For the first time since 1994, certain home sales of $400,000 and under will soon not need an appraisal after federal regulators approved a proposal to increase the threshold at which residential home sales require an appraisal.
Last November, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve released a proposal that would increase the appraisal requirement from $250,000 to $400,000, meaning that certain home sales of $400,000 and below would no longer require an appraisal.
The agencies deliberated the rule for nearly a year, taking into consideration the more than 560 comments the agencies received about the rule change.
Now, the Fed has also given the rule change its stamp of approval, and with all three agencies signing off, the appraisal rule change will soon go into effect.
“The appraisal threshold was last changed in 1994,” the federal agencies said in a joint statement. “Given price appreciation in residential real estate transactions since that time, the change will provide burden relief without posing a threat to the safety and soundness of financial institutions.”
According to the final rule, which can be read here, the change will go into effect as soon as the final rule is recorded and published in the Federal Register.
A spokesperson for the FDIC told HousingWire that the rule has been submitted to the Federal Register, adding that the publication of the rule should take place within a matter of days.
Consequently, it’s likely just a few days (if not less) until certain home sales of $400,000 and below no longer require an appraisal.
Now, it’s important to note that the new rules do not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency.
That means that loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac would still require an appraisal, per each agency’s rules.
It’s also important to note that the rule does not entirely exempt the relevant home sales from any type of appraisal-type action. According to the agencies, the final rule “requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral.”
The agencies state that the evaluation must be “consistent with safe and sound banking practices.” To that point, the rule establishes that an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.”
According to the agencies, many of the comments they received suggested that evaluations are “appropriate substitutes for appraisals and institutions as having appropriate risk management controls in place to manage the proposed threshold change responsibly.”
Beyond that, the final rule lays out a series of stipulations for the replacement of an appraisal with an evaluation.