Good News: Federal Government Reduces Appraisal Requirements

 The Federal Government (specifically, the Federal Reserve and Office of the Comptroller of Currency) have agreed on new rules to reduce appraisal requirements on properties under $500,000.  This is a good things for investors and a smart step to take.

Reuters reports that, "Under the new rules, commercial real estate worth more than $500,000 must have an independent third-party check on the property value before a bank can lend against. The threshold had been $250,000. The new standards were agreed to by the Federal Reserve, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC)."

“The increased threshold will not pose a threat to the safety and soundness of financial institutions,” the agencies stated.

Here's how appraisals work now: when a mortgage moves through the process, the lender sends an appraisal request to a pool of appraisal companies. One appraiser is assigned and completes a work on their timeline.  A lender or investor has little recourse if the appraisal is low quality; they aren't allowed to select an appraiser individually, as regulators view that as a conflict of interest.  There's little to no accountability and lenders typically run their own analyses to double check.   

It is an added cost for investors and lenders, and one of the ways that inefficiencies in the real estate system can lead to higher costs.   

Some consumer groups were quick to argue that high appraisals were a contributing factor to the mortgage crises in 2007-2009. However, we're operating under the same system. The current system didn't work in 2007-2009, and doing more of it won't prevent future issues. If consumer groups saw the quality of most appraisal companies, they would understand that requiring more appraisals isn't part of the solution.

You can read the full story from Reuters here.

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