In response to the current economic emergency in connection to COVID-19, federal banking regulators have set in place new interim appraisal rules. Perhaps the most noteworthy is the new ability for banks to delay property appraisals for up to 120 days — four months — after the closing of a transaction. This interim rule has been put in place to allow lenders to provide creditworthy clients with extended financing to help with possible financial strain as a result of this pandemic.
This change was announced on Tuesday, April 14th, by the Federal Deposit Insurance Corporation , as well as the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency. This new rule, now in effect, started on April 21, 2020 and is set to expire on December 31 2020. This new policy applies only to banks overseen by the Federal Reserve System, the FDIC, and the OCC.
Additionally and more importantly, the change only applies to the loans kept within the banks’ portfolios. The agencies are excluding transactions for acquisition, development, and construction of real estate because these loans present heightened risks not associated with financing existing real estate.
For a better in-depth look at the new rule from an appraisers point of view, the Appraisal Institute has addressed this interim deferment rule on their website as well as in a webcast video on Facebook.
Why Allow Appraisal Deferment?
COVID-19 has made a significant impact across all American industries. Businesses with commercial real estate have suffered notably, and are in great need of help in the form of supplemental liquidity. To address this issue, the NCUA and the federal government are utilizing this deferral strategy to provide them with quicker access to equity in the commercial real estate market as well as assist lenders during this challenging time.
The appraisal process shouldn’t typically slow down the loan application. However, the current restrictions on non-essential work and new rules for public health and safety have made completing a commercial property appraisal challenging. These appraisal complications have led to significant delays in the process of obtaining the funding needed to fulfill the immediate needs of today’s suffering business owners.
These deferrals are temporary. Neither the banks nor the credit unions have the authority to waive an appraisal altogether. Appraisals can only be delayed by a maximum of 120 days.
What Does This Mean for Commercial Appraisers?
This new rule should generate a positive impact on businesses and individuals looking to gain equity in the real estate market. This rule, however, does give cause for concern for commercial appraisers across the country. As previously mentioned, the law is only temporary — with a little luck, things should return to normal by the end of this year. Even still, anyone who chooses to defer the appraisal process will still need their properties valued eventually. Regardless, appraisers are still asking the question — what about these next four months?
While this rule doesn’t seem like a positive change for appraisers, there are a few things to keep in mind. The first is that this rule is optional and temporary. The market is tight right now, but not everyone will need to defer their appraisals. Many businesses will opt to complete the process as soon as possible so that they don’t need to worry about it later.
More importantly, appraisers should remember that this rule was enacted as a response to social distancing complications. Appraisal inspections are hard to conduct right now, and without updated tools, you’ll have to wait for those deferment periods to end. By leveraging the right technology, you can complete the valuation process remotely, while adhering to the enforced National Emergency laws. If you can do this and notify your clients that you can provide appraisals promptly, you won’t have to worry about the possibility of a dry-spell.
Evolving your appraisal operation is crucial, now more than ever. Start today by implementing a comprehensive, cloud-based appraisal manager like Valcre. With Valcre, you’ll have all the tools you need to create comprehensive, professional reports in half the time of your typical work methods. Contact our team to learn more.