How does an evaluation differ from an appraisal under the interagency guidelines?
Correct Answer
A) An evaluation need not be prepared by an appraiser
An evaluation does not have to be prepared by a state-licensed or state-certified appraiser. The institution must use an appropriately qualified and independent person and obtain a sufficiently supported evaluation meeting the applicable banking requirements. Evaluations are permitted for specified exempt transactions, which include certain threshold, business-loan, and subsequent-transaction exemptions; they are not defined by a universal below-threshold-only rule. No universal longer or shorter retention comparison establishes this distinction.
Why This Is the Correct Answer
Option A is correct because an evaluation need not be prepared by a state-licensed or state-certified appraiser. The institution must still use a person who is appropriately qualified and independent, with relevant valuation education, expertise and experience, and the evaluation must be sufficiently supported.
Why the Other Options Are Wrong
Option B: An evaluation must use all three approaches
Option B says an evaluation must use all three approaches. Evaluations are not defined by a requirement to develop the cost, sales comparison and income approaches.
Option C: An evaluation carries a longer retention period
Option C says an evaluation carries a longer retention period. No universal longer or shorter retention comparison establishes the difference between evaluations and appraisals.
Option D: An evaluation is limited to loans above the threshold
Option D says an evaluation is limited to loans above the threshold. Evaluations are permitted for specified exempt transactions, which include certain threshold exemptions, so describing them as limited to loans above the threshold reverses the idea.
Evaluation: qualified, not necessarily licensed
An evaluator must be qualified and independent, but does not have to hold an appraiser license or certification.
How to use: Use this phrase to separate evaluations from appraisals on exam questions.
Exam Tip
Be wary of options that describe evaluations with a single universal rule about thresholds or retention; the actual difference is who may prepare them.
Common Mistakes to Avoid
- -Believing evaluations must be prepared by licensed appraisers
- -Thinking evaluations require all three approaches
- -Defining evaluations by a simple loan-amount rule
Concept Deep Dive
Analysis
This question tests the main distinction between an evaluation and an appraisal under the Interagency Guidelines. An evaluation does not have to be prepared by a state-licensed or state-certified appraiser, though the preparer must be qualified and independent. Reject options that add requirements or definitions the guidelines do not impose.
Background Knowledge
Federal banking rules require appraisals for certain transactions and allow evaluations for specified exempt transactions, including certain threshold, business-loan and subsequent-transaction exemptions. Evaluations must still be reliable and prepared by qualified, independent persons.
Real-World Application
A bank uses a staff valuation analyst with collateral valuation training to prepare an evaluation for an exempt transaction. The analyst is not a licensed appraiser but is qualified and independent of the loan production function.
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