Nobody really saw it coming. It was like a tsunami. Few alive today can say they’ve lived through a pandemic. Yes, we had heard about it. We read stories coming from China, Korea, and Italy, but everyone was completely unprepared for this reality. Shut down? Everything? Really?
Only “essential workers” were permitted to continue working. As a real property appraiser, this was good news. We were among the few who could legally go out into the world and make a living. Appraisal organizations quickly developed guidelines for real property appraisers to follow regarding interior inspections and social distancing measures. Projects already in the pipeline were getting completed. But then things came to a near halt.
On April 14, 2020, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued an interim final rule to temporarily defer real estate appraisals and evaluations under interagency appraisal rules. The interim final rule provides a 120-day deferral of appraisal and evaluation requirements for all transactions secured by commercial or residential real estate during the COVID-19 pandemic (which for purposes of the interim final rule extends to December 31, 2020, unless extended by the federal banking agencies). This rule does not apply to new loans for financing, development, or construction.
What this means is that technically speaking, banks can refinance certain residential and commercial real estate without an initial appraisal. Appraisals can now be deferred for up to four months. Furthermore, real property appraisers will now have to make extraordinary assumptions regarding the interior condition of a property that they are not allowed to physically inspect. Interior inspections are only permitted where strict social distancing guidelines are possible. The appraisal development process basically remains the same. All of this puts a tremendous burden on both lenders and appraisers to “get it right”. This means that for certain loans, lenders must make their own assumptions when refinancing properties for which there is either no appraisal prepared, or no interior inspection performed. When an appraisal is ultimately delivered within that four-month period, the hope is that it meets the lender’s expectations. Only time will tell what the ultimate fallout will be between lenders and real estate appraisers.
Further impacting our business is the fact that with so much commerce being shut down, lending has come to a virtual halt. Personally, I have seen real property appraisal requests for proposals (RFPs) decline about 75% during this pandemic. I am not alone. Nearly all appraisers to whom I have spoken have experienced similar declines in their business.
As the national economy begins to climb out of the hole created by the pandemic, soon the economy can safely reopen and the gears of progress will begin turning once again. But until then, we are appraising with both arms tied behind our back. More than ever, lenders must choose real property appraisers who are best qualified and experienced to provide a value of the commercial, industrial or residential property that appropriately protects both the lender and borrower in these uncertain times.
Jordan Yuter, Sobel EAC Valuations
Jordan Yuter is licensed throughout the Mid-Atlantic states as a general real estate appraiser, and is a Member of the Appraisal Institute (MAI). For more than 15 years, Jordan has provided exceptional real estate appraisals to Sobel EAC Valuations and its predecessor companies, EAC Valuations and Enterprise Appraisal Company.
