New Guidance Proposed to Improve Residential Real Estate Valuations

 In an effort to enhance the accuracy and fairness of residential real estate valuations, five federal regulatory agencies have put forth a proposal for public comment. The proposed guidance focuses on reconsiderations of value (ROV) in real estate transactions, offering recommendations for financial institutions to enable consumers to provide additional information that may have been overlooked during the initial appraisal process or to address deficiencies identified in the original appraisal.

ROVs occur when a financial institution requests an appraiser or valuation expert to reassess the value of residential real estate. These requests may be prompted by consumers who share new information about potential issues or deficiencies that could impact the estimated value. The proposed guidance seeks to clarify the relationship between ROVs and appraisal independence requirements, as well as compliance with relevant laws and regulations.

According to the proposal, financial institutions can establish or enhance their existing ROV processes while upholding safety and soundness standards, adhering to applicable laws and regulations, preserving the independence of appraisers, and remaining responsive to consumers' concerns. The goal is to strike a balance between ensuring accurate valuations and protecting the rights of consumers.

Moreover, the guidance acknowledges the risks associated with flawed residential real estate valuations and suggests that financial institutions incorporate ROV processes into their existing risk management functions. Inaccurate valuations may stem from errors, omissions, or even discrimination, all of which can significantly affect the final value determination. To address this, the proposed guidance offers examples of ROV policies and procedures that financial institutions can implement to identify, address, and mitigate the risks associated with valuation discrimination.

Members of the public are invited to provide their comments on the proposed guidance, which will be accepted for a period of 60 days following its publication in the Federal Register. This open comment period allows for valuable input from various stakeholders and ensures that the final guidance takes into account a wide range of perspectives. By seeking public feedback, the regulatory agencies aim to foster transparency and inclusivity in the development of these critical guidelines for the residential real estate sector.

Source:https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230608a.htm