Less formal evaluations are allowed for exempt transactions. State licensing or certification is not required. An evaluation should:
•Be written;
•Include the preparer’s name, address, and signature, and the effective date of the evaluation;
•Describe the real estate collateral, its condition, its current and projected use;
•Describe the source(s) of information used in the analysis;
•Describe the analysis and supporting information; and
•Provide an estimate of the real estate’s market value, with any limited conditions.
The FDIC’s Financial Institution Letter FIL-16-2016 (March 4, 2016) “Supervisory Expectations for Evaluations” provides guidance on supervisory expectations for evaluations.
An evaluation report should include calculations, supporting assumptions, and, if utilized, a discussion of comparable sales. Documentation should be sufficient to allow the Bank to understand the analysis, assumptions, and conclusions. The Bank’s own real estate loan portfolio experience and value estimates prepared for recent loans on comparable properties might provide a basis for an evaluation. A sample Evaluation Form is located at the end of this Chapter.
In areas with few, if any, recent comparable sales of similar properties in reasonable proximity to the subject property, persons who perform evaluations may consider alternative valuation methods and other supporting information when developing a market value conclusion.
An evaluation should provide an estimate of value to assist the Bank in assessing the soundness of the transaction. As a Bank engages in more complex real estate transactions, or as it overall exposure increases, a more detailed evaluation should be performed. For example, an evaluation for a home equity loan might be based primarily on information derived from a sales data services organization or current tax assessment information, while an evaluation for an income-producing real estate property should fully describe the current and expected use of the property and include an analysis of the property’s rental income and expenses.