SR 16-5:

Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF BANKING
SUPERVISION AND REGULATION

SR 16-5
March 4, 2016

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions

Applicability:  This guidance applies to all state member banks, bank holding companies, and nonbank subsidiaries of bank holding companies, regardless of the asset size of the supervised institution.

The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (agencies) are issuing the attached Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions to describe aspects of the agencies' appraisal regulations1 and the Interagency Appraisal and Evaluation Guidelines.2   In outreach meetings conducted by the agencies pursuant to the requirement of the Economic Growth and Regulatory Paperwork Reduction Act, representatives from the financial industry raised questions regarding supervisory expectations for using an evaluation instead of an appraisal for estimating the market value of real property securing real estate-related financial transactions.  Many of these questions pertained to the circumstances under which evaluations may be used in the underwriting of real estate-related financial transactions and how to support a market value conclusion when there have been few or no recent comparable sales.  Therefore, the agencies are issuing this advisory to respond to those questions and to describe existing supervisory expectations, guidance, and industry practice. 

In particular, the advisory reminds institutions about the appropriate use of an evaluation when determining the market value of real property for certain real estate-related financial transactions.  It highlights that preparers of an evaluation may be internal bank employees or third parties that are knowledgeable, competent, and independent of the transaction.  Further, the advisory discusses various valuation methods commonly used for developing a market value conclusion.  The agencies remind institutions that regardless of the valuation method used, an evaluation should contain sufficient information to support the value conclusion.  Institutions are reminded to refer to the Interagency Appraisal and Evaluation Guidelines for further guidance concerning evaluations.

Federal Reserve Banks are asked to distribute this letter to supervised institutions in their districts, as well as to supervisory and examination staff.  For questions related to this advisory, please contact Carmen Holly, Senior Supervisory Financial Analyst, at (202) 973-6122.  In addition, questions may be sent via the Board's public website.3 

signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation

Cross References:
Notes:
  1. See the Board's appraisal rules: 12 CFR 208 subpart E (state member banks) and 12 CFR 225 subpart G (bank holding companies). Return to text
  2. See SR letter 10-16, "Interagency Appraisal and Evaluation Guidelines." Return to text
  3. See http://www.federalreserve.gov/apps/contactus/feedback.aspx.  Return to text
Back to Top
Last Update: March 04, 2016