A bank receives two valuations on a property and the second is higher. Under the Interagency Guidelines, which should the bank rely on?
Correct Answer
A) The more credible appraisal or evaluation
An institution that obtains another appraisal or evaluation is expected to select the most credible one, rather than the one stating the highest value.
Why This Is the Correct Answer
Option A is correct because an institution that obtains another appraisal or evaluation is expected to select the most credible one. The guidelines specifically contrast this with choosing the one stating the highest value. Credibility reflects the support and reliability of the analysis.
Why the Other Options Are Wrong
Option B: The higher value, since it supports the loan
Option B chooses the higher value because it supports the loan. The guidelines expect selection of the most credible valuation rather than the highest one.
Option C: The average of the two valuations
Option C uses the average of the two valuations. Averaging ignores which analysis is better supported; the guidelines call for selecting the most credible valuation.
Option D: The more recent of the two valuations
Option D picks the more recent of the two valuations. Recency may affect relevance, but the stated standard is credibility, and a newer report is not credible simply because it is newer.
Credible beats high
When valuations conflict, the bank picks the best supported, not the biggest number. Credible beats high.
How to use: Use this when a question asks which of multiple valuations a lender should rely on.
Exam Tip
Answers that choose a valuation because it is higher, averaged or newer usually miss the credibility standard.
Common Mistakes to Avoid
- -Choosing the higher value because it supports the loan
- -Averaging conflicting valuations
- -Defaulting to the most recent report without assessing credibility
Concept Deep Dive
Analysis
This question tests the Interagency Guidelines' expectation when an institution has more than one valuation. The institution should select the most credible appraisal or evaluation, not the one stating the highest value. Credibility, not amount or convenience, controls.
Background Knowledge
The Interagency Guidelines address value shopping, where an institution might seek a higher valuation to support a loan. Institutions are expected to have policies for choosing among multiple valuations based on credibility. This protects safety and soundness and appraiser independence.
Real-World Application
A bank receives an appraisal and then a second appraisal with a higher value. The review appraiser finds the second report used dated, distant comparables, while the first used well-verified nearby sales. The bank relies on the first report as the more credible valuation.
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