TITLE TALK

Certain Home Sales $400,000 and Under will no Longer Require an Appraisal

« TITLE TALK / Certain Home Sales $400,000 and Under will no Longer Require an Appraisal

The last time the appraisal threshold was changed was in 1994. Because of this, many felt it was time for an adjustment.   In November of 2018, a group including 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. This proposal was to increase the appraisal requirement from $250,000 to $400,000. Once the plan is approved and recorded, homes sales of $400,000 or less will no longer require an appraisal.  For nearly a year, the agencies received over 560 comments regarding the rule change. They considered all these as they deliberated.  In August of 2019, the FDIC and OCC signed off on the rule. All that was left to approve the plan was the FED.  Last month, the Fed gave the rule change their approval. With all three agencies on board, the appraisal rule change will soon go into effect.  The three agencies believed the change was justified to match market growth. In a joint statement, they shared, “Given price appreciation in residential real estate transactions since that time, the change will provide burden relieve without postin a threat to the safety and soundness of financial institutions.”  You can read the final rule here.  The rule, submitted to the Federal Register, will go into effect once it is recorded and published. This process should only take a matter of days.   Homes That will Qualify:  Not every home listed at $400,000 and below will qualify for this rule. The rule will not apply to loans wholly or partially insured or guaranteed by (or eligible for sale to) a government agency or government-sponsored agency.  In other words, loans sold to or guaranteed by any of the following would still require an appraisal: 

  • Federal Housing Administration
  • Department of Housing and Urban Development
  • Department of Veterans Affairs
  • Fannie Mae
  • Freddie Mac
Even though Appraisals are no longer needed, the rule still “requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral.”  This evaluation should be consistent with current banking practices and provide sufficient information and analysis. The rule includes a series of stipulations for the replacement of an appraisal with an evaluation.  How this will impact the market The new rule applies to approximately 40% of home sales. According to FDIC data, changing the threshold would have exempted and additional 214,000 residential mortgages in 2017. That would be 3% of all HMDA originations.  Under the proposed rule, 72% of the eligible transaction would not require an appraisal.  Feedback on the rule People who supported the change included
  • Financial institutions
  • Financial institution trade associations
  • State banking regulators. 
People who were opposed to the new rule include; appraisers, appraiser trade organizations, individuals, and consumer advocate groups.  Those in favor of the rule believed the previous exemption had not kept pace with market appreciation. This group found the increase would provide “burden relief for financial institutions without sacrificing safe and sound banking practices.”  Those against the rule believe it increases risks to the borrowers, financial institutions, the financial system, and taxpayers.  Others noted the rule could have a more substantial impact on consumer groups that are likely to purchase at a lower price point. These groups include; low-income individuals, members of certain minority groups, and first-time homebyers.  All of these comments were taken into considerations when discussing the new rule. With these in mind, the agencies all approved the change and received support from the Consumer Financial Protection Bureau.  The threshold was last increased in ’94 from $100,000 to $250,000. Now, in 2019 it will increase from $250,000 to $400,000.  Source