A bank makes one loan secured by six commercial properties in different markets, none part of a tract development. Two properties are each valued above the appraisal threshold and four below it, and the total loan exceeds the threshold. No other exemption applies. Under the Interagency Guidelines, what valuations are needed?
Correct Answer
A) Appraisals on the two higher-valued properties and evaluations on the other four
When a transaction is secured by several individual properties that are not part of a tract development, the estimated value of each property determines whether an appraisal or evaluation is required for it. The guidelines' own example requires appraisals on the properties above the threshold and evaluations on those below, even though the aggregate commitment exceeds the threshold.
Why This Is the Correct Answer
Option A is correct because the estimated value of each individual property determines whether that property needs an appraisal or an evaluation. The two properties above the threshold need appraisals and the four below need evaluations. The guidelines state this result holds even though the aggregate loan exceeds the threshold.
Why the Other Options Are Wrong
Option B: Appraisals on all six properties, because the total loan exceeds the threshold
Option B requires appraisals on all six properties because the total loan exceeds the threshold. The guidelines reject using the aggregate commitment for separate properties that are not part of a tract development.
Option C: Evaluations on all six properties, because each lien is a separate transaction
Option C allows evaluations on all six because each lien is separate. Treating each property separately is the right starting point, but the two properties valued above the threshold still require appraisals.
Option D: One appraisal of the combined properties, valued as a single bulk transaction
Option D calls for one appraisal of the combined properties as a bulk transaction. The properties are in different markets and not part of a tract development, so the guidelines look at each property's value rather than a single combined valuation.
Count each property separately
For a pool of separate properties, ask the threshold question property by property, not loan by loan.
How to use: Use this rule when a question gives one loan secured by several properties with values on both sides of the threshold.
Exam Tip
Check whether the properties form a tract development before applying the property-by-property approach.
Common Mistakes to Avoid
- -Applying the threshold to the total loan amount
- -Ordering one combined appraisal for unrelated properties
Concept Deep Dive
Analysis
The question tests how the appraisal threshold applies to a loan secured by multiple separate properties. The guidelines direct the institution to look at each property's estimated value rather than the total loan. Applying that test property by property produces a mix of appraisals and evaluations.
Background Knowledge
The appraisal threshold exemption allows an evaluation for transactions at or below the threshold. For loans secured by several unrelated properties, the threshold test is applied to each property's estimated value, while tract developments are treated differently.
Real-World Application
A bank finances a restaurant operator's loan secured by five locations in different towns. The two larger sites receive full appraisals, and the three smaller sites receive evaluations, all documented in the credit file.
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