What is a Real Estate Evaluation & When Can My Lending Institution Use Them?

Updated on 5/30/23

A very common question that lenders have is what real estate evaluations are and when their lending institution can use them. In today’s unique and quickly changing market, real estate evaluations are a trusted third-party opinion of real estate value. 

However, financial institutions are still worried as to whether such a product is right for them. In the information below, we will be diving into what real estate evaluations are and when lending institutions can use them.

What Are Real Estate Evaluations?

Real estate evaluations are third-party opinions of the value of a property. Like appraisals, evaluations are used to verify that loans given out by lending Institutions are within acceptable values. That way should the borrower default on the loan, the bank or credit union will be able to make money back on the defaulted loan. 

A real estate evaluation varies among organizations, and many of them are very different. However, there are 7 fundamental principles that guide the process of a real estate evaluation.

1. Identify the location of the property.

In real estate evaluations, it is crucial to consider the location of the property. The location plays a significant role in determining its value. Factors such as proximity to amenities, transportation options, and the quality of the neighborhood can greatly influence the property’s worth.

2. Provide a description and the current and projected use of the property.

To accurately assess real estate value, it’s important to describe the property and understand how it is currently being used. This includes details about the building, its features, and the purpose it serves. Additionally, evaluations should consider the potential future use of the property, taking into account any planned renovations or changes that could affect its value.

3. Provide an estimate of the property’s market value.

A real estate evaluation should estimate a property’s value in its actual physical condition, use, and zoning designation at the date that the analysis was done, along with any limiting conditions with the property.

4. Describe the methods of valuation.

The methods that an evaluator used to confirm the property’s actual physical condition and the extent to which an inspection was performed should be described in a real estate evaluation. Understanding the valuation methods helps provide a comprehensive and accurate estimation of the property’s worth.

5. Describe the analysis that was performed.

Real estate evaluations must include a description of the analysis that was conducted and the supporting information that was used in valuing the property. Doing so offers transparency and supports the credibility of the estimated property value.

6. Describe the supplemental information that was considered when using an analytical method or technological tool.

When utilizing analytical methods or technological tools in real estate evaluations, it is essential to describe the supplemental information that was taken into account. This includes explaining the additional data, such as market statistics, property records, or geographic information, that was considered alongside the chosen method or tool. By providing this detailed information, evaluations become more comprehensive and reliable.

7. Indicate all source(s) of information used in the analysis, as applicable.

Real estate evaluations must clearly indicate all sources of information used in the analysis to ensure transparency and reliability. Source include:

  • External data sources: sales databases, public tax records, land records, etc.
  • Property-specific data:  previous sales, tax assessment data, and comp sales
  • Evidence of property inspection
  • Photos of the property
  • Description & details on the neighborhood
  • Local market conditions

When Can I Use a Real Estate Evaluation?

Real estate evaluations have different use cases for different lending institutions. And their loan limits vary as well. 

To make sure you are compliant with Interagency guidelines, we recommend you go to

federalreserve.gov or go to your institution’s regulator for the latest and most up-to-date information on Evaluation Loan limits. 

However, for examples of a brief overview of interagency evaluation guidelines, please see below.

Loan Limits for Banks:

  1. For evaluations used to find the values of residential properties, the transaction amount must be 400,000 or less.
  2. For evaluations used to find the values of commercial properties, the transaction amount must be 500,000 or less.

Loan Limits for Credit Unions:

  1. For evaluations used to find the values of residential properties, the transaction amount must be 400,000 or less.
  2. For evaluations used to find the values of commercial properties, the loan amount must be 1,000,000 or less.

For more up-to-date information, please visit federalreserve.gov.

Do Real Estate Evaluations Come with Property Inspections?

Evaluators rely on 3 different types of information to describe the physical condition of a property. An evaluation is not considered viable unless the evaluator is looking upon and deriving their opinion of the value of a property with one of these methods.

1. Interior & Exterior Property Inspection

The first and most reliable method to describe the physical condition of a property involves an interior and exterior property inspection. This type of inspection provides the most up-to-date and reliable information, which the evaluator can look over to derive home value. 

Interior inspections require scheduling with home/property owners to take pictures of both the outside and inside of properties. They include any damages that describe the overall property condition in real-time.

2. Exterior Inspection

The second method to describe the physical condition of a property is an exterior inspection.  This type of inspection foregoes the interior and focuses on verifying the exterior condition of the property. This is a great option for low-risk loans or when you have a quick deadline to hit.

3. No Site Visit

The third method to describe the physical condition of a property is a Desktop Evaluation. This method is the quickest and has the evaluator rely on past pictures from third parties to view and derive property values. Usually, this is also a picture of the public right of way.

Whatever method your lending institution chooses will be compliant, but performing a more in-depth and up-to-date inspection mitigates more risk for your Bank or Credit Union. It is up to your internal compliance and regulatory policymakers to decide which types of inspections are best for your organizational needs.

Order a Real Estate Evaluation from Akrivis Today!

To learn more about how Akrivis can help your lending institution with our real estate evaluations, contact us today or place an order directly from our site. 

We’re excited to help save you both time and money!

Leave a Reply

Your email address will not be published. Required fields are marked *

Order Now!