Freddie Mac addresses appraisal issues in bulletin to servicers

By: Dennis Norman

Appraisals continue to be in the spotlight.  Investors, builders and other sellers are complaining of losing sales due to low appraisals and often cite HVCC (Home Valuation Code of Conduct) or AMC (appraisal management companies) as the problem.  One common complaint is that appraisers are being assigned to do appraisals on transactions in a market they are not familiar with.

Freddie Mac recently issued a bulletin addressing, among other things, appraisal issues.  The bulletin states “Freddie Mac recognizes the challenges that current market conditions pose in connection with determining accurate property values”.  It goes on to say “Due to current market conditions, with this Bulletin we are reminding Sellers (sellers of loans to Freddie Mac) of certain existing appraisal requirements.  We are also providing additional best practices….to assist sellers in their determination of whether the collateral value is accurate.”

Below are some highlights from the bulletin:

• Appraisers must be certified or licensed in the State in which the property is located, and must be eligible to perform appraisal in that State
• Appraisers must be familiar with the local market in which the property is located, must be competent to appraise the subject property type, and must have access to the data sources needed to develop a credible appraisal.
• The appraiser’s opinion of value must reflect the value of the subject property without concessions.  The appraiser must take concessions into account for both the subject property, and the comparable sales.  The appraiser must make market-based adjustments to the comparable sales to determine the price the purchaser would have paid for the property without the concessions.
• The appraiser’s selection of comparable sales is crucial to providing an accurate opinion of value based on market data.  With respect to comparable sales, the appraiser must choose appropriate comparable sales, and certify that the comparable sales chosen are those most similar to the subject property.   Freddie Mac does not have requirements about what comparable sales the appraiser is to use.  For example, we do not require appraisers to use Real Estate Owned (REO), foreclosure or short sales.  However, if the appraiser determines that these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use.

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