As President Donald Trump seeks to knock down government constraints on business loans, U.S. bank regulators have tentatively agreed to ease an appraisal requirement that could help commercial real estate borrowers, said people familiar with talks among the agencies.
Regulators have decided the threshold for requiring appraisals on commercial property should be increased to $400,000 from $250,000, according to two people who asked that they not be identified because the discussions aren’t public. The threshold for residential real estate would remain at $250,000, they said.
The change could cut costs for small-business borrowers at a time when Trump has put a particular focus on helping that sector. At the same time, appraisers would be hurt because their licensed services would no longer be needed on commercial real estate loans for less than $400,000 – often including small businesses, warehouses, rental housing and farms.
The move stems from an ongoing internal review of rules at the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. under a program known as the Economic Growth and Regulatory Paperwork Reduction Act. The appraisal standards have been publicly listed as one of the regulations under review, though the agencies haven’t yet indicated when they’ll finish.
Quote"It hasn’t been raised since 1994, so this adjustment really amounts to a correction," said Rod Alba, senior vice president for real estate finance at the American Bankers Association.
Spokesmen for the three agencies declined to comment on the appraisals plan.
Trump has issued orders and made comments in favor of easing regulations on lending, especially for small businesses. On March 9, the president sat down with community bankers at the White House to find out how his administration can clear obstacles to their lending. So this change could be easier for regulators to pursue than more controversial efforts.
Federal Reserve Chair Janet Yellen said in September that the agencies were "exploring potential options for alleviating some burdens of appraisal requirements." It's been more than two decades since regulators increased the appraisal threshold, then moving it from $100,000 to the current $250,000.
"It hasn’t been raised since 1994, so this adjustment really amounts to a correction," said Rod Alba, senior vice president for real estate finance at the American Bankers Association in Washington. He said that these kinds of loans are vital for small businesses.
The Independent Community Bankers of America argued for a $500,000 trigger in a letter to regulators last year, citing the many years that have passed since the last change and saying an update is needed “to reflect the rising costs of real estate particularly in many urban markets.”
Another argument for the change: It can be hard to find an appraiser in some rural areas.
Appraisal fees for commercial property routinely exceed $2,000. In cases where an appraisal isn't required, some type of evaluation of the property’s worth is still needed to satisfy lending regulations.
Banks may be frustrated that commercial appraisals can take a long time and cost the borrowers thousands of dollars, but that it's the only reliable way to measure a property's worth, according to Karen J. Mann, who is active in the American Society of Appraisers.
"There are a lot of things you don't know by not having somebody go out and inspect the property," said Mann, who works in California. Raising the threshold could put a lot of appraisers out of work, particularly in non-coastal states where many properties would fall below the mark, she said.