Arizona, Nevada, California, and Florida are currently classified as Extreme Declining Markets by Fannie Mae and Freddie Mac. As a result of this new classification, FNMA and FHLMC will require the following on all appraisals (this only applies to declining market areas):
1. The most recent and similar comparable sales available as part of the sales comparison approach must be used. Any change in market conditions from the date the contract of sale was signed and date of the appraisal must be considered.
2. Verification of comparable sales with a reliable party that is not associated with the subject property or the subject property’s development, and at least two comparables must be verifiable through the Multiple Listing Service (MLS) as Arms-Length transactions.
3. Two of the comparable sales must have closed within the last 90 days.
4. At least one current listing or pending sale must be provided.
5. Comparable sales must be mapped in the appraisal.
6. Days-on-market for subject and comparable sales must be provided, if applicable. The average days-on-market for the comparable sales must not exceed the “Marketing Time” box marked by the appraiser.
7. If the appraiser is unable to meet any of the above requirements, the appraiser must provide a detailed explanation as to why the requirements were not met, and if it resulted in making an adjustment to the property value.
Recommended Practice
If the subject property is an REO, or if the subject is located in an area where there are a substantial number of REO properties, the appraiser must identify this fact and discuss its impact on the subject’s property value. In addition, REO comparables should be considered if the appraiser believes that such comparables are legitimate competing properties.
Additional Requirements for New Projects and Developments
1. The appraiser must use at least one current sale from the subject builder/developer in the project, and either:
2. One current sale from a competing builder/developer or
3. A resale from within the subject property’s development that has closed within the last 30 days.
4. If the appraiser is unable to provide a competing comparable sale or resale within the subject property development that closed within the specified time period, a detailed explanation of why the requirement was not met is required.Purchase Transaction Requirements
As a reminder, in accordance with agency guidelines for purchase money transactions, the appraiser must be provided with a copy of the Purchase Contract so he can take into account any unusual or excessive sales contributions or concessions. Age of Appraisals
Conforming Loan Programs
If the appraisal report is more than 120 days old (180 days if the transaction involves construction completed after the loan application), either a new appraisal or a Form 1004D is required. If a Form 1004D is being used, it must include:
A determination on whether or not the property value has declined.
• Note: If the appraiser determines that the value has declined, a new appraisal is required and the loan must be re-underwritten using the new value. An indication there has been an exterior inspection of the property.
Find The Opportunity,
Kendall E. Matthews, CRMC