Obligations of Real Estate Appraisal Customers Under SAMA Supervision

In the Name of Allah, the Most Gracious, the Most Merciful Saudi Central Bank Headquarters General Directorate of Supervision of Financing Companies

Ref No.: 371000061185 Date: 28/05/1437H Attachments:

Circular Subject: Obligations of Real Estate Appraisal Customers Subject to the Supervision and Oversight of the Institution.

Dear Sir/Madam,

With best regards,

Pursuant to the authorities granted to the Institution under the provisions of the Banking Control System issued by Royal Decree No. M/5 dated 22/2/1386H, the Cooperative Insurance Companies Control System issued by Royal Decree No. M/32 dated 2/6/1424H, the Financing Companies Control System issued by Royal Decree No. M/51 dated 13/8/1433H, and in reference to the System of Accredited Appraisers issued by Royal Decree No. M/43 dated 9/7/1433H and its Executive Regulations - Real Estate Branch - issued by the decision of His Excellency the Minister of Commerce and Industry No. 531 dated 3/6/1435H, and considering that banks, mortgage financing companies, and insurance companies operating in the Kingdom and licensed by the Institution to conduct mortgage financing or insurance activities are classified as real estate appraisal customers.

Accordingly, the Institution emphasizes that banks, financing companies, and insurance companies must comply with the following:

1. Banks, financing companies, and insurance companies must not engage with real estate appraisal practitioners who do not hold a basic membership card from the Saudi Society of Accredited Appraisers.
2. Banks, financing companies, and insurance companies must govern the appraisal process by establishing mechanisms and safeguards to separate financing or insurance procedures and their staff involved in granting or issuing from the appraisal process, from the selection of appraisers through to the receipt of reports, including the following:

• Establishing a written internal policy for selecting accredited real estate appraisers whose services will be engaged.
• Prohibiting employees specialized in granting financing or insurance from making any substantive communications with the appraiser, appraisal company, or the company managing the appraisal that relate to or influence the appraisal, or the information to be provided regarding the subject asset, thereby ensuring complete independence of appraisal work and guaranteeing no conflict of interest or increased risk.

3. Banks, financing companies, and insurance companies, or their representatives, agents, borrowers, insurance applicants, or any other third party, or partner acting on behalf of the financier or insurance company, must refrain from influencing or attempting to influence the drafting, preparation, or review of reports and results or the appraisal through coercion, collusion, inducement, intimidation, or any other means, including but not limited to: a) Refusing or threatening to refuse payment of appraisal report fees at the due time, or withholding future business from the appraiser, or threatening to exercise authority to demote or dismiss them, or threatening to add the appraiser to a blacklist of excluded appraisers by the bank, financing company, or insurance company. b) Explicitly or implicitly promising continued contracting, or exercising authority to assist the appraiser in obtaining promotions, or financial and non-financial compensation, for the purpose of influencing the appraiser or appraisal company or to achieve the desired initial appraised value. c) Requesting the appraiser or appraisal company to provide a predetermined valuation, or requiring them to set a value during the preparation of the appraisal report, or requiring them to provide estimated values or comparable sales at any time before the appraiser completes the appraisal report. d) Providing the appraiser with the expected, estimated, encouraged, or required value for the subject property, or the proposed amount, or the amount to be financed for the beneficiary. e) Any action or practice that conflicts with the independence and neutrality of the appraiser, or any violation of the System of Accredited Appraisers or its Executive Regulations (Real Estate Appraisal Branch). f) Failing to set an adequate timeframe by the bank, financing company, or insurance company to complete the real estate appraisal, such that it is commensurate with the volume of work required to be performed in accordance with the conditions and requirements of international appraisal standards, without affecting the quality and accuracy of the results.

4. Banks, financing companies, and insurance companies must provide sufficient information and documents regarding the subject asset.

5. Banks, financing companies, and insurance companies must refrain from compelling the appraiser to use specific appraisal methods.

6. Banks, financing companies, and insurance companies must refrain from requesting the submission of a bank guarantee for amounts exceeding the value of the work assigned to the appraisal practitioner.

7. Banks, financing companies, and insurance companies must establish procedures and conditions for accepting properties eligible for financing or insurance, including a mechanism to verify ownership validity and structural integrity of the building, and ensuring that the bank, financing company, and insurance company bear all their respective responsibilities and costs.

8. Banks, financing companies, and insurance companies must not link appraisal fees to the volume or quantity of work during contracting with the appraiser, thereby ensuring the independence and neutrality of the appraiser, appraisal company, or the company managing the appraisal.

9. Insurance companies must refrain from issuing professional risk insurance policies for the same real estate appraiser they engage to appraise any property asset for the duration of the policy, to avoid any conflict of interest.

10. Banks, financing companies, and insurance companies that become aware that an appraiser or appraisal company violates applicable regulations and procedures; engages in illegal behavior; violates international appraisal standards; does not align with the code of ethics and professional conduct issued by the Society; provides below-standard performance; or engages in improper, unprofessional, or fundamental misconduct, must notify the Saudi Society of Accredited Appraisers in writing within a maximum of 30 days, confirming such violation, with a copy to both the Institution and the appraiser.

For your information and compliance.

Yours sincerely,

Fahd bin Abdullah Al-Mubarak Governor

Distribution Scope:

• Banks and commercial banks operating in the Kingdom.
• Financing companies.
• Insurance companies.
• General Directorate of Legal Affairs.
• Center of Excellence.

P.O. Box: 2992, Riyadh: 11169, Tel: +966 11 4662020, Fax: +966 11 4662488