What is a Federally Related Transaction?
The determination of whether or not an appraisal assignment involves a federally related transaction is important to Georgia appraisers for two reasons:
only licensed or certified appraisers may perform an appraisals to be used in federally related transactions and
- those appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP).
Georgia's Appraisal Act [43-39A-2(12)] and the act of Congress that established the regulation of appraisers in the United States — Title XI [12 U.S.C. 3331-3351] in SEC. 1121. Definitions [12 U.S.C. 3350(4)] — define a federally related transaction as any real estate related financial transaction which
- a federal financial institutions regulatory agency or the Resolution Trust Corporation engages in, contracts for, or regulates; and
- requires the services of an appraiser.
Real Estate Related Transactions
Title XI [12 U.S.C. 3350(5)] also defines a real estate related transaction as "any transaction involving:
- the sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof;
- the refinancing of real property or interests in real property; and
- the use of real property or interests in property as security for a loan or investment, including mortgage-backed securities."
Therefore, in determining whether an assignment is a federally related transaction , an appraiser must begin by answering two questions. First does the appraisal involve the transfer of an interest in real property, the financing or refinancing of a transfer of an interest in real property, or the use of an interest in real property as security for a loan or for mortgage-backed securities.
Second, does the financial transaction for which the appraisal assignment is to be performed involve a federal financial regulatory agency or one of the agencies specifically named in Title XI that require the services of a licensed or certified appraiser.
Federal Financial Regulatory Agencies
Title XI identifies the following agencies as federal financial regulatory agencies :
(A) the Board of Governors of the Federal Reserve System (In addition to the 12 member banks, the Federal Reserve has regulatory authority over state-chartered banks and bank holding companies);
(B) Federal Deposit Insurance Corporation (FDIC) (In addition to insuring the accounts of depositors in member banks, the FDIC regulates savings banks and state-chartered banks that are not members of the Federal Reserve System);
(C) Office of the Comptroller of the Currency (OCC) (The OCC regulates more than 2,500 national banks all across the U. S.);
(D) Office of Thrift Supervision (OTS) (The OTS regulates the nation's savings and loan or thrift institutions); and
(E) National Credit Union Administration (NCUA) (The NCUA insures the accounts of depositors in federally chartered credit union and regulates those institutions).
Other Affected Financial Institutions
In addition, Title XI specifically requires appraisals by licensed or certified appraisers for financial transactions for the Federal National Mortgage Association (Fannie Mae); the Federal Home Loan Mortgage Corporation (Freddie Mac); or the Resolution Trust Corporation (RTC), the agency created by the Congress to liquidate the assets of the nation's failed savings and loan institutions. Although not specifically mentioned in Title XI, loans insured by the Federal Housing Administration (FHA) and loans guaranteed by the Veterans Administration (VA) are also considered federally related financial transactions.
Requiring the Services of an Appraiser
The final consideration in determining whether an assignment involves a federally related transaction is whether the transaction requires the services of an appraiser. Title XI [12 U.S.C. 3341(b)] provides that each federal financial regulatory agency can establish a threshold below which a licensed or certified appraiser is not required for performing an appraisal in connection with a real estate related financial transaction . In 1992 the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of Thrift Supervision individually adopted appraisal guidelines that included a threshold transaction amount below which an appraisal would be required. Two years later those agencies formally and jointly adopted a threshold of $250,000, commonly referred to as the " de minimus ."
Therefore, in theory a real estate related financial transaction having a value of $250,000 or less is not a federally related transaction . However, the federal financial regulatory agencies and their regulated institutions may require appraisals by licensed or certified appraisers for real estate related financial transactions with values at or below the de minimus , effectively making those transactions federally related . Alternately in lieu of an appraisal, they can order an evaluation of the property containing an opinion of value. According the appraisal guidelines adopted by the federal regulatory agencies, evaluations do not require the services of licensed or certified appraisers and do not have to conform to USPAP.
Georgia law requires that a person who engages in the valuation of real property for a fee must have an appraiser classification unless that person falls under the exceptions to the classification requirements. Therefore, any a person performing such an evaluation in Georgia would need to be classified as an appraiser, a real estate licensee, or otherwise exempted from the classification requirements. Moreover, the Appraisal Standards Board has issued an opinion that although an appraiser performing an evaluation could depart from USPAP where departure is permitted, the appraiser would otherwise have to conform to USPAP. Consequently, upon receiving an assignment, an appraiser in consultation with the client should carefully answer the questions regarding the three elements of a federally related transaction :
- Does it involve a real estate related financial transaction ?
- Does it involve an federal financial regulatory agency?
- Is an appraisal required by a federal financial regulatory agency?
Even if the answers to all three questions are "no," the appraiser may still be required to conform to USPAP — if the client requires it.