This letter introduces the very important Interagency Appraisal and Evaluation Guidelines (December 2010). The guidelines are to be used in addition to compliance with the NCUA appraisal rules at 12 CFR 722. Highlights of the guidelines include:
- Emphasizing the importance of having a collateral valuation process independent from other parts of the lending process;
- Having effective quality controls over the appraisal process by recommending a periodic review of the work completed by the appraisers and for individuals selected to hold appropriate state certification or licenses;
- An expanded “Minimum Appraisal Standards” section to clarify appraisals must contain an opinion of market value as defined in the Agencies’ appraisal regulations;
- In addition, the Minimum Appraisal Standards section clarifies an Automated Valuation Model,2 by itself, is not an appraisal. This section also contains new guidance about having the appraisal report disclose the nature and extent of research performed to verify a property’s condition and support market value;
- Greater detail about how appraisals should have appropriate adjustments to market value for factors such as prospective improvements, lease terms, and market conditions. Furthermore, the guidelines clarify how appraisals should not incorporate factors such as favorable financing or special value to a specific property user into the market value;
- Reinforcement of the Agencies’ expectations regarding the management of relationships with third parties as they pertain to real estate lending; and,
- The need to develop policies for determining an appropriate collateral valuation methodology for various transactions.