XI, 405.01: Conformity To Neighborhood (06/30/02)
The improvements should generally conform to the neighborhood in terms of age, type, design, and materials used for their construction. If there is market resistance to a property because its improvements are not compatible with the neighborhood or with the requirements of the competitive market—because of adequacy of plumbing, heating, or electrical services; design; quality; size; condition; or any other reason directly related to market demand—the lender should underwrite the mortgage more carefully and, if appropriate, require more conservative mortgage terms. However, the lender should be aware that many older neighborhoods have favorable heterogeneity in architectural styles, land use, and age of housing. For example, older neighborhoods are especially likely to have been developed through custom building; this variety may be a positive marketing factor.
In the appraisal and underwriting process, special consideration must be given to properties that represent special or unique housing for the subject neighborhood. Mortgages secured by nontraditional types of housing—such as earth houses, geodesic domes, log houses, etc.—are eligible for delivery to us, provided the appraiser has adequate information to develop a reliable opinion of market value. It is not necessary for one or more of the comparable sales to be of the same design and appeal as the property that is being appraised (although appraisal accuracy is enhanced by using comparable sales that are the most similar to the subject property). On a case-by-case basis, both the appraiser and the underwriter must independently determine whether there is sufficient information available to develop a reliable opinion of market value. This will depend on the extent of the difference between the special or unique property and the more traditional types of houses in the market and the number of such properties that have already been sold in the market area.
•If the appraiser cannot locate recent comparable sales of the same design and appeal, but is able to determine sound adjustments for the differences between the comparables that are available and the subject property and to demonstrate the marketability of the property-based on older comparable sales, comparable sales in competing neighborhoods, the existence of similar properties in the market area, and any other reliable market data—the property is acceptable as security for a mortgage delivered to us.
•If the appraiser is not able to find any evidence of market acceptance and the characteristics of the property are so significantly different that he or she cannot establish a reliable opinion of market value, the property is not acceptable as security for a mortgage delivered to us.
We do not specify minimum size or living area requirements for properties. However, dwelling units of any type should have sufficient living area to be acceptable to typical purchasers or tenants in the subject market area. There should be comparables of similar size to the subject property to support the general acceptability of a particular property type.
