New Appraisal Threshold
Whether you are a home buyer or seller, appraisals are a common component of the contract process. As of late September, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve signed off on a new proposal to modify the rules of appraisal requirements. Mark Spain Real Estate has summarized the key points of this rule change so you can understand how this will affect appraisals moving forward.
What is an appraisal?
An appraisal is the valuation of a piece of property. It is commonly used to determine the sale price of a home and is conducted by a licensed individual. The appraised value can affect whether or not a loan for the purchase of a home will be funded. For example, if the appraisal comes in below the amount of the purchase price; a lender will likely decline to fund the loan.
The appraisal rule change
With this new rule in effect, the appraisal threshold has been raised. Homes under $400,000 will no longer require an appraisal. This is a notable increase from the previous threshold of $100,000, which was last adjusted in 1994. However, this new rule does not apply to loans wholly or partially insured by a government agency or government sponsored agency. This means loans backed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veteran’s Affairs, Fannie Mae or Freddie Mac will still require an appraisal. Additionally, the rule does not exempt relevant home sales from appraisal-type action entirely.
What does this mean for you?
Appraisals can be a lengthy part of the process and sometimes delay a closing. The average loan can generate up to 3,000 pieces of paper by the time it is processed and distributed. It is likely the Federal Reserve is responding to the fact that less and less affordable housing remains under 400k across the country. Because modern data allows for valuations to be conducted without an official appraisal, the new rule will help expedite the time from contract to closing. For sellers, they don’t have to worry about anything after an inspection is conducted. For buyers, it is one less thing to order.
This is a strong step in the right direction for shortening the process. However, it may not have a large impact on the Southeast market. The median list price remains under 400k in the southeast region. This price point is where we most often see FHA and VA loans. These are government backed loans not supported by this new rule.
Overall, the raised threshold for appraisals will create a more transparent and easy transaction for all parties.
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