On September 27, 2019, the regulators issued joint guidance to increase the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000.
This change represents the first change to the residential appraisal threshold since 1994. In their joint release, the regulators explain that this change will provide burden relief without posing a threat to the safety and soundness of financial institutions.
While an appraisal will now no longer be required for real estate transactions under $400,000, financial institutions are still required to obtain an evaluation in lieu of an appraisal, which has been the case since the 1990’s. Evaluations are typically considered to be less burdensome, though evaluations still must meet certain standards to ensure appropriate safety and soundness. In addition, appraisals are often still a requirement for secondary market loans, such as those sold to or guaranteed by Fannie Mae, Freddie Mac, HUD, the VA, and the FHA.
The final rule also an appraisal exemption for certain rural residential properties, as was outlined by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). As is the case with transactions at or below $400,000, rural transactions subject to the EGRRCPA appraisal exemption will still require an evaluation.
The appraisal threshold adjustment will be effective the day after publication in the Federal Register.