Soon, only homes with a purchase price of $400,000 or above may require a human appraisal. That’s a massive increase from the current threshold of $250,000. What does this change mean for you and your clients?
Details of the New Proposal
The new proposal is a joint development between the Federal Reserve, the FDIC, and the Office of the Comptroller of the Currency. The approval process will be slow, giving the real estate industry plenty of time to figure out what happens next.
If approved, the rule would allow home buyers to close more quickly–and save the money they’d otherwise have to spend on an appraisal. The $400,000 threshold would also apply to people trying to secure refinancing.
The new rule would not, however, apply to federal programs, such as loans from HUD or Veterans Affairs, nor would loans backed by Fannie Mae or Freddie Mac be affected. That’s because many federal programs already have a method in place to waive in-person appraisals.
The Cost of Appraisals
The cost of an in-personal appraisal is usually in the ballpark of $500. According to the press release from the FDIC, removing that barrier “could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soundness of financial institutions.”
If a buyer has the option to save $500, many of them will jump at the chance. But there’s an obvious downside to waiving an in-person appraisal. The new proposal would allow for automated valuation models to determine the home’s value. These programs use local sales data to estimate a home’s value–sight unseen.
An AVM can’t tell if the property in question has an issue that would otherwise lower the value. Extensive pet damage, for example, wouldn’t be taken into account. There’s also the real possibility of overestimating the value of the home. Because the computer program can’t see the nuances that a professional appraiser will notice, it simply can’t give a complete picture.
Although your clients may have the choice to waive an in-person appraisal, they might want to reconsider. In the big picture, it’s $500 well spent.
