Federal Reserve: Commercial BPOs Do Not Satisfy the Definition of "Evaluation"
In response to clarification requests from the Appraisal Institute, the Federal Reserve’s Board of Governors issued a Jan. 14 letter confirming that a broker price opinion “does not satisfy the definition of an appraisal in the Board’s appraisal regulation.”
The Fed’s clarification was addressed to the Appraisal Institute and came in direct response to an Oct. 26, 2009, letter sent to the Fed by the nation’s four largest appraiser organizations that asked the Fed about its policy on the use of BPOs in valuing land and other real property collateralizing commercial loans.
“In response to your question as to the use of BPOs, it is the position of the Federal Reserve staff that a BPO does not satisfy the definition of an appraisal in the Board’s appraisal regulation,” the agency’s letter read. “Therefore, a regulated institution would not be able to utilize a BPO to originate a loan secured by commercial real estate when the loan requires an appraisal in accordance with the appraisal regulation.”
In its letter, the Fed added: “With regard to the use of BPOs as an evaluation, Federal Reserve staff has taken the position that a BPO does not provide sufficient detail on a commercial property’s condition, occupancy, and use to meet the guidelines’ requirements for an evaluation.”
Bill Garber, director of government and external relations of the Appraisal Institute, said: “We applaud the diligent position taken by the staff of the Federal Reserve Board, and we believe it is one that should be taken by all of the federal financial institution regulatory agencies.”
The Appraisal Institute and fellow appraiser organizations had sought clarification after reports that BPOs had been ordered by regulated financial institutions to satisfy the “evaluation” requirements for renewals of commercial loans and refinancing transactions. As the appraiser organizations had pointed out in their October letter, “[C]ommercial BPOs typically lack details on a commercial property’s conditions, occupancy and use as stipulated by the Interagency Guidelines. As such, any use by regulated or supervised institutions would constitute a violation of the Interagency Appraisal and Evaluation Guidelines and, we believe, are inconsistent with written Federal Reserve policies.”
The Federal Reserve’s Board of Governors responsible for policy is composed of five members: Chairman Ben Bernanke, Vice-Chairman Donald Kohn, Kevin Warsh, Elizabeth Duke and Daniel Tarullo.
