What is an Evaluation? When can my Institution use them?

A very common question that lenders have is what evaluations are and when their institution can use them. In today’s unique and quickly changing market, evaluations are a trusted 3 rd party opinion of 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 evaluations are and when institutions can use them.

What are Evaluations?

Evaluations are third party opinions of value for a property. Like appraisals, evaluations are used to verify that loans given out by 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. An evaluation varies among organizations and many of them are very different, however, evaluations must.

1. Identify the location of the property.
2. Provide a description and the current and projected use of the property.
3. Provide an estimate of the property’s market value in its actual physical condition, use, and zoning designation as of the effective date of the evaluation (the date analysis was done) with any limiting conditions.
4. Describe the methods the evaluators used to confirm the property’s actual physical condition and the extent to which an inspection was performed.
5. Describe the analysis that was performed and the supporting information that was used in valuing the property.
6. Describe the supplemental information that was considered when using an analytical method or technological tool.
7. Indicate all source(s) of information used in the analysis, as applicable.
   1. External data sources (sales databases, public tax records, land records, etc)
   2. Property specific data (such as previous sales, tax assessment data, comp sales)
   3. Evidence of property inspection
   4. Photos of the property
   5. Description / details on the neighborhood
   6. Local market conditions

When can I use and Evaluation?

Evaluations have different use cases for different institutions. And their loan limits vary as well. To make sure you are compliant with Interagency guidelines we recommend you got to

federalreserve.gov or your institutions regulator for the latest and most up to date information on Evaluation Loan limits. However, for a brief overview 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.

Do 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 value of a property with one of these methods.

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 with 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 describe the overall property condition in real time.

The second method to describe the physical condition of a property is an exterior inspection. This type of inspection confirms the property is indeed still standing. These inspections show a property from the view from the public right of way and do not require owner approval to perform. Advantages to such an inspection include time and cost saving since they are usually cheaper.

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 from the public right of way, but photos may be older and out of date.

Whatever method your institution chooses will be compliant, but, performing 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 policy makers to decide which types of inspections are best for your organizational
needs.

Final Thoughts:

In Summary, Evaluations are an industry trusted, 3 rd party opinion of value that can help meet the needs of both Banks and Credit Unions. To learn more about how Akrivis can help your institution with our Evaluations please email info@akrivisteam.com . We’re excited to help save you both time and money!