supporting a loan workout. A 

loan workout can take many forms, 

including a modification that adversely 

affects the institution’s real estate 

collateral protection after the 

modification, a renewal or extension of 

loan terms, the advancement of new 

monies, or a restructuring with or 

without concessions. These types of 

loan workouts are new real estaterelated financial transactions. 

If the loan workout does not include 

the advancement of new monies other 

than reasonable closing costs, the 

institution may obtain an evaluation in 

lieu of an appraisal. For loan workouts 

that involve the advancement of new 

monies, an institution may obtain an 

evaluation in lieu of an appraisal 

provided there has been no obvious and 

material change in market conditions 

and no change in the physical aspects 

of the property that threatens the 

adequacy of the institution’s real estate 

collateral protection after the workout.49

In these cases, an institution should 

support and document its rationale for 

using this exemption. An institution 

must obtain an appraisal when a loan 

workout involves the advancement of 

new monies and there is an obvious and 

material change in either market 

conditions or physical aspects of the 

property, or both, that threatens the 

adequacy of the institution’s real estate 

collateral protection after the workout 

(unless another exemption applies).50

(See also Appendix A, Appraisal 

Exemptions, for transactions where an 

evaluation would be allowed in lieu of 

an appraisal.) 

• Collateral Valuation Policies for 

Modifications and Workouts. An 

institution’s policies should address the 

need for obtaining current collateral 

valuation information for a loan 

modification or workout. The policies 

should specify the valuation method to 

be used and address the need to monitor 

collateral risk on an ongoing basis 

taking into consideration changing 

market conditions and the borrower’s 

repayment performance. An institution 

also should be able to demonstrate that 

the collateral valuation method used is 

reliable for a given credit or loan type. 

Further, for loan workouts, an 

institution’s policies should specify 

conditions under which an appraisal or 

evaluation will be obtained. As loan 

repayment becomes more dependent on 

the sale of collateral, an institution’s 

policies should address the need to 

obtain an appraisal or evaluation for 

safety and soundness reasons even 

though one is not otherwise required by 

the Agencies’ appraisal regulations. 

XVIII. Referrals 

An institution should file a complaint 

with the appropriate state appraiser 

regulatory officials when it suspects that 

a state certified or licensed appraiser 

failed to comply with USPAP, 

applicable state laws, or engaged in 

other unethical or unprofessional 

conduct. In addition, effective April 1, 

2011, an institution must file a 

complaint with the appropriate state 

appraiser certifying and licensing 

agency under certain circumstances.51

An institution also must file a 

suspicious activity report (SAR) with 

the Financial Crimes Enforcement 

Network of the Department of the 

Treasury (FinCEN) when suspecting 

fraud or identifying other transactions 

meeting the SAR filing criteria.52

Examiners finding evidence of unethical 

or unprofessional conduct by appraisers 

should instruct the institution to file a 

complaint with state appraiser 

regulatory officials and, when required, 

to file a SAR with FinCEN. If there is a 

concern regarding the institution’s 

ability or willingness to file a complaint 

or make a referral, examiners should 

forward their findings and 

recommendations to their supervisory 

office for appropriate disposition and 

referral to state appraiser regulatory 

officials and FinCEN, as necessary. 

Appendix A—Appraisal Exemptions 

Under Title XI of FIRREA, the 

Agencies were granted the authority to 

identify categories of real estate-related 

financial transactions that do not 

require the services of an appraiser to 

protect Federal financial and public 

policy interests or to satisfy principles 

of safe and sound lending. Therefore, in 

their appraisal regulations, the Agencies 

identified certain real estate-related 

financial transactions that do not 

require the services of an appraiser and 

that are exempt from the appraisal 

requirement. This appendix provides 

further clarification on the application 

of these regulatory exemptions and 

should be read in the context of each 

Agency’s appraisal regulation. If an 

institution has a question as to whether 

a particular transaction qualifies for an 

exemption, the institution should seek 

guidance from its primary Federal 

regulator. For those transactions 

qualifying for the appraisal threshold, 

existing extensions of credit, or the 

business loan exemptions, an institution 

is exempted from the appraisal 

requirement, but still must, at a 

minimum, obtain an evaluation 

consistent with these Guidelines.53

1. Appraisal Threshold 

For transactions with a transaction 

value equal to or less than $250,000, the 

Agencies’ appraisal regulations, at a 

minimum, require an evaluation 

consistent with safe and sound banking 

practices.54 If an institution enters into 

a transaction that is secured by several 

individual properties that are not part of 

a tract development, the estimate of 

value of each individual property 

should determine whether an appraisal 

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55NCUA’s regulations do not provide an 

exemption from the appraisal requirements specific 

to loans not secured by real estate. 

56NCUA’s appraisal regulation, 12 CFR 722, does 

not define ‘‘business loan.’’ A ‘‘member business 

loan’’ is regulated under 12 CFR 723. 

57Under the NCUA’s appraisal regulation, a 

credit union must meet both conditions to avoid the 

need for an appraisal. If a transaction does not 

involve an advancement of new monies and there 

have been no obvious and material changes in 

market or property conditions, a credit union must 

obtain a written estimate of market value that is 

consistent with the standards for evaluations as 

discussed in these Guidelines. 12 CFR 722.3(d). 

or evaluation would be required for that 

property. For example, an institution 

makes a loan secured by seven 

commercial properties in different 

markets with two properties valued in 

excess of the appraisal threshold and 

five properties valued less than the 

appraisal threshold. An institution 

would need to obtain an appraisal on 

the two properties valued in excess of 

the appraisal threshold and evaluations 

on the five properties below the 

appraisal threshold, even though the 

aggregate loan commitment exceeds the 

appraisal threshold. 

2. Abundance of Caution 

An institution may take a lien on real 

estate and be exempt from obtaining an 

appraisal if the lien on real estate is 

taken by the lender in an abundance of 

caution. This exemption is intended to 

have limited application, especially for 

real estate loans secured by residential 

properties in which the real estate is the 

only form of collateral. In order for a 

business loan to qualify for the 

abundance of caution exemption, the 

Agencies expect the extension of credit 

to be well supported by the borrower’s 

cash flow or collateral other than real 

property. The institution’s credit 

analysis should verify and document 

the adequacy and reliability of these 

repayment sources and conclude that 

knowledge of the market value of the 

real estate on which the lien will be 

taken as an abundance of caution is 

unnecessary in making the credit 

decision. 

An institution should not invoke the 

abundance of caution exemption if its 

credit analysis reveals that the 

transaction would not be adequately 

secured by sources of repayment other 

than the real estate, even if the 

contributory value of the real estate 

collateral is low relative to the entire 

collateral pool and other repayment 

sources. Similarly, the exemption 

should not be applied to a loan or loan 

program unless the institution verifies 

and documents the primary and 

secondary repayment sources. In the 

absence of verification of the repayment 

sources, this exemption should not be 

used merely to reduce the cost 

associated with obtaining an appraisal, 

to minimize transaction processing 

time, or to offer slightly better terms to 

a borrower than would be otherwise 

offered. 

In addition, prior to making a final 

commitment to the borrower, the 

institution should document and retain 

in the credit file the analysis performed 

to verify that the abundance of caution 

exemption has been appropriately 

applied. If the operating performance or 

financial condition of the company 

subsequently deteriorates and the lender 

determines that the real estate will be 

relied upon as a repayment source, an 

appraisal should then be obtained, 

unless another exemption applies. 

3. Loans Not Secured by Real Estate 

An institution is not required to 

obtain an appraisal on a loan that is not 

secured by real estate, even if the 

proceeds of the loan are used to acquire 

or improve real property.55 For loans 

covered by this exemption, the real 

estate has no direct effect on the 

institution’s decision to extend credit 

because the institution has no legal 

security interest in the real estate. This 

exemption is not intended to be applied 

to real estate-related financial 

transactions other than those involving 

loans. For example, this exemption 

should not be applied to a transaction 

such as an institution’s investment in 

real estate for its own use. 

4. Liens for Purposes Other Than the 

Real Estate’s Value 

This exemption allows an institution 

to take liens against real estate without 

obtaining an appraisal to protect legal 

rights to, or control over, other 

collateral. Institutions frequently take 

real estate liens to protect legal rights to 

other collateral rather than because of 

the contributory value of the real estate 

as an individual asset. For example, an 

institution making a loan to a logging 

operation may take a lien against the 

real estate upon which the timber stands 

to ensure its access to the timber in the 

event of default. To apply the 

exemption, the institution should 

determine that the market value of the 

real estate as an individual asset is not 

necessary to support its decision to 

extend credit. 

5. Real Estate-Secured Business Loans 

This exemption applies to business 

loans with a transaction value of $1 

million or less when the sale of, or 

rental income derived from, real estate 

is not the primary source of 

repayment.56 To apply this exemption, 

the Agencies expect the institution to 

determine that the primary source of 

repayment for the business loan is 

operating cash flow from the business 

rather than rental income or sale of real 

estate. For this type of exempted loan, 

under the Agencies’ appraisal 

regulations, an institution may obtain an 

evaluation in lieu of an appraisal. 

This exemption will not apply to 

transactions in which the lender has 

taken a security interest in real estate, 

but the primary source of repayment is 

provided by cash flow or sale of real 

estate in which the lender has no 

security interest. For example, a 

transaction in which a loan is secured 

by real estate for one project, in which 

the lender has taken a security interest, 

but will be repaid with the cash flow 

from real estate sales or rental income 

from other real estate projects, in which 

the lender does not have a security 

interest, would not qualify for the 

exemption. (See Appendix D, Glossary 

of Terms, for a definition of business 

loan.) 

6. Leases 

An institution is required to obtain 

appraisals of leases that are the 

economic equivalent of a purchase or 

sale of the leased real estate. For 

example, an institution must obtain an 

appraisal on a transaction involving a 

capital lease, as the real estate interest 

is of sufficient magnitude to be 

recognized as an asset of the lessee for 

accounting purposes. Operating leases 

that are not the economic equivalent of 

the purchase or sale of the leased 

property do not require appraisals. 

7. Renewals, Refinancings, and Other 

Subsequent Transactions 

Under certain circumstances, 

renewals, refinancings, and other 

subsequent transactions may be 

supported by evaluations rather than 

appraisals. The Agencies’ appraisal 

regulations permit an evaluation for a 

renewal or refinancing of an existing 

extension of credit at the institution 

when either: 

(i) There has been no obvious and 

material change in market conditions or 

physical aspects of the property that 

threatens the adequacy of the 

institution’s real estate collateral 

protection after the transaction, even 

with the advancement of new monies; 

or 

(ii) There is no advancement of new 

monies, other than funds necessary to 

cover reasonable closing costs.57

A subsequent transaction is exempt 

from the appraisal requirement if no 

new monies are advanced (other than 

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58These government-sponsored agencies include 

Banks for Cooperatives; Federal Agriculture 

Mortgage Corporation; Federal Farm Credit Banks; 

Federal Home Loan Banks; Freddie Mac; Fannie 

Mae; and Tennessee Valley Authority. 

funds necessary to cover reasonable 

closing costs) even when there has been 

an obvious and material change in 

market conditions or the physical 

aspects of the property that threatens 

the adequacy of the institution’s real 

estate collateral protection. Conversely, 

when new monies are advanced (other 

than funds necessary to cover 

reasonable closing costs) and there has 

been an obvious and material change in 

market conditions or the physical 

aspects of the property that threaten the 

adequacy of the institution’s real estate 

collateral protection, the institution 

must obtain an appraisal unless another 

exemption applies. 

For the purposes of these Guidelines, 

an institution is considered to have 

advanced new monies (excluding 

reasonable closing costs) when there is 

an increase in the principal amount of 

the loan over the amount of principal 

outstanding before the renewal or 

refinancing. For example, an institution 

originated a 15-year term loan for $3 

million and, in year 14, the outstanding 

principal is $2.5 million. In year 14, the 

borrower seeks to refinance the loan at 

a lower interest rate and requests a loan 

of $2.8 million. The $300,000 would be 

considered new monies. On the other 

hand, an institution has provided a $5 

million revolving line of credit to a 

borrower for two years and, at the end 

of year two, renews the $5 million line 

for another two years. At the time of 

renewal, the borrower has drawn down 

$1 million. In this example, the amount 

of the line remains unchanged even 

though the amount available on the line 

is less than the line commitment. 

Renewing the line of credit at its 

original amount would not be 

considered an advancement of new 

monies. Further, when an institution 

advances funds to protect its interest in 

a property, such as to repair damaged 

property, a new appraisal or evaluation 

would not be required because these 

funds would be used to restore the 

damaged property to its original 

condition. 

To satisfy the condition for no 

obvious and material change in market 

conditions or the physical aspects of the 

property, the current or planned future 

use of the property should be consistent 

with the use identified in the existing 

appraisal or evaluation. For example, if 

a property has reportedly increased in 

value because of a planned change in 

use of the property resulting from 

rezoning, an appraisal should be 

performed unless another exemption 

applies. 

If an evaluation is permitted under 

this exemption, an institution may use 

an existing appraisal or evaluation as 

long as the institution verifies and 

documents that the appraisal or 

evaluation continues to be valid. (See 

the discussion in the Validity of 

Appraisals and Evaluations section of 

these Guidelines.) Even if a subsequent 

transaction qualifies for this exemption, 

an institution should consider the risk 

posed by the transaction and may wish 

to consider obtaining a new appraisal. 

Loan Workouts or Restructurings. 

Loan workouts, debt restructurings, loan 

assumptions, and similar transactions 

involving the addition or substitution of 

borrowers may qualify for the 

exemption for renewals, refinancings 

and other subsequent transactions. Use 

of this exemption depends on meeting 

the conditions listed in (i) and (ii) at the 

beginning of the discussion on 

Renewals, Refinancings, and Other 

Subsequent Transactions. An institution 

also should consider such factors as the 

quality of the underlying collateral and 

the validity of the existing appraisal or 

evaluation. If a loan workout involves 

acceptance of new real estate collateral 

that facilitates the orderly collection of 

the credit, or reduces the institution’s 

risk of loss, an appraisal or evaluation 

of the existing and new collateral may 

be prudent, even if it is obtained after 

the workout occurs and the institution 

perfects its security interest. 

8. Transactions Involving Real Estate 

Notes 

This exemption applies to appraisal 

requirements for transactions involving 

the purchase, sale, investment in, 

exchange of, or extension of credit 

secured by a loan or interest in a loan, 

pooled loans, or interests in real 

property, including mortgage-backed 

securities. If each note or real estate 

interest meets the Agencies’ regulatory 

requirements for appraisals at the time 

the real estate note was originated, the 

institution need not obtain a new 

appraisal to support its interest in the 

transaction. The institution should 

employ audit procedures and review a 

representative sample of appraisals 

supporting pooled loans or real estate 

notes to determine that the conditions of 

the exemption have been satisfied. 

Principles of safe and sound banking 

practices require an institution to 

determine the suitability of purchasing 

or investing in existing real estatesecured loans and real estate interests. 

These transactions should have been 

originated according to secondary 

market standards and have a history of 

performance. The information from 

these sources, together with original 

documentation, should be sufficient to 

allow an institution to make appropriate 

credit decisions regarding these 

transactions. 

An institution may presume that the 

underlying loans in a marketable, 

mortgage-backed security satisfy the 

requirements of the Agencies’ appraisal 

regulations whenever an issuer makes a 

public statement, such as in a 

prospectus, that the appraisals comply 

with the Agencies’ appraisal 

regulations. A marketable security is 

one that may be sold with reasonable 

promptness at a price that corresponds 

to its fair value. 

If the mortgages that secure the 

mortgage warehouse loan are sold to 

Fannie Mae or Freddie Mac, the sale 

itself may be used to demonstrate that 

the underlying loans complied with the 

Agencies’ appraisal regulations. In such 

cases, the Agencies expect an institution 

to monitor its borrower’s performance in 

selling loans to the secondary market 

and take appropriate steps, such as 

increasing sampling and auditing of the 

loans and the supporting 

documentation, if the borrower 

experiences more than a minimal rate of 

loans being put back by an investor. 

9. Transactions Insured or Guaranteed 

by a U.S. Government Agency or U.S. 

Government-Sponsored Agency 

This exemption applies to 

transactions that are wholly or partially 

insured or guaranteed by a U.S. 

government agency or U.S. governmentsponsored agency. The Agencies expect 

these transactions to meet all the 

underwriting requirements of the 

Federal insurer or guarantor, including 

its appraisal requirements, in order to 

receive the insurance or guarantee. 

10. Transactions That Qualify for Sale 

to, or Meet the Appraisal Standards of, 

a U.S. Government Agency or U.S. 

Government-Sponsored Agency 

This exemption applies to 

transactions that either (i) qualify for 

sale to a U.S. government agency or U.S. 

government-sponsored agency,58 or (ii) 

involve a residential real estate 

transaction in which the appraisal 

conforms to Fannie Mae or Freddie Mac 

appraisal standards applicable to that 

category of real estate. An institution 

may engage in these transactions 

without obtaining a separate appraisal 

conforming to the Agencies’ appraisal 

regulations. Given the risk to the 

institution that it may have to 

repurchase a loan that does not comply 

with the appraisal standards of the U.S. 

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59 Generally, credit unions have limited fiduciary 

authority and NCUA’s appraisal regulation does not 

specifically exempt transactions by fiduciaries. 

60For example, the sole use of data from the 

Internet or other public sources would not be an 

evaluation under these Guidelines. Additionally, 

valuation methods that do not contain sufficient 

information and analysis or provide a market value 

conclusion would not be acceptable as evaluations. 

government agency or U.S. governmentsponsored agency, the institution 

should have appropriate policies to 

confirm its compliance with the 

underwriting and appraisal standards of 

the U.S. government agency or U.S. 

government-sponsored agency. 

10(i)—An institution that relies on 

exemption 10(i) should maintain 

adequate documentation that confirms 

that the transaction qualifies for sale to 

a U.S. government agency or U.S. 

government-sponsored agency. If the 

qualification for sale is not adequately 

documented, the transaction should be 

supported by an appraisal that conforms 

to the Agencies’ appraisal regulations, 

unless another exemption applies. 

10(ii)—To qualify for this exemption, 

transactions that do not conform to all 

of Fannie Mae or Freddie Mac 

underwriting standards, such as jumbo 

or other residential real estate loans, 

must be supported by an appraisal that 

meets these government-sponsored 

agencies’ appraisal standards for the 

applicable property type and is 

documented in the credit file or 

reproducible. 

11. Transactions by Regulated 

Institutions as Fiduciaries 

An institution acting as a fiduciary is 

not required to obtain appraisals under 

the Agencies’ appraisal regulations if an 

appraisal is not required under other 

laws governing fiduciary 

responsibilities in connection with a 

transaction.59 For example, if no other 

law requires an appraisal in connection 

with the sale of a parcel of real estate 

to a beneficiary of a trust on terms 

specified in a trust instrument, an 

appraisal is not required under the 

Agencies’ appraisal regulations. 

However, when a fiduciary transaction 

requires an appraisal under other laws, 

that appraisal should conform to the 

Agencies’ appraisal requirements. 

12. Appraisals Not Necessary To Protect 

Federal Financial and Public Policy 

Interests or the Safety and Soundness of 

Financial Institutions 

The Agencies retain the authority to 

determine when the services of an 

appraiser are not required in order to 

protect Federal financial and public 

policy interests or the safety and 

soundness of financial institutions. This 

exemption is intended to apply to 

individual transactions on a case-bycase basis rather than broad categories 

of transactions that would otherwise be 

addressed by an appraisal exemption. 

An institution would need to seek a 

waiver from its supervisory Federal 

agency before entering into the 

transaction. 

Appendix B—Evaluations Based on 

Analytical Methods or Technological 

Tools 

The Agencies’ appraisal regulations 

permit an institution to use an 

evaluation in lieu of an appraisal for 

certain transactions. An institution may 

use a variety of analytical methods and 

technological tools for developing an 

evaluation, provided the institution can 

demonstrate that the valuation method 

is consistent with safe and sound 

banking practices and these Guidelines 

(see sections on Evaluation 

Development and Evaluation 

Content).60 An institution should not 

select a method or tool solely because it 

provides the highest value, the lowest 

cost, or the fastest response or 

turnaround time. 

An institution should establish 

policies and procedures that provide a 

sound process for using various 

methods or tools. Such policies and 

procedures should: 

• Ensure staff has the requisite 

expertise and training to manage the 

selection, use, and validation of an 

analytical method or technological tool. 

If an institution does not have the inhouse expertise relative to a particular 

method or tool, then an institution 

should employ additional personnel or 

engage a third party. (See the Third 

Party Arrangements section in these 

Guidelines.) 

• Address the selection, use, and 

validation of the valuation method or 

tool. 

• Establish criteria for determining 

whether a particular valuation method 

or tool is appropriate for a given 

transaction or lending activity, 

considering associated risks. These risks 

include, but are not limited to, 

transaction size and purpose, credit 

quality, and leverage tolerance (loan-tovalue). 

• Specify criteria when a market 

event or risk factor would preclude the 

use of a particular method or tool. 

• Address standards for the use of 

multiple methods or tools, if applicable, 

for valuing the same property or to 

support a particular lending activity. 

• Provide criteria for ensuring that 

the institution uses a method or tool 

that produces a reliable estimate of 

market value that supports the 

institution’s decision to engage in a 

transaction. 

• Address the extent to which: 

Æ An inspection or research is 

necessary to ascertain the property’s 

actual physical condition, and 

Æ Supplemental information is 

needed to assess the effect of market 

conditions or other factors on the 

estimate of market value. 

An institution should establish an 

effective system of controls for verifying 

that a valuation method or tool is 

employed in a manner consistent with 

internal policies and procedures. 

Moreover, the institution’s staff 

responsible for internal controls should 

have the skills commensurate with the 

complexity or sophistication of the 

method or tool. Examiners will review 

an institution’s policies, procedures, 

and internal controls to ensure that an 

institution’s use of a method or tool is 

appropriate and consistent with safe 

and sound banking practices. 

Automated Valuation Models (AVMs) 

AVMs are computer programs that 

estimate a property’s market value based 

on market, economic, and demographic 

factors. Institutions may employ AVMs 

for a variety of uses such as loan 

underwriting and portfolio monitoring. 

An institution may not rely solely on 

the results of an AVM to develop an 

evaluation unless the resulting 

evaluation is consistent with safe and 

sound banking practices and these 

Guidelines. (See the Evaluation 

Development and Evaluation Content 

sections.) For example, to be consistent 

with the standards for an evaluation, the 

results of an AVM would need to 

address a property’s actual physical 

condition, and therefore, could not be 

based on an unsupported assumption, 

such as a property is in ‘‘average’’ 

condition. 

Institutions should establish policies 

and procedures that govern the use of 

AVMs and specify the supplemental 

information that is required to develop 

an evaluation. When the supplemental 

information indicates the AVM is not an 

acceptable valuation tool, the 

institution’s policies and procedures 

should require the use of an alternative 

method or tool. 

Selecting an AVM(s) 

When selecting an AVM or multiple 

AVMs, an institution should: 

• Perform the necessary level of due 

diligence on AVM vendors and their 

models, including how model 

developers conducted performance 

testing as well as the sample size used 

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61For example, an institution should establish a 

level of acceptable core accuracy and limit exposure 

to a model’s systemic tendency to over value 

properties (commonly referred to as ‘‘tail risk’’). 

62A ‘‘confidence score’’ generally refers to a 

vendor’s own method of quantifying how reliable 

a model value is by using a rank ordering process. 

The scale and components of a confidence score are 

not standardized. Therefore an institution needs to 

understand how a confidence score was derived 

and the extent to which a confidence score 

correlates to model accuracy. If multiple AVMs are 

used, an institution should understand how the 

combination of models affects overall accuracy. 

63See, for example, OCC Bulletin 2000–16, Risk 

Modeling—Model Validation (May 30, 2000). 

and the geographic level tested (such as, 

county level or zip code). 

• Establish acceptable minimum 

performance criteria for a model prior to 

and independent of the validation 

process. 

• Perform a detailed validation of the 

model(s) considered during the 

selection process and document the 

validation process. 

• Evaluate underlying data used in 

the model(s), including the data sources 

and types, frequency of updates, quality 

control performed on the data, and the 

sources of the data in states where 

public real estate sales data are not 

disclosed. 

• Assess modeling techniques and the 

inherent strengths and weaknesses of 

different model types (such as hedonic, 

index, and blended) as well as how a 

model(s) performs for different property 

types (such as condominiums, planned 

unit developments, and single family 

detached residences). 

• Evaluate the vendor’s scoring 

system and methodology for the 

model(s). Determine whether the 

scoring system provides an appropriate 

indicator of model reliability by 

property types and geographic locations. 

Following the selection of an AVM(s), 

an institution should develop policies 

and procedures to address the 

appropriate use of an AVM(s) and its 

monitoring and ongoing validation 

processes. 

Determining AVM Use 

An institution should establish 

policies and procedures for determining 

whether an AVM can be used for a 

particular transaction. The institution 

should: 

• Maintain AVM performance criteria 

for accuracy and reliability in a given 

transaction, lending activity, and 

geographic location.61

• Establish internal confidence 

score 62 minimums, or similar criteria, 

for when each model can be used. 

• Implement controls to preclude 

‘‘value shopping’’ when more than one 

AVM is used for the same property. 

• Establish procedures for obtaining 

an appraisal or using a different 

valuation method to develop an 

evaluation when an AVM’s resulting 

value is not reliable to support the 

credit decision. For example, in areas 

that have experienced a high incidence 

of fraud, the institution should consider 

whether the AVM may be relied upon 

for the transaction or another valuation 

method should be used. 

• Identify circumstances under which 

an AVM may not be used, including: 

Æ When market conditions warrant, 

such as during the aftermath of a natural 

disaster or a major economic event; 

Æ When a model’s performance is 

outside of specified tolerances for a 

particular geographic market or property 

price-tier range; or 

Æ When a property is nonhomogeneous, such as atypical lot sizes 

or property types. 

Validating AVM Results 

An institution should establish 

standards and procedures for 

independent and ongoing monitoring 

and model validation, including the 

testing of multiple AVMs, to ensure that 

results are credible.63 An institution 

should be able to demonstrate that the 

depth and extent of its validation 

processes are consistent with the 

materiality of the risk and the 

complexity of the transaction. 

Validation can be performed internally 

or with the assistance of a third party, 

as long as the validation is conducted by 

qualified individuals that are 

independent of the model development 

or sales functions. An institution should 

not rely solely on validation 

representations provided by an AVM 

vendor. An institution should perform 

appropriate model validation regardless 

of whether it relies on AVMs that are 

supported by value insurance or 

guarantees. If there are insurance or 

guarantee components of any particular 

AVM, the institution is responsible for 

understanding the extent and 

limitations of the insurance policy or 

guarantee, and the claim process and 

financial strength of the insurer. 

An institution should ensure that 

persons who validate an AVM on an 

ongoing basis are independent of the 

loan production and collection 

processes and have the requisite 

expertise and training. In the AVM 

validation procedures, an institution 

should specify, at a minimum: 

• Expectations for an appropriate 

sample size. 

• Level of geographic analysis. 

• Testing frequency and criteria for 

re-testing. 

• Standards of performance measures 

to be used. 

• Range of acceptable performance 

results. 

To ensure unbiased test results, an 

institution should compare the results 

of an AVM to actual sales data in a 

specified trade area or market prior to 

the information being available to the 

model. If an institution uses more than 

one AVM, each AVM should be 

validated. To assess the effectiveness of 

its AVM practices, an institution should 

verify whether loans in which an AVM 

was used to establish value met the 

institution’s performance expectations 

relative to similar loans that used a 

different valuation process. An 

institution should document the results 

of its validation and audit findings. An 

institution should use these findings to 

analyze and periodically update its 

policies and procedures for an AVM(s) 

when warranted. 

Tax Assessment Valuations (TAVs) 

An institution may not rely solely on 

the data provided by local tax 

authorities to develop an evaluation 

unless the resulting evaluation is 

consistent with safe and sound banking 

practices and these Guidelines. (See the 

Evaluation Development and Evaluation 

Content sections.) Since analytical 

methods such as TAVs generally need 

additional support to meet these 

Guidelines, institutions should develop 

policies and procedures that specify the 

level and extent of supplemental 

information that should be obtained to 

develop an evaluation. Such policies 

and procedures also should require the 

use of an alternate valuation method 

when such information does not 

support the transaction. 

An institution may use a TAV in 

developing an evaluation when it can 

demonstrate that a valid correlation 

exists between the tax assessment data 

and the market value. In using a TAV 

to develop an evaluation, an institution 

should: 

• Determine and document how the 

tax jurisdiction calculates the TAV and 

how frequently property revaluations 

occur. 

• Perform an analysis to determine 

the relationship between the TAV and 

the property market values for 

properties within a tax jurisdiction. 

• Test and document how closely 

TAVs correlate to market value based on 

contemporaneous sales at the time of 

assessment and revalidate whether the 

correlation remains stable as of the 

effective date of the evaluation. 

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64Fee simple interest refers to the most complete 

ownership unencumbered by any leases or other 

interests. It is subject only to the limitations 

imposed by the governmental powers of taxation, 

eminent domain, police power and escheat. Leased 

fee interest, on the other hand, refers to a landlord’s 

ownership that is encumbered by one or more 

leases. 

Appendix C—Deductions and Discounts 

The Agencies’ appraisal regulations 

require an appraiser to analyze and 

report appropriate deductions and 

discounts for proposed construction or 

renovation, partially leased buildings, 

non-market lease terms, and tract 

developments with unsold units. For 

such transactions, an appraisal must 

include the market value of the 

property, which should reflect the 

property’s actual physical condition, 

use, and zoning designation (referred to 

as the ‘‘as is’’ value of the property), as 

of the effective date of the appraisal. 

Therefore, if the highest and best use of 

the property is for development to a 

different use, the cost of demolition and 

site preparation should be considered in 

the analysis. 

Proposed Construction or Renovation 

For properties where improvements 

are to be constructed or rehabilitated, an 

institution may request a prospective 

market value upon completion and a 

prospective market value upon 

stabilization. While an institution may 

request the appraiser to provide the sum 

of retail sales for a proposed 

development, the result of such 

calculation is not the market value of 

the property for purposes of the 

Agencies’ appraisal regulations. 

Partially Leased Buildings 

For proposed and partially leased 

rental developments, the appraiser must 

make appropriate deductions and 

discounts to reflect that the property has 

not achieved stabilized occupancy. The 

appraisal analysis also should include 

consideration of the absorption of the 

unleased space. Appropriate deductions 

and discounts should include items 

such as leasing commission, rent losses, 

tenant improvements, and 

entrepreneurial profit, if such profit is 

not included in the discount rate. 

Non-Market Lease Terms 

For properties subject to leases with 

terms that do not reflect current market 

conditions, the appraisal must clearly 

state the ownership interest being 

appraised and provide a discussion of 

the leases that are in place. If the leased 

fee interest is being appraised and 

contract rent is less than market rent on 

one or more long term lease(s) to a 

highly rated tenant, the market value of 

the leased fee interest would be less 

than the market value of the 

unencumbered fee simple interest in the 

property.64 In these situations, the 

market value of the leased fee interest 

should be used. 

Tract Developments with Unsold Units 

A tract development is defined in the 

Agencies’ appraisal regulations as a 

project of five units or more that is 

constructed or is to be constructed as a 

single development. Appraisals for 

these properties must reflect deductions 

and discounts for holding costs, 

marketing costs, and entrepreneurial 

profit supported by market data. In 

some cases entrepreneurial profit may 

be included in the discount rate. The 

applicable discount rate is developed 

based on investor requirements and the 

risk associated with the physical and 

financial characteristics of the property. 

In some markets, entrepreneurial profit 

is treated as a line item deduction while 

in other markets it is reflected as a 

component of the discount rate. 

Regardless of how entrepreneurial profit 

is handled in the appraisal analysis, an 

appropriate explanation and discussion 

should be provided in the appraisal 

report. The projected sales prices and 

absorption rate of units should be 

supported by anticipated demand at the 

time the units are expected to be 

exposed for sale. Anticipated demand 

for the units should be supported and 

presented in the appraisal. A reader of 

the appraisal report should be able to 

understand the risk characteristics 

associated with the subject property and 

the market, including the anticipated 

supply of competing properties. 

• Raw Land 

The appraiser must provide an 

opinion of value for raw land based on 

its current condition and existing 

zoning. If an appraiser employs a 

developmental approach to value the 

land that is based on projected land 

sales or development and sale of lots, 

the appraisal must reflect appropriate 

deductions and discounts for costs 

associated with developing and selling 

lots in the future. These costs may be 

incurred during the permitting, 

construction or selling stages of 

development. Appropriate deductions 

and discounts should include items 

such as feasibility studies, permitting, 

engineering, holding costs, marketing 

costs, and entrepreneurial profit and 

other costs specific to the property. If 

sufficient market data exists to perform 

both the sales comparison and 

developmental approaches to value, the 

appraisal report should detail a 

reconciliation of these two approaches 

in arriving at a market value conclusion 

for the raw land. 

• Developed Lots 

For existing or proposed 

developments of five or more residential 

lots in a single development, the 

appraiser must analyze and report 

appropriate deductions and discounts. 

Appropriate deductions and discounts 

should reflect holding costs, marketing 

costs, and entrepreneurial profit during 

the sales absorption period for the sale 

of the developed lots. The estimated 

sales absorption period should reflect 

the appraiser’s estimate of the time 

frame for the actual development and 

sale of the lots, starting on the effective 

date of value and ending as of the 

expected date of the last lot sale. The 

absorption period should be based on 

market demand for lots in light of 

current and expected competition for 

similar lots in the market area. 

• Attached or Detached Single-family 

Homes 

For proposed construction and sale of 

five or more attached or detached 

single-family homes in the same 

development, the appraiser must 

analyze and report appropriate 

deductions and discounts. Appropriate 

deductions and discounts should reflect 

holding costs, marketing costs, and 

entrepreneurial profit during the sales 

absorption period of the completed 

units. If an institution finances 

construction on an individual unit 

basis, an appraisal of the individual 

units may be used if the institution can 

demonstrate through an independently 

obtained feasibility study or market 

analysis that all units collateralizing the 

loan can be constructed and sold within 

12 months. However, the transaction 

should be supported by an appraisal 

that analyzes and reports appropriate 

deductions and discounts if any of the 

individual units are not completed and 

sold within the 12-month time frame. 

• Condominiums 

For proposed construction and sale of 

a condominium building with five or 

more units, the appraisal must reflect 

appropriate deductions and discounts. 

Appropriate deductions and discounts 

should include holding costs, marketing 

costs, and entrepreneurial profit during 

the sales absorption period of the 

completed units. If an institution 

finances construction of a single 

condominium building with less than 

five units or a condominium project 

with multiple buildings with less than 

five units per building, the institution 

may rely on appraisals of the individual 

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65Except that the regulated institution also may 

accept an appraisal that was prepared by an 

appraiser engaged directly by another financial 

services institution in certain circumstances as set 

forth in the Agencies’ appraisal regulations. 66 Dodd-Frank Act, Section 1473(r). 

67NCUA’s appraisal regulation, 12 CFR 722, does 

not define ‘‘business loan.’’ A ‘‘member business 

loan’’ is regulated under 12 CFR 723. 

68NCUA’s appraisal regulation, 12 CFR 722, does 

not provide a higher appraisal threshold for loans 

defined as ‘‘member business loans’’ under 12 CFR 

723. 

units if the institution can demonstrate 

through an independently obtained 

feasibility study or market analysis that 

all units collateralizing the loan can be 

constructed and sold within 12 months. 

However, the transaction should be 

supported by an appraisal that analyzes 

and reports appropriate deductions and 

discounts if any of the individual units 

are not completed and sold within the 

12-month time frame. 

Appendix D—Glossary of Terms 

Agent—The Agencies’ appraisal 

regulations do not specifically define 

the term ‘‘agent.’’ However, the term is 

generally intended to refer to one who 

undertakes to transact business or to 

manage business affairs for another. 

According to the Agencies’ appraisal 

regulations, fee appraisers must be 

engaged directly by the federally 

regulated institution or its agent,65 and 

have no direct or indirect interest, 

financial or otherwise, in the property 

or the transactions. The Agencies do not 

limit the arrangements that federally 

regulated institutions have with their 

agents, provided those arrangements do 

not place the agent in a conflict of 

interest that prevents the agent from 

representing the interests of the 

federally regulated institution. 

Appraisal—As defined in the 

Agencies’ appraisal regulations, a 

written statement independently and 

impartially prepared by a qualified 

appraiser (state licensed or certified) 

setting forth an opinion as to the market 

value of an adequately described 

property as of a specific date(s), 

supported by the presentation and 

analysis of relevant market information. 

Appraisal Management Company— 

The Agencies’ appraisal regulations do 

not define the term appraisal 

management company. For purposes of 

these Guidelines, an ‘‘appraisal 

management company’’ includes, but is 

not limited to, a third-party entity that 

provides real property valuation-related 

services, such as selecting and engaging 

an appraiser to perform an appraisal 

based upon requests originating from a 

regulated institution. The Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act of 2010 (Dodd-Frank Act) 

has a specific definition for this term in 

connection with transactions secured by 

a consumer’s principal dwelling or 

mortgage secondary market transactions. 

See the Third Party Arrangements 

section in these Guidelines. 

Appraisal Report Options—Refer to 

the definitions for Restricted Use 

Appraisal Report, Self-Contained 

Appraisal Report, and Summary 

Appraisal Report. 

Appraisal Threshold—An appraisal is 

not required on transactions with a 

transaction value of $250,000 or less. As 

specified in the Agencies’ appraisal 

regulations, an institution must obtain 

an evaluation of the real property 

collateral, if no other appraisal 

exemption applies. 

Approved Appraiser List—A listing of 

appraisers who an institution has 

determined to be generally qualified and 

competent to perform appraisals and 

may address the appraiser’s expertise in 

a particular market and property type. 

‘‘As Completed’’ Market Value—Refer 

to the definition for Prospective Market 

Value. 

‘‘As Is’’ Market Value—The estimate of 

the market value of real property in its 

current physical condition, use, and 

zoning as of the appraisal’s effective 

date. 

‘‘As Stabilized’’ Market Value—Refer 

to the definition for Prospective Market 

Value. 

Automated Valuation Model—A 

computer program that estimates a 

property’s market value based on 

market, economic, and demographic 

factors. Hedonic models generally use 

property characteristics (such as square 

footage and room count) and 

methodologies to process information, 

often based on statistical regression. 

Index models generally use geographic 

repeat sales data over time rather than 

property characteristic data. Blended or 

hybrid models use elements of both 

hedonic and index models. 

Broker Price Opinion (BPO)—An 

estimate of the probable sales or listing 

price of the subject property provided 

by a real estate broker, sales agent, or 

sales person. A BPO generally provides 

a varying level of detail about a 

property’s condition, market, and 

neighborhood, as well as comparable 

sales or listings. A BPO is not by itself 

an appraisal or evaluation, but could be 

used for monitoring the collateral value 

of an existing loan, when deemed 

appropriate. Further, the Dodd-Frank 

Act provides ‘‘[i]n conjunction with the 

purchase of a consumer’s principal 

dwelling, broker price opinions may not 

be used as the primary basis to 

determine the value of a piece of 

property for the purpose of loan 

origination of a residential mortgage 

loan secured by such piece of 

property.’’ 66

Business Loan—As defined in the 

Agencies’ appraisal regulations, a loan 

or extension of credit to any 

corporation, general or limited 

partnership, business trust, joint 

venture, syndicate, sole proprietorship, 

or other business entity.67 A business 

loan includes extensions to entities 

engaged in agricultural operations, 

which is consistent with the Agencies’ 

real estate lending guidelines definition 

of an improved property loan that 

include loans secured by farmland, 

timberland, and ranchland committed to 

ongoing management and agricultural 

production. 

Business Loan Threshold—A business 

loan with a transaction value of 

$1,000,000 or less does not require an 

appraisal if the primary source of 

repayment is not dependent on the sale 

of, or rental income derived from, real 

estate. As specified in the Agencies’ 

appraisal regulations, an institution 

must obtain an evaluation of the real 

property collateral.68

Client—According to USPAP, the 

party or parties who engage(s) an 

appraiser by employment or contract for 

a specific appraisal assignment. For the 

purposes of these Guidelines, the 

appraiser should be aware that the 

client is the regulated institution. (Refer 

to the section on Third Party 

Arrangements in these Guidelines.) 

Credible (Appraisal) Assignment 

Results—According to USPAP, credible 

means ‘‘worthy of belief’’ used in the 

context of the Scope of Work Rule. 

Under this rule, credible assignment 

results depend on meeting or exceeding 

both (1) the expectations of parties who 

are regularly intended users for similar 

assignments, and (2) what an appraiser’s 

peers’ actions would be in performing 

the same or a similar assignment. 

Credit File—A hardcopy or electronic 

record that documents all information 

necessary to (1) analyze the credit before 

it is granted and (2) monitor the credit 

during its life. An institution may use a 

computerized or manual system to 

manage the information in its credit 

files. 

Date of the Appraisal Report— 

According to USPAP, the date of the 

appraisal report indicates when the 

appraisal analysis was completed. 

Effective Date of the Appraisal— 

USPAP requires that each appraisal 

report specifies the effective date of the 

appraisal and the date of the report. The 

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date of the report indicates the 

perspective from which the appraiser is 

examining the market. The effective 

date of the appraisal establishes the 

context for the value opinion. Three 

categories of effective dates— 

retrospective, current, or prospective— 

may be used, according to the intended 

use of the appraisal assignment. 

Effective Date of the Evaluation—For 

the purposes of the Agencies’ appraisal 

regulations and these Guidelines, the 

effective date of an evaluation is the 

date that the analysis is completed. 

Engagement Letter—An engagement 

letter between an institution and an 

appraiser documents the expectations of 

each party to the appraisal assignment. 

For example, an engagement letter may 

specify, among other items: (i) The 

property’s location and legal 

description; (ii) intended use and users 

of the appraisal; (iii) the requirement to 

provide an opinion of the property’s 

market value; (iv) the expectation that 

the appraiser will comply with 

applicable laws and regulations, and be 

consistent with supervisory guidance; 

(v) appraisal report format; (vi) expected 

delivery date; and (vii) appraisal fee. 

Evaluation—A valuation permitted by 

the Agencies’ appraisal regulations for 

transactions that qualify for the 

appraisal threshold exemption, business 

loan exemption, or subsequent 

transaction exemption. 

Exposure Time—As defined in 

USPAP, the estimated length of time the 

property interest being appraised would 

have been offered on the market prior to 

the hypothetical consummation of a sale 

at market value on the effective date of 

the appraisal. Exposure time is always 

presumed to precede the effective date 

of the appraisal. Exposure time is a 

function of price, time, and use—not an 

isolated opinion of time alone. (See 

USPAP Standard 1–2(c) and Statement 

6.) 

Extraordinary Assumption—As 

defined in USPAP, an assumption, 

directly related to a specific assignment, 

which, if found to be false, could alter 

the appraiser’s opinions or conclusions 

regarding the property’s market value. 

An example of an extraordinary 

assumption is when an appraiser 

assumes that an application for a zoning 

change will be approved and there is no 

evidence to suggest otherwise. 

Federally Regulated Institution—For 

purposes of the Agencies’ appraisal 

regulations and these Guidelines, an 

institution that is supervised by a 

Federal financial institution’s regulatory 

agency. This includes a national or a 

state-chartered bank and its 

subsidiaries, a bank holding company 

and its non-bank subsidiaries, a Federal 

savings association and its subsidiaries, 

a Federal savings and loan holding 

company and its subsidiaries, and a 

credit union. 

Federally Related Transaction—As 

defined in the Agencies’ appraisal 

regulations, any real estate-related 

financial transaction in which the 

Agencies or any regulated institution 

engages or contracts for, and that 

requires the services of an appraiser. 

Financial Services Institution—The 

Agencies’ appraisal regulations do not 

contain a specific definition of the term 

‘‘financial services institution.’’ The term 

is intended to describe entities that 

provide services in connection with real 

estate lending transactions on an 

ongoing basis, including loan brokers. 

Going Concern Value—The value of a 

business entity rather than the value of 

the real property. The valuation is based 

on the existing operations of the 

business and its current operating 

record, with the assumption that the 

business will continue to operate. 

Hypothetical Condition—As defined 

in USPAP, a condition that is contrary 

to what exists but is supposed for the 

purpose of analysis. An example of a 

hypothetical condition is when an 

appraiser assumes a particular 

property’s zoning is different from what 

the zoning actually is. 

Loan Production Staff—Generally, all 

personnel responsible for generating 

loan volume or approving loans, as well 

as their subordinates and supervisors. 

These individuals would include any 

employee whose compensation is based 

on loan volume (such as processing or 

approving of loans). An employee is not 

considered loan production staff just 

because part of their compensation 

includes a general bonus or profit 

sharing plan that benefits all employees. 

Employees responsible solely for credit 

administration or credit risk 

management are not considered loan 

production staff. 

Marketing Time—According to 

USPAP Advisory Opinion 7, the time it 

might take to sell the property interest 

at the appraised market value during the 

period immediately after the effective 

date of the appraisal. An institution may 

request an appraiser to separately 

provide an estimate of marketing time in 

an appraisal. However, this is not a 

requirement of the Agencies’ appraisal 

regulations. 

Market Value—As defined in the 

Agencies’ appraisal regulations, the 

most probable price which a property 

should bring in a competitive and open 

market under all conditions requisite to 

a fair sale, the buyer and seller each 

acting prudently and knowledgeably, 

and assuming the price is not affected 

by undue stimulus. Implicit in this 

definition are the consummation of a 

sale as of a specified date and the 

passing of title from seller to buyer 

under conditions whereby: 

• Buyer and seller are typically 

motivated; 

• Both parties are well informed or 

well advised, and acting in what they 

consider their own best interests; 

• A reasonable time is allowed for 

exposure in the open market; 

• Payment is made in terms of cash 

in U.S. dollars or in terms of financial 

arrangements comparable thereto; and 

• The price represents the normal 

consideration for the property sold 

unaffected by special or creative 

financing or sales concessions granted 

by anyone associated with the sale. 

Presold Unit—A unit may be 

considered presold if a buyer has 

entered into a binding contract to 

purchase the unit and has made a 

substantial and non-refundable earnest 

money deposit. Further, the institution 

should obtain sufficient documentation 

that the buyer has entered into a legally 

binding sales contract and has obtained 

a written prequalification or 

commitment for permanent financing. 

Prospective Market Value ‘‘as 

Completed’’ and ‘‘as Stabilized’’—A 

prospective market value may be 

appropriate for the valuation of a 

property interest related to a credit 

decision for a proposed development or 

renovation project. According to 

USPAP, an appraisal with a prospective 

market value reflects an effective date 

that is subsequent to the date of the 

appraisal report. Prospective value 

opinions are intended to reflect the 

current expectations and perceptions of 

market participants, based on available 

data. Two prospective value opinions 

may be required to reflect the time 

frame during which development, 

construction, and occupancy will occur. 

The prospective market value ‘‘as 

completed’’ reflects the property’s 

market value as of the time that 

development is expected to be 

completed. The prospective market 

value ‘‘as stabilized’’ reflects the 

property’s market value as of the time 

the property is projected to achieve 

stabilized occupancy. For an incomeproducing property, stabilized 

occupancy is the occupancy level that a 

property is expected to achieve after the 

property is exposed to the market for 

lease over a reasonable period of time 

and at comparable terms and conditions 

to other similar properties. (See USPAP 

Statement 4 and Advisory Opinion 17.) 

Put Back—Represents the ability of an 

investor to reject mortgage loans from a 

mortgage originator if the mortgage 

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loans do not comply with the warranties 

and representations in their mortgage 

purchasing agreement. 

Raw Land—A parcel or tract of land 

with no improvements, for example, 

infrastructure or vertical construction. 

When an appraisal of raw land includes 

entitlements, the appraisal should 

disclose when such entitlements will 

expire if improvements are not 

completed within a specified time 

period and the potential effect on the 

value conclusion. 

Real Estate-Related Financial 

Transaction—As defined in the 

Agencies’ appraisal regulations, any 

transaction involving: 

• The sale, lease, purchase, 

investment in or exchange of real 

property, including interests in 

property, or the financing thereof; 

• The refinancing of real property or 

interests in real property; or 

• The use of real property or interests 

in property as security for a loan or 

investment, including mortgage-backed 

securities. 

Regulated Institution—Refer to the 

definition of Federally Regulated 

Institution. 

Restricted Use Appraisal Report— 

According to USPAP Standards Rule 2– 

2(c), a restricted use appraisal report 

briefly states information significant to 

solve the appraisal problem as well as 

a reference to the existence of specific 

work-file information in support of the 

appraiser’s opinions and conclusions. 

The Agencies believe that the restricted 

use appraisal report will not be 

appropriate to underwrite a significant 

number of federally related transactions 

due to the lack of supporting 

information and analysis in the 

appraisal report. However, it may be 

appropriate to use this type of appraisal 

report for ongoing collateral monitoring 

of an institution’s real estate 

transactions and other purposes. 

Sales Concessions—A cash or 

noncash contribution that is provided 

by the seller or other party to the 

transaction and reduces the purchaser’s 

cost to acquire the real property. A sales 

concession may include, but is not 

limited to, the seller paying all or some 

portion of the purchaser’s closing costs 

(such as prepaid expenses or discount 

points) or the seller conveying to the 

purchaser personal property which is 

typically not conveyed with the real 

property. Sales concessions do not 

include fees that a seller is customarily 

required to pay under state or local 

laws. In developing an opinion of 

market value, an appraiser must take 

into consideration the effect of any sales 

concessions on the market value of the 

real property. (See ‘‘market value’’ above 

and USPAP Standards Rule 1–2(c).) 

Sales History and Pending Sales— 

According to USPAP Standards Rule 1– 

5, when the value opinion to be 

developed is market value, an appraiser 

must, if such information is available to 

the appraiser in the normal course of 

business, analyze: (1) All current 

agreements of sale, options, and listings 

of the subject property as of the effective 

date of the appraisal, and (2) all sales of 

the subject property that occurred 

within three years prior to the effective 

date of the appraisal. 

Scope of Work—According to USPAP 

Scope of Work Rule, the type and extent 

of research and analyses in an appraisal 

assignment. (See the Scope of Work 

Rule in USPAP.) 

Self-contained Appraisal Report— 

According to USPAP Standards Rule 2– 

2(a), a self-contained appraisal report is 

the most complete and detailed 

appraisal report option. 

Sum of Retail Sales—A mathematical 

calculation of the sum of the expected 

sales prices of several individual 

properties in the same development to 

an individual purchaser. The sum of 

retail sales is not the market value for 

purposes of meeting the minimum 

appraisal standards in the Agencies’ 

appraisal regulations. 

Summary Appraisal Report— 

According to USPAP Standards Rule 2– 

2(b), the summary appraisal report 

summarizes all information significant 

to the solution of an appraisal problem 

while still providing sufficient 

information to enable the client and 

intended user(s) to understand the 

rationale for the opinions and 

conclusions in the report. 

Tract Development—As defined in 

the Agencies’ appraisal regulations, a 

project of five units or more that is 

constructed or is to be constructed as a 

single development. For purposes of 

these Guidelines, ‘‘unit’’ refers to: a 

residential or commercial building lot, a 

detached single-family home, an 

attached single-family home, and a 

residence in a condominium, 

cooperative, or timeshare building. 

Transaction Value—As defined in the 

Agencies’ appraisal regulations: 

• For loans or other extensions of 

credit, the amount of the loan or 

extension of credit; 

• For sales, leases, purchases, and 

investments in or exchanges of real 

property, the market value of the real 

property interest involved; and 

• For the pooling of loans or interests 

in real property for resale or purchase, 

the amount of the loan or market value 

of the real property calculated with 

respect to each such loan or interest in 

real property. 

For purposes of this definition, the 

transaction value for loans that permit 

negative amortization should be the 

institution’s total committed amount, 

including any potential negative 

amortization. 

Uniform Standards of Professional 

Appraisal Practice (USPAP)—USPAP 

identifies the minimum set of standards 

that apply in all appraisal, appraisal 

review, and appraisal consulting 

assignments. These standards are 

promulgated by the Appraisal Standards 

Board of the Appraisal Foundation and 

are incorporated as a minimum 

appraisal standard in the Agencies’ 

appraisal regulations. 

Unsold Units—An unsold unit is a 

unit that does not meet the conditions 

listed in the definition of Presold Units. 

Value of Collateral (for Use in 

Determining Loan-to-Value Ratio)— 

According to the Agencies’ real estate 

lending standards guidelines, the term 

‘‘value’’ means an opinion or estimate set 

forth in an appraisal or evaluation, 

whichever may be appropriate, of the 

market value of real property, prepared 

in accordance with the Agencies’ 

appraisal regulations and these 

Guidelines. For loans to purchase an 

existing property, ‘‘value’’ means the 

lesser of the actual acquisition cost or 

the estimate of value. 

Dated: November 1, 2010. 

John Walsh, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 1, 2010. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, the 1st day of 

December, 2010. 

By order of the Federal Deposit Insurance 

Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: December 1, 2010. 

By the Office of Thrift Supervision. 

John E. Bowman, 

Acting Director. 

Dated: November 9, 2010. 

By the National Credit Union 

Administration Board. 

Mary F. Rupp, 

Secretary of the Board. 

[FR Doc. 2010–30913 Filed 12–9–10; 8:45 am] 

BILLING CODE P 

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