Under FIRREA, which of the following transactions would NOT require a state-licensed or certified appraiser?
Correct Answer
C) A $200,000 residential purchase loan
FIRREA requires state-licensed or certified appraisers for federally related transactions of $250,000 or more. The $200,000 residential purchase loan falls below this threshold and would not require a licensed/certified appraiser.
Why This Is the Correct Answer
FIRREA requires state-licensed or certified appraisers for federally related transactions of $250,000 or more. The $200,000 residential purchase loan falls below this threshold and would not require a licensed/certified appraiser.
Why the Other Options Are Wrong
Option A: A $275,000 residential purchase loan
A $275,000 residential purchase loan exceeds the $250,000 FIRREA threshold, making it a federally related transaction that requires a state-licensed or certified appraiser. Since this amount is above the threshold, a qualified appraiser must perform the valuation to comply with federal regulations.
Option B: A $400,000 commercial refinance
A $400,000 commercial refinance significantly exceeds the $250,000 FIRREA threshold and constitutes a federally related transaction requiring a state-licensed or certified appraiser. Commercial transactions above this threshold must have formal appraisals performed by qualified professionals to meet regulatory requirements.
Option D: A $300,000 construction loan
A $300,000 construction loan exceeds the $250,000 FIRREA threshold, making it a federally related transaction that requires a state-licensed or certified appraiser. Construction loans, like other real estate financing above the threshold, must comply with the formal appraisal requirements established by FIRREA.
Quarter Million Rule
Remember 'Quarter Million = Qualified Appraiser' - any federally related transaction of $250,000 or more requires a state-licensed or certified appraiser. Think of it as crossing the 'quarter million threshold' triggers the formal appraisal requirement.
How to use: When you see dollar amounts in FIRREA questions, immediately compare them to $250,000. If the amount is $250,000 or higher, it requires a licensed/certified appraiser. If below $250,000, it does not require this level of appraiser qualification.
Exam Tip
Always look for the exact dollar amount and compare it to the $250,000 threshold - don't get distracted by the type of transaction (residential vs commercial) as the threshold applies equally to all federally related transactions.
Common Mistakes to Avoid
- -Confusing the $250,000 threshold with other regulatory thresholds like those for environmental assessments
- -Thinking the threshold varies by property type (residential vs commercial)
- -Forgetting that the threshold applies to the loan amount, not the property value
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. The act sets a clear threshold of $250,000 for when state-licensed or certified appraisers must be used. This threshold applies to all federally related real estate transactions, including purchases, refinances, and construction loans. Understanding this threshold is crucial for determining when formal appraisal requirements apply versus when alternative valuation methods may be acceptable.
Background Knowledge
FIRREA was enacted in 1989 following the savings and loan crisis to strengthen appraisal standards and protect financial institutions. The act established the $250,000 threshold for federally related transactions, which remains unchanged today and applies to all types of real estate financing including purchases, refinances, and construction loans.
Real-World Application
In practice, lenders must determine whether each loan requires a formal appraisal by a licensed appraiser or if they can use alternative valuation methods like automated valuation models (AVMs) or broker price opinions (BPOs) for transactions under $250,000.
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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A federally related transaction involves a refinance of a single-family home with a loan amount of $180,000. The property has an estimated value of $240,000. What level of valuation is required under federal regulations?
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