The federal banking agencies (Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency) have issued a final rule increasing the threshold for residential real estate transactions that require an appraisal from the current $250,000 to $400,000; transactions exceeding the threshold are required to obtain an appraisal under the agencies’ appraisal regulations.
The agencies believe the increased price of residential real estate transactions since the threshold was set in 1994 warrants an increase in the threshold, which will reduce the burden on consumers and financial institution without posing a safety and soundness threat to institutions. Not changing, is the requirement that financial institutions must obtain an evaluation for transactions not requiring an appraisal.
As part of the final rule, the agencies have also adopted other proposed revisions including:
- The definition of residential real estate transaction as a real estate-related financial transaction secured by a single 1-to-4 family residential property.
- The requirement for regulated institutions to obtain evaluations when the rural residential appraisal exemption is used. The agencies notes that creditors operating in rural areas could opt to rely on the more broadly applicable exemption for transactions of $400,000 or less in lieu of the rural residential appraisal exemption without meeting the additional criteria of the rural exemption since the broader exemption encompasses the rural exemption and an evaluation is required regardless of the exemptions used.
- The requirement that financial institutions review appraisals for federally related transactions for compliance with USPAP. The agencies encourage regulated institutions to review their existing appraisal review policies and incorporate additional procedures for subjecting appraisals for federally related transactions to appropriate review for compliance with USPAP, as needed.
The effective date of the final rule is the first day after its publication in the Federal Register, other than the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the appraisal review provision, which will become effective on January 1, 2020.
A copy of the final rule is available here.
Want more information on appraisals?
See our previous blog on the proposed rule, visit our Community Forum to discuss the final rule or join us for our October 15th webinar on Identifying Common Mistakes During the Appraisal Compliance Review presented by Eric Collinsworth.