The Federal Reserve, in their most recent Monetary Policy Report to Congress, echoed a growing concern over trends in the commercial real estate market.
“Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels,” said the report.
For our friends in banking there is a concern that, “heightening valuation pressures may leave some smaller banks vulnerable to a sizeable CRE price decline.”
There are a number of remedies a bank can take to help mitigate exposure to these risks and get ahead of this challenge. One area where we often see an opportunity to shore up exposure is the appraisal quality control process.
Small and community banks often allow loan personnel to complete appraisal quality control documents, with final approval by credit personnel. This approach, with a valuation professional not being involved, potentially exposes your bank to the following risks:
• Producing a Non-Compliant Appraisal Report
• Unidentified Risks Associated with the Loan Collateral
• Over or Under Valued Collateral
• Increased Risk of Non-Compliance with Existing Regulations
PCV Murcor regularly collaborates with commercial lenders and community banks to improve the efficiency and compliance of their appraisal function. Call us at (855) 819-2828 to schedule a performance analysis of your appraisal function.