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Fannie Guidelines

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David Braun

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Freshman Member
Joined
Dec 9, 2007
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Certified General Appraiser
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Tennessee
Question: Do Fannie Mae guidlines directly state that comparable sales "must" be verified for closing costs?

Is it implied somewhere?

I thought this was required, but I can not find anywhere that it is.

Help!
 

Mr Rex

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Jan 12, 2004
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Certified Residential Appraiser
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North Carolina
XI, 406.03: Adjustments to Comparable Sales (11/01/05)
Each comparable sale that is used in the sales comparison approach to value must be analyzed for differences and similarities between it and the property that is being appraised. The appraiser must base his or her analysis and any adjustments to the comparable sales on the market data for the particular neighborhood and for competing locations—not on predetermined or assumed dollar adjustments. If an appraiser’s adjustments to comparable sales (or the reconciliation of the comparable sales) are based on unsupported assumptions or personal opinion that cannot be supported by market data, poor quality appraisals that could have a discriminatory effect may result.
Comparable sales must be adjusted to the subject property—except for sales and financing concessions, which are adjusted to the market at the time of sale. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. “Time” adjustments must be representative of the market and should be supported by the comparable sales whenever possible. The adjustments must reflect the time that elapsed between the contract date (or the date of the “meeting of the minds”) for the comparable sale and the effective date of the appraisal for the subject property.
 

Don Clark

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Jan 17, 2002
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Certified Residential Appraiser
State
Virginia
XI, 406.03: Adjustments to Comparable Sales (11/01/05)
Each comparable sale that is used in the sales comparison approach to value must be analyzed for differences and similarities between it and the property that is being appraised. The appraiser must base his or her analysis and any adjustments to the comparable sales on the market data for the particular neighborhood and for competing locations—not on predetermined or assumed dollar adjustments. If an appraiser’s adjustments to comparable sales (or the reconciliation of the comparable sales) are based on unsupported assumptions or personal opinion that cannot be supported by market data, poor quality appraisals that could have a discriminatory effect may result.
Comparable sales must be adjusted to the subject property—except for sales and financing concessions, which are adjusted to the market at the time of sale. The appraiser must make appropriate adjustments for location, terms and conditions of sale, date of sale, and the physical characteristics of the properties. “Time” adjustments must be representative of the market and should be supported by the comparable sales whenever possible. The adjustments must reflect the time that elapsed between the contract date (or the date of the “meeting of the minds”) for the comparable sale and the effective date of the appraisal for the subject property.

That still does not address or answer David's question.

David, I will take a look tomorrow. I have them on my screen for easy access.
 

Mr Rex

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Professional Status
Certified Residential Appraiser
State
North Carolina
I think it does imply it, although not as directly as FHA. I think thats what he's thinking of.
 

Michael Tipton

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Sep 25, 2005
Professional Status
Certified Residential Appraiser
State
Florida
If FNMA is suggesting the following (see item C) for the lender's underwriter, shouldn't we also consider the same when completing the sales grid?

XI, 406.05: Underwriter’s Review of Adjustment Grid (11/01/05)
The lender’s underwriter should review thoroughly the “sales comparison analysis” adjustment grid. The underwriter should spot check the positive and negative adjustment calculations because there are many places in which an error can be made in the use of dollar adjustments.
The underwriter should pay particular attention to the following areas. Because a substantial variance raises questions about the validity of using a specific comparable sale, the appraiser must have addressed the reason for a variance.
A.Proximity to subject property and location. The description of the proximity of the comparable sale to the subject property must be specific (e.g., two blocks south). Whenever possible, the appraiser should use comparable sales in the same neighborhood as the subject property because the sales prices of comparable properties in the neighborhood should reflect the same positive and negative locational characteristics.
B.Sales price. The sales price of each comparable sale should be within the general range of the appraiser’s opinion of market value for the subject property. A $100,000 comparable sale for a $75,000 subject property would raise questions about the validity of the comparable.
C.Sales or financing concessions. The dollar amount of sales or financing concessions paid by the seller must be reported for the comparable sales if the information is reasonably available. Examples of sales or financing concessions include interest rate buydowns or other below-market rate financing; loan discount points; loan origination fees; closing costs customarily paid by the buyer; payment of condominium, PUD, or cooperative fees or assessment charges; refunds of (or credit for) the borrower’s expenses; absorption of monthly payments; assignment of rent payments; and the inclusion of non-realty items in the transaction.
Generally, sales or financing data for comparable sales—such as the mortgage amount, loan type, interest rate, term, and any fees or concessions the seller paid—is available. The appraiser should obtain this information from an individual who was a party to the comparable transaction (the broker, buyer, or seller) or from a data source that the appraiser considers to be reliable. We recognize that there may be some situations in which sales or financing information is not available because of legal restrictions or other disclosure-related problems. In such cases, the appraiser must explain why the information is not available—however, we will not accept an explanation that indicates that the appraiser did not make an effort to verify the information. In all other cases, the appraiser must provide the sales and financing concession information that was available (and verified) for the comparable sales. If the appraisal report form does not provide enough space to discuss this information, the appraiser should make an adjustment (or a relative relationship assessment) for the concessions on the form and include an explanation in an addendum to the appraisal report.
When a quantitative sales comparison analysis is used, the amount of the negative dollar adjustment for each comparable with sales or financing concessions should be equal to any increase in the purchase price of the comparable that the appraiser determines to be attributable to the concessions. The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area—large sales concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate. Adjustments based on mechanical, dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions.
Positive adjustments (or relative relationship assessments) for sales or financing concessions are not acceptable. For example, if local tradition or law results in virtually all of the property sellers in the market area paying a one percent loan origination fee for the purchaser, and a property seller in that market did not pay any loan fees or concessions for the purchaser, the sale would be considered as a cash equivalent sale in that market. The appraiser should recognize comparable sales that sold for all cash or with cash equivalent financing and use them as comparable sales if they are the best indicators of value for the subject property. Such sales also can be useful to the appraiser in determining those costs that are normally paid by sellers as the result of tradition or law in the market area.
D.Date of sale/time adjustment. We will accept more than three comparable sales as part of the appraisal report, but at least three of them must be actual settled or closed sales. The appraiser should provide the date of the sales contract and the settlement or closing date for each comparable sale. Unless the appraiser believes that the exact date is necessary to understand the adjustments, only the month and year of the sale need to be reported. If the appraiser does not report both the contract date and the settlement or closing date, he or she must identify the reported sale date as either the “contract date” or the “settlement or closing date.” If the appraiser reports the contract date only, he or she must state whether the contract resulted in a settlement or a closing.
E.Above-grade room count and gross living area. Only finished above-grade areas should be included in the calculation of the gross living area for a one-family property or a unit in a condominium or PUD project. The appraiser should consider the basement and other partially below-grade areas separately and adjust for them accordingly. The room count and gross living area should be similar for the subject property and all comparable sales. For example, a four bedroom comparable sale generally is not acceptable to support the value of a two bedroom subject property. The appraiser must address large differences between the subject property and the comparable sales since they raise doubts about the validity of the comparable sales as good indicators of value.
F.Over-improvements. In some instances, the improvements can represent an over-improvement for the neighborhood, but still be within the neighborhood price range—such as a property with an in-ground swimming pool, a large addition, or an oversized garage in a market that does not demand these kinds of improvements. The appraiser must comment on such over-improvements and indicate their contributory value in the “sales comparison analysis” adjustment grid.
Because an over-improved property may not be acceptable to the typical purchaser, the lender’s underwriter must review appraisals on this type of property carefully to ensure that the appraiser has reflected only the contributory value of the over-improvement in his or her analysis.


http://www.allregs.com/efnma/index.asp?dv=0&id=a&ii=0&im=0&io=FNMA&ip=/&iq=0&iv=0&iw=0&iy=0&iz=0&fc=0&fk=_&fm=0&fs=0&fv=0&sd=/&sm=1&sp=FNMA&sq=_&st=_&sv=0&sx=/&sy=0&sz=0&t=0&tc=FNMA/selling/part-xi/xi-ch-4/xi-406&td=0&ti=0&tm=0&to=FNMA&tw=0&tv=0&tq=0&tx=/&tp=FNMA/selling/part-xi/xi-ch-4/xi-406/xi-406.05
 
Last edited:

joe huffman

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Sep 20, 2004
Professional Status
Certified General Appraiser
State
Missouri
color

XI, 406: Sales Comparison Approach to Value (11/01/05)

The sales comparison approach to value—traditionally referred to as the market data approach—is an analysis of comparable sales, contract sales, and listings of properties that are the most comparable to the subject property. The Uniform Standards of Professional Appraisal Practice require the appraiser to report a minimum three-year prior sales history for the subject property. We require the appraiser to comply with the minimum requirements of USPAP. For specific information concerning the comparability of manufactured home sales, please refer to Section 304.01.

The appraiser’s analysis of a property must take into consideration all factors that have an effect on value, recognizing that a well-informed or well-advised purchaser will pay no more for a property than the price he or she would pay for a similar property of equal desirability and utility if it were purchased without undue delay. To accomplish this, the appraiser must analyze the closed or settled sales, the contract sales, and the offerings or listings of properties that are the most comparable to the subject property in order to identify any significant differences (or elements of comparison) that could affect his or her opinion of value for the subject property. This is particularly important in declining markets because the competing listings and contract sales probably reflect the upper-end of value for the subject property as of the effective date of the appraisal. This analysis will result in more accurate reporting on market conditions, including trends that indicate sale prices for contract sales and asking prices for recent offerings or listings have declined. (Also see Section 403.03, Trend of Property Values, Demand/Supply, and Marketing Time.)

XI, 406.02: Selection of Comparable Sales (06/30/02)

We require an appraiser to research, analyze, and consider influences that may affect value based on market evidence (such as closed sales, contract sales, and properties for sale in the market area; market studies; etc.). For example, if a property is located in a neighborhood that includes (or is close to) an airport or hazardous waste site or that has relatively high property taxes or vacant or boarded-up properties, we expect the appraiser to research, analyze and use comparable sales from the same neighborhood or affected area (whenever possible) in his or her analysis. This will ensure that any effect of these value-influencing characteristics is taken into consideration in the development of the opinion of value for the property.
The appraiser must report a minimum of three comparable sales as part of the sales comparison approach to value. The appraiser may submit more than three comparable sales to support his or her opinion of market value, as long as at least three are actual settled or closed sales. Generally, the appraiser should use comparable sales that have been settled or closed within the last 12 months. However, the appraiser may use older comparable sales if he or she believes that it is appropriate, and selects comparable sales that are the best indicators of value for the subject property. The appraiser must comment on the reasons for using any comparable sales that are more than six months old. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.
 
Last edited:

David Braun

Thread Starter
Freshman Member
Joined
Dec 9, 2007
Professional Status
Certified General Appraiser
State
Tennessee
Hey,

Thanks to everone for helping. What is the web address to find the manual that everyone is quoting from?

If Fannie Mae does require this what % of appraisals done for them do appraisers actually make an attempt to find the data. I may be pessimistic but I would guess about 30%?

Thanks

--David
 
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