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More home sales can go ahead without an appraisal

By Mike Wheatley | October 1, 2019
  • Federal banking agencies are increasing the property value limit under which buyers of certain homes must obtain an appraisal for the first time in 25 years.

    Now, certain homes worth $400,000 or less can instead by subject to a simple evaluation rather than a proper appraisal.

    The rules were last changed back in 1994, when regulators set the rule at homes 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.

    The regulators, which include the Federal Deposit Insurance Corp., the office of the comptroller of the currency, and the board of governors of the Federal Reserve, spent over a year debating the changes, which included reviewing hundreds of comments submitted by members of the public. The new rules were finally approved last week.

    It’s notable however that the rule doesn’t apply to those transactions in which the buyer’s financing is insured by a government-run or government-sponsored agency such as Fannie Mae, Freddie Mac, the Federal Housing Administration or the Department of Housing and Urban Development. This means the majority of home purchases in the U.S. will remain unaffected by the new rule.

    The National Association of Realtors had previously advocated that any loan limit for an appraisal exemption be tied to specific markets instead of the entire country. It argued that a $100,000 limit might be reasonable in some areas, with a $500,000 cap being more realistic in others. However, this suggestion was ultimately ignored.

    Under the new rules, institutions will be required to obtain an evaluation that gives an “estimate of the market value of real estate collateral”. These evaluations are said to be “generally less burdensome than appraisals and have been required since the 1990s.”

    The change will take effect as soon as the final rule is recorded and published in the Federal Register, which should happen this week.

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