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© 2018 Freddie Mac Single-Family Seller Servicer Guide

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For properties located in established subdivisions, units in established PUDs or units in Established Condominium Projects, the appraiser should use comparable sales from within the subject subdivision or project when they are the best indicators of value for the subject property..

(A) Comparable sale requirements for properties in established subdivisions, units in established Planned Unit Developments (PUDs) or units in Established Condominium ProjectsFor properties located in established subdivisions, units in established PUDs or units in Established Condominium Projects, the appraiser should use comparable sales from within the subject subdivision or project when they are the best indicators of value for the subject property.
(B) Comparable sale requirements for properties in new subdivisions, units in new PUDs or units in recently converted or New Condominium ProjectsTo demonstrate the marketability and develop an opinion of market value for units in new subdivisions, units in new PUDs or units in recently converted or New Condominium Projects, the appraiser must comply with the following requirements:
  • One comparable sale must be from inside the subject subdivision or project, when available. Additionally:
    • The comparable sale from inside the subject subdivision or project can be a sale by the builder or developer of the subject property
    • If there are no closed comparable sales from inside the subject subdivision or project, contract sales may be used from inside the subject subdivision or project to satisfy this requirement. However, the use of contract sales must be in addition to the three actual closed sales obtained from outside the subject subdivision or project.
    • In the event the subject subdivision or project is so new that a closed sale or a contract sale is not available, comparable sales from outside the subject subdivision or project may be used. However, the appraiser must comment on the marketability of the new subdivision or project and justify and support the use of the comparable sales from outside the new subdivision or project.
  • One comparable sale must be from outside the subject subdivision or project, and
  • The third comparable sale may be from either inside or outside the subject subdivision or project

When resales are available from inside the subject subdivision or project, they are preferable and should be given significant consideration as they provide a reliable indicator of the market value of units within the subdivision or project.

At a minimum, at least two comparable sales must be sales in which the builder or developer of the subject property is not involved in the sale transaction.

(C) Comparable sale requirements for a 1-unit property with an accessory unit (legal or legal non-conforming zoning compliance)The appraiser must include at least one comparable sale with only one accessory unit. The accessory unit of the comparable sale must also comply with the zoning and land use requirements to demonstrate the conformity and marketability of the subject property to its market area.
(D) Comparable sale requirements for a 1-unit property with an accessory unit (illegal zoning compliance)The appraiser must include at least two comparable sales with each having only one accessory unit. The accessory unit of each comparable sale must also be non-compliant with the zoning and land use requirements to demonstrate the conformity and marketability of the subject property to its market area.

The Seller should be aware that there are varying conditions that characterize different types of locations. Conditions that are typical of certain locations may not be present in other locales. This does not mean that the conditions are unacceptable, rather that they must be viewed in context with the nature of the area in which the Mortgaged Premises is located.

  • For example:When the Mortgaged Premises is located in a suburban or urban area, the appraiser would most likely use comparable sales in the immediate vicinity of the property since suburban and urban areas are usually more densely developed and comparable sales are typically available in the subject neighborhood.Rural areas often have less real estate sales activity than more populated locations. Property sales in rural locations often involve a variety of property types, and may have relatively large parcels as compared to other locations. Given the potential challenges with appraising properties in these market areas, the appraiser must be knowledgeable about the varying conditions that characterize properties in a particular geographic area. In such cases, appraisers may have to use older comparable sales, comparable sales that are located a considerable distance from the subject property or comparable sales that are not similar to the subject property. The appraiser must justify and support such use in the appraisal report.

Mortgages secured by non-traditional types of properties are eligible for delivery to Freddie Mac. The appraiser may use traditional homes as comparable sales for unique properties as long as the appraiser determines and adjusts for any differences between the subject property and the comparable sales and can justify and support the use of the comparable sales in the appraisal report. Occasionally, there may be no similar or truly comparable sales for a particular property because of the uniqueness of the property or other conditions. In such cases, the appraiser must use his or her knowledge and judgment to select comparable sales that represent the best indicators of value for the subject property to reflect the actions of typical purchasers in the market.

In addition, comparable sales may be taken from a competing neighborhood if:

  • The appraiser has established that the neighborhoods are comparable and compete for the same buyers, and
  • Comparable sales taken from the competing neighborhood are better indicators of current market trends in the subject neighborhood than the existing comparable sales available in the subject neighborhood
(g) Sale and listing historyThe appraiser must research, verify, analyze and report:
  • Any current agreement for sale for the subject property
  • Any offering for sale of the subject property in the twelve months prior to the effective date of the appraisal
  • Any prior sales or transfers of the subject property for the three years prior to the effective date of the appraisal
  • Any prior sales or transfers of each comparable sale for the year prior to the date of sale of each comparable sale

The Seller's review of the acceptability of each appraisal should include an analysis of the sale and listing history. The Seller must confirm that the sale price trend in relation to the appraiser's opinion of market value is reasonable and representative of the market.

For purchase transactions, the Seller should analyze the appraisal report and the current contract for sale for the subject property.

For both purchase and refinance transactions, the Seller's underwriting analysis of the appraisal report should include any current listing or offering for sale for the subject property, the sales history of the subject property and comparable sales, and the current ownership of the subject property.

To reduce the Seller's risk of liability resulting from fraudulent or inaccurate appraisals, the Seller should analyze the subject property and comparable sales and evaluate the time elapsed between the date(s) the property was acquired and the date(s) resold, or the date of the current resale contract, if applicable. If the sales history of the subject property or comparable sales indicates current or prior sale prices may be excessive, and resale dates occurred shortly after the property seller's acquisition of the property, the appraisal report should provide evidence to justify and support a rapidly appreciating real estate market, significant improvements that resulted in a corresponding increase in the property value or a previous sale that was below market value due to a distress or tax sale.

(h) ReconciliationThe data and information presented in the appraisal report must justify and support the appraiser's opinion of market value. The appraiser must explain how the final value conclusion was determined, and the rationale must be consistent with the comments, conclusions and assumptions stated throughout the appraisal report.The reconciliation must contain any conditions of the appraisal on which the final opinion of market value is based.If the subject transaction involves sales or financing concessions, the appraiser's opinion of market value must reflect the value of the subject property without the concessions. The appraiser must also provide the dollar value of the concessions as a comment in the appraisal report.
(i) Cost approachThe cost approach to value is required for appraisals of Manufactured Homes. It is not required for appraisals of attached Planned Unit Development or Condominium Units.The Seller may request the appraiser to develop and report the cost approach to value when not required for the transaction. The appraiser must develop and report the result of any approach to value that is applicable and necessary for an appraisal, even if the Seller did not request it. The approach may be appropriate especially when appraising properties that are:
  • New or proposed construction
  • Under renovation
  • Unique because of their styles or construction methods, or
  • Have functional obsolescence not typical for the market

When the cost approach to value is developed, the appraiser must make proper adjustments for any items detrimental to stability or marketability, such as physical, functional and external depreciation that are not typical for the market.

Appraisals that rely primarily on the cost or income approaches to value in order to estimate market value are unacceptable.

(j) Income approach
The income approach to value is required for appraisals of 2- to 4-unit properties. The Seller may request the appraiser to develop and report the income approach to value when not required for the transaction. The appraiser must develop and report the result of any approach to value that is applicable and necessary for an appraisal, even if the Seller did not request it.Appraisals that rely primarily on the income or cost approaches to value in order to estimate market value are unacceptable.
(k) Condominium Units
See  Section 5701.8(a)for appraisal requirements for units in Condominium Projects.
(l) Manufactured Homes
See  Section 5703.6 for appraisal requirements for Manufactured Homes.
(m) 2- to 4-unit properties
In addition to the other requirements and guidelines set forth in this chapter, the following requirements and guidelines are applicable to completing Form 72, Small Residential Income Property Appraisal Report, for 2- to 4-unit properties.
(i) Comparable rent data for 2- to 4-unit properties
At least three rental comparables must be analyzed in the "comparable rental data" section. These rental comparables must:
  • Have current rental information
  • Be units similar to and located near the subject property

The rental comparables are usually not the same comparable properties used in the sales comparison approach. The appraisal report should state that the units and properties selected as rental comparables are comparable to the subject property (both the units and the overall property) and should accurately represent the rental market for the subject property unless otherwise stated in the report.

(ii) Subject's rent schedule for 2- to 4-unit properties
This section contains the subject property's current actual rents and the estimated market rents. The estimated market rents for the subject property must be supported in the appraisal report and be consistent with the data presented throughout the report.
(iii) Sales comparison approach for 2- to 4-unit properties
In addition to the other requirements in this chapter, the appraisal must contain the unadjusted units of comparison for the comparable sales. If the appraisal is prepared in conjunction with a purchase transaction, the units of comparison must be provided for the subject property as well. These units of comparison are the sales price per square foot of gross building area (GBA), per unit and per room and the gross rent multiplier (GRM). The comment area of the sales comparison analysis must reconcile the adjusted sales prices of the comparable sales and the unadjusted units of comparison, as appropriate, according to the manner in which such properties sell in the defined market area.The appraiser must indicate in the comments area which factors are deemed most consistent and which factors typical investors or purchasers in that market consider when purchasing a similar property.
(n) Leasehold estates
See Section 5704.3 for appraisal requirements for leasehold estates
(o) Properties with energy-efficient improvements
Energy-efficient features (e.g. photovoltaic systems, water efficient improvements, energy-efficient windows) or high-performing energy-efficient homes must be identified and any impact to market value must be recognized in the appraisal report. The contributory value of energy improvements and any premium paid for a high-performing energy-efficient home must be measured based on the market reaction, similar to any other property feature. Appraisers must be familiar with energy reports, energy ratings or other new concepts that may be developed to identify the energy efficiency of a home. If relied upon, any reports must be generally acceptable and, if available, these reports and information must be included in the appraisers' analysis.If the high-performing energy-efficient home or energy improvements are new to the market, there may be a lack of sales with similar features or a lack of data available from traditional data sources. As a result, additional due diligence on behalf of the appraiser may be necessary. In these cases, the appraiser may also need to consider whether methods such as the income approach, cost analysis, discounted cash flows, market surveys or any other applicable methods are appropriate. If the appraiser's analysis concludes an adjustment is necessary, the appraiser must justify and support the analysis and conclusions. This information may be included in an addendum or in supplementary documentation, if necessary.Solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement may not be included in the appraised value of a property.Visit the following web pages for Seller resources related to energy-efficient properties and the appraisal of properties with energy-efficient features:
  • Resources provided by The Appraisal Foundation
  • The Home Energy Rating System (HERS®) Index provided by the Residential Energy Services Network (RESNET®)
  • The Home Energy Score provided by the U.S. Department of Energy's Better Buildings® initiative
(p) Mixed-Use Properties
The appraiser must provide the following when appraising a mixed-use property:
  • An appraisal with an interior and exterior inspection
  • A detailed description of any accommodations made for the commercial use of the subject property
  • A discussion of any adverse impacts of the commercial use
  • A statement describing any market resistance to the commercial use, and adjustments for any commercial features made to the comparable sales
  • An opinion of market value based on the property's residential nature

Each residential property with mixed-use must meet all of the following requirements:

  • The property must be located in a residential neighborhood, be primarily residential, and must be typical for the properties in the market
  • The use must represent a legal, permissible use of the property under the local zoning requirements
  • The property must be a 1-unit Primary Residence
  • If the property has a commercial use, the Borrower must be the owner and the operator of the business
  • The dwelling may not be modified in a manner that has an adverse impact on its marketability as a residence
  • The commercial use must not have an adverse effect on the habitability and safety of the property or site