Freddie Mac and Fannie Mae have an ongoing effort in place to enhance accuracy and quality of loan data. One piece of this effort is to standardize the way properties are characterized during an appraisal. The categories below outline the new standards for documenting the condition of a dwelling during the appraisal process.
Appraisers must now provide one rating and at least one, but no more than two view factors to describe the overall effect on value and marketability of the view associated with the property.
Appraisers must enter the total number of full baths and partial baths above grade by separating the full bath count from the half bath count with a period (.). ie. 3.2 = 3 full baths and 2 half baths above grade.
Appraiser must select one rating that best describes the overall condition of the subject property and each comparable property. In addition, the appraiser must indicate if there has been any material work done to the kitchen or bathrooms in the prior 15 years. Overall condition ratings are summarized below:
|C1||The improvements have been very recently constructed and have not previously been occupied. The entire structure and all components are new.|
|C2||The improvements feature no deferred maintenance, little or no physical depreciation, and require no repairs. Virtually all building components are new or have been recently repaired, refinished or rehabilitated. All outdated components and finishes have been updated and/or replaced with components that meet current standards. Dwellings in this category either are almost new or have been recently renovated and are similar in condition to new construction.|
|C3||The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component, may be updated or recently rehabilitated. The structure has been well maintained.|
|C4||The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained and requires only minimal repairs to building components/mechanical systems and cosmetic repairs. All major building components have been adequately maintained and are functionally adequate.|
|C5||The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains usable and functional as a residence.|
|C6||The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.|
Kitchen and bathroom ratings must also be rated with Not Updated, Updated or Remodeled along with a timeframe in which work was completed.
|Not Updated||Little or no updating or modernization. Description includes, but not limited to new homes. Those over 15 years are also considered not updated if the appliances, fixtures and finishes are predominately dated. An area that is ‘Not Updated’ may still be well maintained and fully functional and does not necessarily imply deterioration.|
|Updated||The area of the home has been modified to meet current market expectations. These modifications are limited in terms of both scope and cost. An updated area of the home should have an improved look and feel or functional utility. Updates do not include significant alterations to the existing structure.|
|Remodeled||Significant finish and/or structural changes have been made that increase utility and appeal through complete replacement and/or expansion. A remodeled area reflects fundamental changes that include multiple alterations for example: replace of cabinets, tile replacement, relocation of plumbing/fixtures/appliances, significant structural alterations (relocating walls and or addition of square footage. This includes complete gutting and rebuild.|
The appraiser must provide one rating and at least one, but not more than two location factors to describe the overall effect on value and marketability of the location factors associated with the property.
Quality of Construction Rating
The appraiser must select one rating that best describes the quality of the property and each comparable property.
|Q1||Dwellings with this rating are usually unique structures that are individually designed by an architect for a specific user. The workmanship, materials and finishes used throughout the dwelling are of exceptionally high quality.|
|Q2||Dwellings with this quality rating are often custom designed for construction on an individual property owner’s site. Dwellings in this rating are also found in high-quality tract developments featuring residences constructed from individual plans or from highly modified or upgraded plans. The workmanship, materials and finishes used throughout the dwelling are generally high or very high quality.|
|Q3||Dwellings in this rating are residences of higher quality built from individual or readily available design plans in above-standard developments or individual property owner’s site. Workmanship exceeds standards and many materials and finishes have been upgraded from “stock” standards.|
|Q4||Dwellings with this rating meet or exceed the requirements of applicable building codes. Standard or modified building plans are utilized. Materials, workmanship, finish and equipment are of stock or builder grade and may feature some upgrades.|
|Q5||Dwellings with this rating feature economy of construction and basic functionality as main considerations. Such dwellings feature a plain design using readily available or basic floor plans. These dwellings meet minimum building codes and are constructed with inexpensive materials with limited refinements and upgrades.|
|Q6||Dwellings with this rating are of basic quality and lower cost; some may not be suitable for year-round occupancy. Such dwellings are often built with simple plans or without plans and utilizing the lowest quality materials. Electrical, plumbing and other mechanical systems and equipment may be minimal or non-existent. Older dwellings may feature one or more standards or non-conforming additions to the original structure.|
An appraisal is an opinion of value at the time the home is reviewed by an appraiser and is typically valid for four months. The condition of the housing market and comparable dwellings that have recently sold can affect how appraisals are rated at any given time.
Michael Ayoub, Author NMLS ID 6631