Federal regulators have raised the value of homes exempt from a human evaluation by a licensed appraiser from $250,000 to $400,000. This indicates the majority of U.S. homes can be purchased and sold with an appraisal completed by a drone in addition to a computer algorithm.
A Robot Might Appraise Your Next Home Sale
Supporters of the change – including financial institutions and state banking regulators – believe lenders and home buyers can save money by without needing to hire a licensed appraiser, and that real estate deals will be closed faster.
Critics, however – like appraisers and consumer advocacy groups – claim that the change introduces new risks to the mortgage market, and that computer models along with other technology cannot replicate a trained appraiser’s judgment, human senses and experience.
Jeremy Sicklick, CEO of HouseCanary Inc., which provides computer-generated property valuations, says, “Software is eating real estate. You’re seeing the beginnings of the machines outperforming humans in terms of accuracy.”
Sicklick’s company charges $59 for its 20-page valuations, versus $375 to $900 for traditional single-family-home appraisals.
Rule official soon
The new rule has been approved by the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. It’s going to go into effect as soon as the Federal Reserve approves it, which is expected. The threshold hasn’t been adjusted since 1994.
U.S. Census data and the National Association of Realtors® indicate that more than two-thirds of U.S. homes sell for $400,000 or less. As outlined by regulators, about 214,000 additional home sales, or about $68 billion worth, could have been made without an appraisal if the higher threshold had been in place in 2017.
Unclear on impact
Since the majority of home loans in the $400,000-and-less price range are purchased by Fannie Mae and Freddie Mac or guaranteed by other federal agencies, which currently require valuations by licensed human appraisers regardless of home value, the immediate impact of the new rules may very well be limited.
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