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More Homes Qualify for Appraisal Exemption

Once the rule is published in the Federal Register, some homes valued less than $400K can forego a full appraisal – but probably not ones relying on mortgage money.

WASHINGTON – For the first time in 25 years, federal regulators are increasing the property value limit under which buyers of certain homes must obtain an appraisal as part of the selling process. Federal banking agencies approved a plan that enables certain homes worth $400,000 or less to be subject to an evaluation rather than an appraisal.

The last time the threshold changed was in 1994, when regulators set the rule for properties worth $250,000 or less.

“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,” officials representing several regulatory agencies said in a statement.

For nearly a year, the Federal Deposit Insurance Corp., office of the comptroller of the currency, and board of governors of the Federal Reserve deliberated on the proposed rule change, reviewing hundreds of comments from the public. Regulators finally approved the rule last Friday.

The new rule doesn’t apply to transactions where the buyer is purchasing the home with financing wholly or partially insured by a government-run or government-sponsored agency, including the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, and Freddie Mac.

As a result, the majority of residential transactions in the U.S. will not be affected by this new rule.

The National Association of Realtors® (NAR) advocated for a loan limit change related to an appraisal exemption tied to specific markets rather than a blanket number for the whole country. A $100,000 limit might be reasonable in some parts of the country, according to NAR, while a $500,000 limit might be reasonable in others, depending on average housing values.

The new rule requires institutions to obtain an evaluation of a property to provide an “estimate of the market value of real estate collateral.” The agencies behind the rule note that “evaluations are generally less burdensome than appraisals and have been required since the 1990s.”

The change takes effect as soon as the final rule is recorded and published in the Federal Register, likely over the next few days.

Source: “Appraisals Will No Longer Be Required on Certain Home Sales of $400,000 and Under,” HousingWire (Sept. 27, 2019)

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