US Regulators Propose Ending Appraisal Requirement on Some Homes Under $400,000

by Yvonne von Jena | November 30, 2018

The top US financial regulators have released a proposal that would increase the appraisal requirement from $250,000 to $400,000, meaning that certain home sales of $400,000 and below would no longer require an appraisal. The change would have a sizable impact on the real estate market, affecting an estimated 40% of home sales.

The Regulators Involved

The proposal was issued jointly by the following three top US financial regulators:

  • Office of the Comptroller of the Currency, Treasury (OCC)
  • Board of Governors of the Federal Reserve System (Board)
  • Federal Deposit Insurance Corporation (FDIC)

The new rules however would not apply to loans insured, guaranteed, or eligible for sale to a government agency or government-sponsored agency (e.g. Fannie Mae, Freddie Mac, etc.).


About the New Rules and the Regulators’ Rationale

The regulators say the move is in response to “concerns raised about the time and cost associated with completing residential real estate transactions.”

According to the regulators, “evaluations provide an estimate of the market value of real estate but could be less burdensome than appraisals because the agencies’ appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers.”

Additionally, the regulators state that evaluations are “typically less detailed and costly than appraisals,” and note that evaluations have been required for transactions exempted from the appraisal requirement by the current $250,000 residential threshold since the 1990s.

“This proposal responds, in part, to comments that the current exemption level for residential transactions had not kept pace with price appreciation in the residential real estate market,” the regulators state. The appraisal threshold was last increased in 1994 when regulators increased the threshold from $100,000 to its current level of $250,000. They argue that increasing the threshold now will actually have less of an impact on the market than the 1994 change did.

The agencies estimate that if their plan had been in place during 2017, about 214,000 home transactions would have been affected. The median existing US home price e in October was $255,400, according to the National Association of Realtors (NAR), which is meaningfully below the proposed $400,000 threshold. The change would have a sizable impact on the real estate market, affecting an estimated 40% of home sales going forward according to the OCC.


Response from the Market

Various stakeholders have been responding, including appraisal and realtor associations. For more on this, see the Washington Post, Wall Street Journal and Housing Wire.