Under FIRREA, what is the minimum transaction value that triggers the requirement for a state-licensed or certified appraiser for federally related transactions?
Correct Answer
B) $250,000
FIRREA requires a state-licensed or certified appraiser for federally related transactions of $250,000 or more. This threshold was established to ensure qualified appraisers handle significant real estate transactions.
Why This Is the Correct Answer
The $250,000 threshold was specifically established by FIRREA and has remained consistent since the act's implementation. This amount represents the minimum transaction value where federal regulators determined that the complexity and financial risk justify requiring a state-licensed or certified appraiser rather than allowing alternative valuation methods. The threshold applies to the transaction amount, not the property value, and is a firm regulatory requirement that financial institutions must follow. This specific dollar amount is frequently tested on appraiser licensing exams because it's a concrete regulatory requirement that appraisers must know.
Why the Other Options Are Wrong
Option A: $100,000
$100,000 was considered too low a threshold as it would capture many routine transactions that don't necessarily require the full rigor of a licensed appraiser, creating unnecessary regulatory burden.
Option C: $500,000
$500,000 would set the bar too high, leaving many significant transactions without the protection of requiring licensed appraisers, which would not adequately address the regulatory concerns FIRREA was designed to solve.
Option D: $1,000,000
$1,000,000 represents an extremely high threshold that would exclude the vast majority of real estate transactions from professional appraisal requirements, defeating the consumer protection purpose of FIRREA.
Quarter Million FIRREA Rule
Remember 'Quarter Million' = $250,000. Think 'FIRREA needs a Quarter (25) to start' - the 25 in $250,000 represents the quarter million threshold where FIRREA kicks in.
How to use: When you see any question about FIRREA thresholds, immediately think 'Quarter Million' and you'll remember it's $250,000, not the other common amounts that might be listed as distractors.
Exam Tip
FIRREA threshold questions often include realistic-sounding distractors like $100,000 or $500,000 - always remember the exact $250,000 figure as this is a specific regulatory requirement that won't have exceptions or variations.
Common Mistakes to Avoid
- -Confusing the FIRREA threshold with other regulatory thresholds like those for environmental assessments
- -Thinking the threshold applies to property value rather than transaction amount
- -Assuming the threshold has been adjusted for inflation since FIRREA's enactment
Concept Deep Dive
Analysis
FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) established mandatory appraisal requirements for federally related transactions to protect financial institutions and consumers after the savings and loan crisis of the 1980s. The $250,000 threshold represents a balance between ensuring professional oversight for significant transactions while avoiding unnecessary regulatory burden on smaller deals. This requirement applies to all federally related transactions, including those involving federally insured depository institutions, and mandates that appraisals be performed by state-licensed or certified appraisers. Understanding this threshold is crucial for appraisers as it determines when their professional credentials are legally required versus when alternative valuation methods might be acceptable.
Background Knowledge
FIRREA was enacted in 1989 in response to the savings and loan crisis, establishing uniform standards for real estate appraisals in federally related transactions. The act created the Appraisal Subcommittee and mandated that states license and certify appraisers according to federal standards.
Real-World Application
When a bank is making a mortgage loan for $300,000, FIRREA requires that a state-licensed or certified appraiser perform the appraisal, whereas a $200,000 transaction might allow for alternative valuation methods like automated valuation models (AVMs) or broker price opinions (BPOs).
More Report Writing Questions
Under FIRREA, which federal agency has the authority to set minimum standards for real estate appraisals in federally related transactions?
What is the minimum transaction threshold for requiring a state licensed or certified appraiser under Title XI for most federally related transactions?
The Dodd-Frank Act established which requirement specifically related to appraisal independence?
Which of the following is NOT a responsibility of the Appraisal Subcommittee (ASC)?
State appraiser regulatory agencies are primarily responsible for which of the following functions?
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Under FIRREA, which federal agencies are responsible for monitoring the appraisal activities of their regulated financial institutions?
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