5601.3: General appraisal requirements (09/14/17)

Freddie Mac requires that the Seller obtain an appraisal report that accurately reflects the market value, condition and marketability of the property. The Seller is responsible for compliance with the Appraiser Independence Requirements (AIR), the selection of the appraiser, the appraiser's use of the appropriate Freddie Mac appraisal report forms, compliance with the Uniform Appraisal Dataset (UAD) and a successful submission of the appraisal report to the Uniform Collateral Data Portal® (UCDP®), all as specified in more detail in this chapter.

Freddie Mac's requirements relating to the appraisal report forms (including the certifications) convey our expectations for the property valuation and appraisal reporting processes, the appraiser's accountability for the quality of his or her appraisal report, and the appraiser's compliance with both the Uniform Standards of Professional Appraisal Practice (USPAP) and Freddie Mac's requirements. Freddie Mac's requirements are supplemental to those of USPAP. See Section 5601.5 for more information on appraisal report forms and appraisal completion certification requirements.

(a) Seller selection of appraisers and Appraiser Independence Requirements

Freddie Mac does not select or approve individual appraisers or appraisal management companies. The Seller, or a third party specifically authorized by the Seller, approves and selects the appraiser. The Seller warrants that the appraisal services provided comply with the USPAP, applicable laws, and Freddie Mac requirements.

With respect to each conventional Mortgage sold to Freddie Mac, the Seller represents and warrants that the appraisal was obtained in a manner consistent with the requirements of Exhibit 35, Appraiser Independence Requirements ("Appraiser Independence Requirements").

The Seller must ensure that the individuals ordering and underwriting appraisal reports and performing collateral reviews are independent of loan production staff. If absolute lines of independence cannot be achieved as a result of the Seller's small size and limited staff, the Seller must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its Mortgage production process.

Freddie Mac requires Sellers to obtain appraisals in a manner consistent with the Appraiser Independence Requirements. Freddie Mac does not require the use of appraisal management companies or any other third-party vendor to order appraisals.

The Appraiser Independence Requirements allow the use of staff (or in-house) appraisers and independent fee appraisers.The appraisal report must be signed by an appraiser that the Seller, or a third party specifically authorized by the Seller, has approved.

(b) Appraiser and supervisory appraiser qualification

The appraiser or supervisory appraiser must:

Be State-licensed or State-certified in the State in which the subject property is located (See subsection (c) below regarding unlicensed and trainee (or similar classification) appraisers)
Have knowledge and experience in appraising the property type in the market area, and
Have access to applicable data sources

(c) Unlicensed and trainee appraisers

Freddie Mac permits unlicensed and trainee (or similar classification) appraisers to complete an appraisal in accordance with State law. If an appraisal form is completed by an unlicensed or trainee (or similar classification) appraiser, a supervisory appraiser must sign the appraisal form. A supervisory appraiser is not required to inspect the subject property or comparable sales unless required by State law.

(d) Seller representations and warranties regarding appraisers and appraisal reports

In addition to the representations and warranties with respect to the Appraiser Independence Requirements, with respect to each appraisal report, the Seller represents and warrants that:

1. All information known to the Seller that may affect the estimate of market value or marketability has been provided to the appraiser in conjunction with the appraisal request

2. It has reviewed the report and has concluded that the Mortgaged Premises is adequate collateral for the Mortgage transaction, in accordance with the requirements of Section 4201.1

3. The appraisal report complies with all applicable requirements in Seller's Purchase Documents

4. The appraisal report is of professional quality and supports all of the appraiser's assumptions, data, analyses, rationale and conclusions that were relied upon in the appraiser's opinion of the market value of the property and in addressing the marketability of the Mortgaged Premises

5. The information in the appraisal report is accurate, internally consistent, written in clearly understandable language, fully supported and sufficiently documented

Deficient appraisals will be considered a breach of the Seller's warranty as to the acceptability of the Mortgage and will subject the Seller to the remedies available to Freddie Mac. In addition to reviewing the appraisal report submitted by the Seller, Freddie Mac may make property inspections and/or other investigations to assure property eligibility and proper underwriting of the Mortgages offered for sale to and sold to Freddie Mac.

(e) Representations by appraisers and unacceptable appraisers

Appraisers and appraisal management companies must not make any representation to third parties as being approved by Freddie Mac.Freddie Mac may at any time refuse to accept appraisal reports made by a particular appraiser. (See Section 3101.1 for additional requirements on the Freddie Mac Exclusionary List and Section 3101.2 for additional requirements on the Federal Housing Finance Agency Suspended Counterparty Program.)

(f) Definition of market value

An appraisal must be based on the following definition of market value:The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated

2. Both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest

3. A reasonable time is allowed for exposure in the open market

4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto, and

5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale

* Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar-for-dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgment.

The market value estimate of the subject property must not include value assigned to furniture or any other personal property.

(g) Detrimental conditions

The appraiser must note the presence of detrimental conditions, such as expansive soils, underground mines or subsidence in the immediate area of the subject property. In addition, the appraiser must note any evidence of dampness, infestation or abnormal settlement observed in the subject property and call for correction of the observed condition or professional inspections to determine the seriousness of the condition. The appraiser must also consider the effect of such conditions in estimating the subject property's market value and/or any effect on marketability.For any appraisal that is made subject to inspections or conditions due to detrimental conditions, the Seller must include in the Mortgage file evidence of corrective action as called for by the inspector or appraiser. The evidence of the corrective action must meet Freddie Mac requirements. (See Section 5601.11 for requirements for final inspection and the completion report.)

(h) Statement of Assumptions and Limiting Conditions, and Appraiser's Certification

The Statement of Assumptions and Limiting Conditions, Appraiser's Certification and Supervisory Appraiser's Certification are incorporated into each appraisal report form. Modifications or deletions to these are not permitted. However, additional certifications that do not constitute material alterations to the report, such as those required by law or those related to the appraiser's continuing education or membership in an appraisal organization, are permitted.

(i) Owner of Record

When a new appraisal is required, the Seller must verify:

For purchase transactions:
- The property seller listed on the sales contract is the Owner of Record of the subject property or
- If the transaction involves the sale of land separate from the dwelling, the property seller listed on the sales contract for the land is the Owner of Record for the land
For refinance transactions, the Borrower is an Owner of Record of the subject property
For transactions that involve the payoff of a land contract, the property seller is the vendor on the recorded land contract and the Owner of Record of the subject property; and the Borrower is a vendee on the recorded land contract

If the property seller for purchase transactions or the Borrower for refinance transactions is not the Owner of Record, the Seller must investigate the circumstances of the transaction to ensure that the transaction is legitimate. The Seller must retain documentation evidencing the verification or legitimacy of the transaction in the Mortgage file. Such documentation may include, but is not limited to, the appraiser's analysis and conclusions in the appraisal, a property sales history report, a copy of the recorded deed, a copy of a property tax bill, or the title commitment or binder indicating the legal ownership of the property.

(j) Information supplied to the appraiser

The Seller warrants that they or a third party specifically authorized by the Seller provided the following information on the subject property, as applicable, to the appraiser in conjunction with all appraisal requests:

1. The complete legal description (see Section 4201.19 for legal description requirements)

2. The complete sales contract for purchase transactions, including:

All non-realty items
Financing terms
Financing and sales concessions granted by anyone associated with the transaction, and
Any gifts, buydowns or down payment assistance provided by anyone on behalf of the Borrowers

Note: A sales contract on a new home should state the base price of the house and itemize each option.

The Seller is not required to provide the appraiser with an updated sales contract unless the updated terms impact the physical description or condition of the property. In such cases, the Seller must obtain an updated appraisal for the property. Changes to the sales contract that are not required to be provided to the appraiser include, but are not limited to:

Changes to the transaction terms such as sales price, financing or sale concessions, and
Date revisions, corrections to typographical errors, etc.

3. Any known affiliation between the property seller and the purchaser. (Refer to Section 5601.12(b)).

4. Income and expense statements and property leases

5. Generally acceptable energy reports such as the Home Energy Rating System (HERS®) report and U.S. Department of Energy (DOE) Home Energy Score report, if applicable; and

6. Any other information that the Seller is aware of that may affect the market value, condition or marketability of the property. This information includes, but is not limited to:

Proposed changes to the use of the property
The presence of any Contaminated Site, Hazardous Substance or other adverse conditions affecting the property or the neighborhood in which the property is located. (Refer to Section 5601.12(d)(ii)).

7. Ground lease for leasehold properties. (Refer to Section 5704.3).