The Federal Reserve issued the following press release:

September 27, 2019

“Agencies issue final rule to exempt residential real estate transactions of $400,000 or less from appraisal requirements

“The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have adopted a final rule that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000.

“The appraisal threshold was last changed in 1994. 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.

“For transactions exempted from the appraisal requirement, the final rule requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral. Evaluations are generally less burdensome than appraisals and have been required since the 1990s.

“The final rule incorporates the appraisal exemption for rural residential properties provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act and similarly requires evaluations for these transactions. The final rule also requires institutions to review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice.

“The agencies have consulted with the Consumer Financial Protection Bureau (CFPB), and, as required by statute, have received its concurrence on the increased threshold. The CFPB released its letter concurring that the increased threshold provides reasonable protection for consumers who purchase 1-4 unit single-family residences.”

You can read the complete proposed issuance of rules and regulations here. 

What This Means For Buyers

 First, it’s important to note that this is for some – though not all – home purchases $400,000 and under. The new rules, for example, don’t apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency.

So 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 will still require an appraisal per each agency or companies’ rules and regulations.

Second, it’s expected that the change will have a considerable impact on the real estate market, as according to regulators, the new rules will apply to approximately 40% of home sales.

For context, under the new rules, 72% of the eligible transactions would be exempt from the appraisal requirement, while 28% would still require an appraisal.

For this and more on all things real estate, be sure to check back in weekly for news you can use from a team of experienced real estate professionals you can trust.

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