FDIC – loans below $400,000 are not important?

The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Board of Governors of the Federal Reserve are proposing to eliminate the appraisal requirement on certain home sales of $400,000 and below, increasing the appraisal threshold from $250,000 to $400,000. According to FDIC data, increasing the appraisal threshold would have exempted an additional 214,000 mortgages from the agencies’ appraisal requirement in 2017.

The new proposal is not a big deal, only 214,000 additional mortgages exempt from appraisals, right? Perhaps people that buy homes under $250,000, and now up to $400,000, are not as important as those who can afford higher priced homes. I suppose their investments don’t deserve the FDIC’s protection? Is it because home prices have risen so dramatically in most urban markets (which is what they understand), now they can raise the threshold to $400,000? Who knows the motive or who is pushing to get this implemented.
What they are essentially saying is that, if you buy a home under $400,000, we don’t need to worry about protecting you. A slap in the face to the homebuyers all across the country in medium sized markets where there are A LOT of homes available under $400,000, and just forget rural markets. I live in a growing military market where for $300-$350,000 you can buy a brand new, 3,000 sqft house with all the bells and whistles. Guess these military home buyers are not that important.

In rural America, valuations are even harder than other locations and all the more reason to hire a professional appraiser. No computer can accurately calculate home values where there is limited comparables to choose from. Without large amounts of data, computers cannot provide consistent valuations. And remember, real estate is NOT a perfect information system where it’s easy to figure out the right dots and dashes to select, and to come up with a logical value. AVM errors are consistent. If $20,000, 30,000, 50,000, or even a few hundred thousand dollar errors are acceptable, by all means, let the AVMs have at it. For years I’ve said that local tax records are more accurate than most AVMs. But, there’s no profit in using free tax data. AVMs should be for fun, not for determining the value of people’s largest, lifetime investment, even if it falls below their magic number of $400,000.

The influences on a real estate transaction are host to an extremely wide set of factors. It is a people business where emotions are part of the process. I don’t know of any computer that can factor emotions and timing into the process. With computers and AVMs, they like to talk about BIG Data, like it’s the magic answer to all real estate pricing. In this industry, bigger isn’t better. The real estate industry will never provide the type of data that allows computers to accurately predict home values. Just check Zillow®.

Sure, this would be another slap in the face to the appraisal industry. But, perhaps more important, it’s a bold statement to all those with home values under $400,000 that we don’t care about you and your small purchase. Let the big banks have their way with you. They are always looking out for consumers, right? Big Data is not now, and never will be the answer to providing accurate home values. This is nothing more than the Golden Rule at work, again, with the appraisal industry and now consumers in their sites.