Be Watchful for Appraisal Flaws

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We’ve spoken with several bankers lately that felt their loan grading and related collateral (mostly real estate) appraisal were pretty solid; then they experienced some pretty big “wake-up calls” when examinations pointed out the flaws in their loan analyses, grading, and supporting collateral valuations.

Actions to Alleviate Your Risk for Appraisal Errors

If your bank has a regulatory exam on its calendar this year, consider a pre-exam / second look / targeted loan review for those challenging, or large credit relationships. This second look can provide you peace of mind by validating your ratings, and identifying issues before your examiners point them out for you.

And if the many of your appraisals are 1) produced “in-house”, 2) are no longer timely or relevant, or 3) if recent real estate sales of foreclosed or even unrelated property are turning up as short-sales or no-sales, be sure to include some pre-exam appraisal reviews. These small actions demonstrate to examiners the bank’s efforts to properly and proactively identify and manage risk in the loan portfolio.

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