The FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (the Federal Agencies) have adopted a final rule that raises the threshold level at or below which appraisals will not be required for residential real estate transactions from $250,000 to $400,000. Effective October 9, 2019, the change is the first increase to the appraisal threshold since 1994.
The new appraisal exemption applies to residential real-estate transactions covered by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which generally requires an appraisal to be performed on every federally regulated transaction in accordance with uniform standards of professional appraisal practice (USPAP). For the purposes of the appraisal exemption, residential real estate transactions are defined as a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. The final rule does not affect applicable appraisal requirements for loans insured or guaranteed by, or eligible for sale to, the FHA, VA, or Fannie Mae and Freddie Mac.
The final rule also incorporates the rural transaction exemption from the Economic Growth, Regulatory Relief, and Consumer Protection Act, which exempts from appraisal requirements certain federally related transactions involving real property collateral where (among other things) the property is located in a rural area and valued below $400,000, and no state certified or licensed appraiser is available.
In addition, the final rule provides that while an appraisal will not be required for transactions under the threshold exemptions, regulated institutions must still obtain an evaluation of the real property collateral that is consistent with safe and sound lending practices for such real property collateral. To this point, while evaluations are not required to be performed in accordance with USPAP or by state certified or state licensed appraisers under federal law, an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.”
Pursuant to the Dodd-Frank Act, the final rule also implements a requirement mandating that appraisals required by FIRREA must be reviewed for compliance with USPAP.
Note that while the transaction value exemption is effective as of October 9, 2019, the evaluation requirement for transactions exempt by the rural residential appraisal exemption and the requirement to review appraisals for compliance with the USPAP will be effective January 1, 2020.