Dispelling 5 Common FNMA Appraisal Review Myths

Posted by: JoAnn Apostol, Lead Appraisal Instructor
Updated: January 15, 2019

As appraisers, we often get revisions from clients requesting some of the oddest changes. With Fannie Mae (FNMA) guidelines changing frequently over the last few years, are some of these revisions reasonable, necessary, or reflective of the assignment conditions for the appraiser?

Myth 1: You must have 3 closed sales in the last 12 months.

Fact: The appraiser is responsible for determining which comparable sales are the best and most appropriate. The FNMA Selling Guide says that closed sales within the last 12 months SHOULD be used. However, the best and most appropriate sales may not always be the most recent. (B4-1.3-08)

Myth 2: Sales over 12 months are never appropriate to use in the grid.

Fact: Older comparable sales that are the best indicator can be used if appropriate. Older sales should be accompanied by an explanation on why these are the most appropriate, and any changes in market conditions should be accounted for by the appraiser. In April 2014, FNMA removed the requirement for an explanation of sales older than six months. (Sel14-03) (B4-1.3-08)

Myth 3: Adjustments shouldn’t exceed 10% per line item, 15% net adjustments, 25% gross adjustments.

Fact: FNMA did eliminate these guidelines in late 2014. However, the amount and direction of adjustments can still be a factor in determining which comparables are most similar. Once adjustment percentages get very large, the appraiser should determine if the sale used is truly comparable. The amount of the adjustments is not the only reason to eliminate a comparable sale.

Myth 4: A suburban area is where comparables are all located within one mile of the subject property, and all comparables have to be within a mile of the subject.

Fact: FNMA also removed the “one mile” language from their guidelines in late 2014. A suburb is defined as a residential district located on the outskirts of a city. In suburban areas, most residents travel to the city for work. Some local amenities may be available, but most amenities are located in the city.

Myth 5: The subject should never be used as a comparable.

Fact: A prior, recent sale of the subject may be very good market evidence. Neither FNMA nor FHA allows the use in the first three closed sales, but it can be used as sale four, five, or six. The appraiser should determine if the prior subject sale sold at a reasonable market price with all factors that meet the market value definition, and make appropriate adjustments for changes in market conditions, if the conditions warrant an adjustment.