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Feds propose rules to exempt home sales below $400,000 from appraisals

Nov 30, 2018

Last week, 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.

It’s important to note that this rule would 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 the appraisal exemption would not apply to 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.

Nevertheless, the change would have a sizable impact on the real estate market. According to the OCC, the new rules would apply to approximately 40 percent of home sales.

Click here to access the OCC release detailing the proposed change. The key takeaway according to the OCC:

The agencies believe raising this threshold for residential real estate transactions from the current level of $250,000, last increased in 1994, could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soundness of financial institutions.  

Rather than requiring an appraisal, the proposal would require that residential real estate transactions exempted by the threshold obtain an evaluation consistent with safe and sound banking practices. Evaluations provide an estimate of the market value of real estate but could be less burdensome than appraisals because the agencies’ appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers. In addition, evaluations are typically less detailed and costly than appraisals. Evaluations have been required for transactions exempted from the appraisal requirement by the current $250,000 residential threshold since the 1990s.

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