OCC Issues Notice of Proposed Rulemaking to Exempt Residential Real Estate Transactions of $400,000 or Less from Appraisal Requirements

WASHINGTON—The Office of the Comptroller of the Currency (OCC) recently approved a notice of proposed rulemaking that proposes to raise the threshold for residential real estate transactions requiring an appraisal to $400,000.

This proposal, which will be issued jointly, responds to concerns raised by financial institutions about the time and cost associated with completing residential real estate transactions. The proposal was developed jointly by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation. The agencies believe raising this threshold for residential real estate transactions from the current level of $250,000, last increased in 1994, could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soundness of financial institutions.

Rather than requiring an appraisal, the proposal would require that residential real estate transactions exempted by the threshold obtain an evaluation consistent with safe and sound banking practices. 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. In addition, evaluations are typically less detailed and costly than appraisals. 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 agencies received these comments during both the recent Economic Growth and Regulatory Paperwork Reduction Act review process and the commercial real estate transactions appraisal rulemaking process. That process resulted in a final rule, issued in April 2018, raising the appraisal threshold for commercial real estate transactions from $250,000 to $500,000.

The proposal also would incorporate the rural residential appraisal exemption in the Economic Growth, Regulatory Relief and Consumer Protection Act into the list of exempt transactions and require evaluations for these exempt transactions. In addition, the proposal would require institutions to appropriately review appraisals for compliance with the Uniform Standards of Professional Appraisal Practice, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Comments will be accepted for 60 days from publication in the Federal Register.

Related Link

• Federal Register Notice (PDF)