As of October 9 there are new rules on appraisal, or rather which homes will no longer require them. Certain properties under $400,000 are now exempt from appraisal. Instead, exempt properties will be evaluated by the lending institutions with an estimate on property value.
Here are the properties that will fall under the exemption:
1. Contract value under $400,000
2. Loans cannot be sold or guaranteed by the FHA, HUD, the VA, Fannie Mae or Freddie Mac – all still require an appraisal (hmmm you think, that seems to cover the majority of loans…at least that is what I thought).
The positive outcome from this new rule is that oftentimes appraisals can create issues with a sale, where value does not come in at contract price. If a seller is not willing to reduce the price after an appraiser says the home is worth less than the contracted amount, the parties can renegotiate price or the buyers can cancel the sale. If the seller refuses to drop the price despite the appraised value and the buyer wants to proceed, the buyer has to come up with the difference and include it in their downpayment – many buyers in the lower price ranges do not have the extra cash. So in these cases it would allow these buyers to move forward and obtain their loan, since the appraisal would not be a contingency to closing escrow.
The new rule applies to an estimated 40% of homes sales if you include the entire country. The reality is that in certain areas, like here in San Diego County, not as many properties will qualify as say compared to the midwest. Opponents say this is a problem. Also to consider is the fact that here in California where our property values are high, many borrowers that do purchase homes under $400,000 do also obtain the types of loans that do not qualify for the exemption. So in reality I do not see this new rule having a big effect on CA property sales, but it will be interesting to see what transpires.
