The answer to your question depends on the property type and loan type, as well as whether your institution is relying on an appraisal or an evaluation.

When reviewing appraisals or evaluations, your institution is required to ensure that they “comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance and its own internal policies,” including any minimum requirements for comparables. The level of your review should be risk-based, and it may be prudent to obtain additional comparables for high-risk loans, but we do not believe that pulling additional comparables would be required for every transaction.

In some cases, the loan type may dictate that appraisals include a certain number of comparables. In general, appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP’s standards are not publicly available, but our understanding is that they may prescribe a certain number of comparables to be used in appraisals, depending on the property type and location. Secondary market purchasers also may require a minimum number of comparables; for example, appraisals for residential mortgage loans sold to Fannie Mae must include at least three comparables.

The federal appraisal regulations exempt certain transactions from the appraisal requirements, such as transactions of less than $250,000. In such cases, your bank must use an “appropriate evaluation” in lieu of an appraisal. We are not aware of any standards establishing a minimum number of comparables for evaluations. While the Interagency Appraisal and Evaluation Guidelines include comprehensive requirements for evaluations – to “provide a property’s market value [and] sufficient information and analysis to support the value conclusion” – these guidelines do not prescribe a minimum number of comparables.

Additionally, your bank may set its own standards for both appraisals and evaluations above and beyond the USPAP standards and other applicable requirements.

If an appraisal or evaluation does not meet the standards discussed above, we do not believe that your bank should directly pull its own additional comparables. Instead, the Interagency Appraisal and Evaluation Guidelines recommend first communicating with the appraiser or person who prepared the evaluation about deficiencies in the appraisal or evaluation. If that is insufficient, the next steps would be to obtain a second appraisal or evaluation or to “rely on a review that complies with Standards Rule 3 of USPAP and is performed by an appropriately qualified and competent state certified or licensed appraiser.”

For resources related to our guidance, please see:

• Interagency Appraisal and Evaluation Guidelines, XV. Reviewing Appraisals and Evaluations (“As part of the credit approval process and prior to a final credit decision, an institution should review appraisals and evaluations to ensure that they comply with the Agencies' appraisal regulations and are consistent with supervisory guidance and its own internal policies. This review also should ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction. Through the review process, the institution should be able to assess the reasonableness of the appraisal or evaluation, including whether the valuation methods, assumptions, and data sources are appropriate and well-supported.”)

• Interagency Appraisal and Evaluation Guidelines, XV. Reviewing Appraisals and Evaluations, B. Depth of Review (“An institution should implement a risk-focused approach for determining the depth of the review needed to ensure that appraisals and evaluations contain sufficient information and analysis to support the institution's decision to engage in the transaction. This process should differentiate between high- and low-risk transactions so that the review is commensurate with the risk. The depth of the review should be sufficient to ensure that the methods, assumptions, data sources, and conclusions are reasonable, well-supported, and appropriate for the transaction, property, and market. The review also should consider the process through which the appraisal or evaluation is obtained, either directly by the institution or from another financial services institution. The review process should be commensurate with the type of transaction as discussed below: . . .”)

• FDIC Appraisal Regulations, 12 CFR 323.4(a) (“For federally related transactions, all appraisals shall, at a minimum: (a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless principles of safe and sound banking require compliance with stricter standards; . . .”)

• Fannie Mae Selling Guide, B4-1.3-08: Comparable Sales, Minimum Number of Comparable Sales (April 3, 2019)  (“A minimum of three closed comparables must be reported in the sales comparison approach. Additional comparable sales may be reported to support the opinion of market value provided by the appraiser. The subject property can be used as a fourth comparable sale or as supporting data if it was previously closed. Contract offerings and current listings can be used as supporting data, if appropriate.”)

• FDIC Appraisal Regulations, 12 CFR 323.3(a) (“An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: (1) The transaction value is $250,000 or less; . . .”)

• FDIC Appraisal Regulations, 12 CFR 323.3(b) (“For a transaction that does not require the services of a State certified or licensed appraiser under paragraph (a)(1), (a)(5), (a)(7), or (a)(13) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices.”)

• Interagency Appraisal and Evaluation Guidelines, XV. Reviewing Appraisals and Evaluations, C. Resolution of Deficiencies (“An institution should establish policies and procedures for resolving any inaccuracies or weaknesses in an appraisal or evaluation identified through the review process, including procedures for:

Communicating the noted deficiencies to and requesting correction of such deficiencies by the appraiser or person who prepared the evaluation. An institution should implement adequate internal controls to ensure that such communications do not result in any coercion or undue influence on the appraiser or person who performed the evaluation.

Addressing significant deficiencies in the appraisal that could not be resolved with the original appraiser by obtaining a second appraisal or relying on a review that complies with Standards Rule 3 of USPAP and is performed by an appropriately qualified and competent state certified or licensed appraiser prior to the final credit decision.

Replacing evaluations prior to the credit decision that do not provide credible results or lack sufficient information to support the final credit decision.”)

• Regulation Z, 12 CFR 1026.42(c)(3) (“Permitted actions. Examples of actions that do not violate paragraph (c)(1) or (c)(2) include: (i) Asking a person that prepares a valuation to consider additional, appropriate property information, including information about comparable properties, to make or support a valuation; . . .”)