Periodically financial institutions, such as banks and credit unions, are required to re-examine the values of commercial real estate assets which were used as collateral for those loans. They are required to answer the question… “Is the value of the property sufficient to support the monies loaned for the underlying mortgage(s)?”
An appraisal is initially obtained to justify the original loan amount placed on the property. The appraisal report is relatively costly. It contains data and analysis required to estimate the real estate’s market value in order to justify the loan amount provided.
When no new money is being provided, the cost and detail supplied in an appraisal is not required. A shorter, less expensive report, can provide a reliable valuation which can quickly determine if the assets still contain sufficient value to support the loan. The “Evaluation” is a report which was developed to meet that need.
An evaluation is a shortened report that provides a value estimate which is used for a very specific type of client. Since 2010 the “evaluation” has been used as an economical alternative for an appraisal. In the past, this valuation’s findings may not always have been reliable since it did not require a licensed appraiser to complete it.
Five government financial regulating agencies (OCC, FA, FDIC, OTS and NOVA) wrote the “Interagency Appraisal and Evaluation Guidelines” which was published December 2, 2010. In this document, guidelines were established to help financial institutions determine when an evaluation or an appraisal of a parcel of real estate was required.
An evaluator is a person who is required to have the necessary skills to be able to establish a supportable market value. Often real estate brokers or bank officials were given the assignment in order to keep the cost of the evaluation down. It replaced the more expensive cost of an appraisal.
Appraisers are required to comply with the Uniform Standards of Professional Appraisal Practice (USPAP) established and regulated by the Appraisal Foundation. In the 2016 – 2017 USPAP edition, appraisers are allowed to perform evaluations, as long as they meet appraisal guidelines consistent with a “Restricted Use” appraisal report.
Universal Appraisal and Review analyzed the regulations required for the evaluation as established by the Interagency Report and USPAP. As a result, a report was developed to satisfy both of these institutions’ guidelines. The price is competitive with evaluations prepared by someone lacking the valuation skills offered by a licensed appraiser.
If you are looking for an economical alternative to an appraisal for confirming market value estimates for commercial real estate loan portfolios, contact us. Let Universal Appraisal and Review show you how an evaluation prepared by a licensed appraiser can provide an economical means of valuing these assets.