$500,000 Threshold on Commercial Real Estate Appraisals

If you’re considering investing in commercial real estate you need to know about the rule imposed by the FDIC on April 2^nd, 2018.

The Federal Reserve Board along with the OCC and FDIC issued a joint statement announcing a new rule that changed the threshold level for commercial real estate transactions.

The new rule doubled the threshold of $250,000 to $500,000 for commercial property appraisals.

The new initiative responded to financial industry concerns that the current threshold was outdated, as adjustments had not been made since being set 24 years ago.

On April 14th, the new rule called “Real Estate Appraisals” was filed into law.

When asked about the new rule, the FDIC response was, “The Appraisal Rule creates a new definition of, and separate category for, commercial real estate transactions and raises the threshold for requiring an appraisal from $250,000 to $500,000 for those transactions, which will exempt an additional 15.7 percent of transactions from the appraisal requirements.”

Is This Good News for Commercial Real Estate?

This new threshold could be good news for the smaller investor as they could purchase properties and have less expense and red tape.

The rule is definitely a benefit for financial institutions in rural and other areas that may have a shortage of state licensed or certified appraisers.

However, although the new rule will allow lenders to finance commercial properties of $500,000 or less without requiring an appraisal, lenders are still responsible for evaluating the value of any property they finance.

It is required evaluations are performed by persons who are competent and have relevant experience and knowledge of the market, location, and type of real property being valued. An evaluation need not be performed by a state licensed or certified appraiser, but may be completed by an employee of the regulated institution or a third party.