Real estate valuations must adhere to various requirements when determining an opinion of value. Some of the most common requirements come from Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 — also called FIRREA, which set requirements and standards for appraisals that are used in connection with federally related transactions.
In this post, we will discuss FIRREA, its requirements, and cover which Clear Capital valuation products are compliant with these requirements.
What is a Federally Related Transaction (FRT)?
An FRT is a real estate transaction that is regulated by a government agency and requires an appraisal. Federal banking agencies have the authority to identify types of financial transactions related to real estate that do not require an appraisal, which they exercise in a way that satisfies principles of safe lending and to protect public interest. An appraiser performing an appraisal required under these rules must comply with the Uniform Standards of Professional Appraisal Practice (USPAP).
Federal agencies may also permit the use of an appropriate evaluation in lieu of an appraisal for transactions that qualify for certain exemptions:
- Residential real estate transactions under $400,000 may use an evaluation.
- Rural areas where appraisers are not readily available.
- Renewals or refinancings of existing extensions of credit if there has been no obvious and material change that threatens the collateral’s adequacy, and no new money is advanced.
For exempt transactions, banks must obtain an evaluation that is consistent with safe and sound banking practices.
What is the IAEG?
In response to the passing of FIRREA, the Interagency Appraisal and Evaluation Guidelines (IAEG) were issued by The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) to update and replace existing guidance on appraisal and evaluation practices. The IAEG sets appropriate standards for real estate appraisals in connection with FRTs.
What is USPAP?
FIRREA mandates that appraisers comply with the Uniform Standards of Professional Appraisal Practice (USPAP). The Uniform Standards of Professional Appraisal Practice (USPAP) are ethical and performance standards for appraisers in the U.S. USPAP was developed and is updated by the Appraisal Standards Board of the Appraisal Foundation. USPAP contains standards for all types of appraisal services, including real estate, personal property, and business.
USPAP compliance is required for state-licensed and state-certified appraisers involved in FRTs. The Appraisal Standards Board provides frequent guidance and instruction on USPAP throughout the year.
Are all appraisals FIRREA-compliant?
To ensure an appraisal is FIRREA-compliant, an appraiser must meet the various requirements outlined in FIRREA. Some requirements include:
- The appraisal report must be subject to appropriate review.
- The appraiser must be state-licensed or certified.
- The appraisal must comply with USPAP standards — including standards for ethics, record keeping, competency, and more.
- The appraisal must contain a written report that contains enough information to support an institution’s transaction decision.
FIRREA-compliant Clear Capital valuations
Clear Capital offers several FIRREA-compliant appraisals:
- Traditional Appraisal is compliant with both FIRREA and USPAP. It is suitable for use in FRTs valued at more than $400,000 — both for purchase and refinance loans.
- Hybrid Appraisal (70D and 1004H) is also FIRREA- and USPAP-compliant and can be used for FRTs valued at more than $400,000.
When an evaluation can be used, Clear Capital offers:
- ClearAVM™ + PCI is also compliant with FIRREA and can be used for FRTs valued at less than $400,000. Using an automated valuation model (AVM) with a Property Condition Inspection (PCI) meets FIRREA’s evaluation criteria.
- Residential Evaluation is compliant with FIRREA and can be used for FRTs valued at less than $400,000.
