Commercial real estate industry insights.

Higher Appraisal Thresholds Underscore Need for Speed in Valuation Process

by Paul Ping, MAI | Mar 8, 2019

Credit unions have quadrupled—from $250,000 to $1 million—the appraisal threshold for commercial real estate loans, and regardless of how we as appraisers feel about this spike, it reflects an undeniable trend in lending: The market wants deals done on-the-double.

The move goes beyond the recent decision by banks to increase their commercial appraisal threshold from $250,000 to $500,000. The increase for credit unions is more drastic by comparison and creates misalignment between charter types. That said, the case for increasing the threshold four-fold is to save time and money, which BBG understands is a critical consideration in the current market. That’s why the BBG leaders have been working closely with the banking industry to make our appraisal process more efficient while maintaining the integrity of our product. We are eager to work with, and achieve efficiencies for, credit unions that also continue to support safe and sound lending practices.

There is significant demand for creating high quality reports in a short window, but this must be done without increasing risk. The Appraisal Institute has stated that the $1 million appraisal threshold could recreate conditions that led to the housing market crisis of the late 2000s. Seventeen other real estate appraisal organizations from across the U.S. signed the Institute’s opposition statement. In response to market demands for speed and our clients’ risk mitigation needs, BBG is focusing on using technology to provide an expeditious means of providing indispensable third-party oversight.

BBG is investing in cutting edge data aggregation technology to give our appraisers the necessary tools to provide high quality appraisal reports that meet the timing demands of the competitive lending industry.  By leveraging various proprietary technologies, we can ensure the highest level of quality and increasing efficiencies for our appraisal staff.

Another way BBG is responding to market demand is new product development. Our new BBG desktop Evaluation product launched in 2017 in response to the higher appraisal thresholds. Today a significant number of the nation’s top financial institutions use BBG Evaluation reports for property values that fall below the traditional appraisal requirement. These desktop appraisal reports leverage BBG’s nationwide database of commercial property information. All reports are prepared by certified appraisers, and reviewed by an internal quality control panel composed of BBG’s MAI-designated commercial real estate valuation experts.

For the increasingly substantial market sector that is exempt from full appraisal report requirements, BBG Evaluations provides a cost-effective means of ensuring through unbiased, third-party valuation that an asset’s market value is in line with the lender’s underwriting and—in an acquisition scenario—the borrower’s purchase price. The are restricted desktop appraisals that are both USPAP compliant, and performed by certified appraisers.

As the old adage goes, time is money. BBG is committed to working with lending institutions to make sure our services meet these demands without compromising safety and soundness requirements.