Here we go again, new requirements for appraisals

Here we go again, new requirements for appraisals 

How does this affect you???  It may take the appraisers a little longer to complete the report as this is a change and there may be questions about how it is to be applied.  It may change the complexion of the loan by creating a higher risk (The borrower has applied for a 95% loan and is preapproved; the property code comes back with a C-5 rating, What is the underwriter going to do??)  

My advice:  Look at these codes, look at your listings and see where you think they fit, even if you think it is between categories, let your sellers know this may affect the sale of their property (by the way, what a great marketing tool to keep your sellers informed and convinced of your expertise).  MOST IMPORTANTLY, when you get that preapproval,ADVISE THELENDER ABOUT THE PROPERTY.  How many times have you been at the end of your contract and the appraisal comes in; now you need a well approval, repairs, septic inspection; WORSE YET, the property does not meet the property standards for the loan program (this Quality Rating code comes under that category.....)  Guys, please remember the lender does not see the property, until well into the loan; WE ARE YOUR PARTNERS, help us, help you. 

Fannie & Freddie Appraisal Quality Rating Codes Explained

On September 1, 2011, Fannie and Freddie are requiring appraisers to include a “Quality Rating Code” on all appraisal reports.  Here’s what they mean for both existing and new construction. 

Existing Property

C-1 – The entire structure is new, never been occupied and has no physical depreciation.

C-2 – Existing home, no deferred maintenance and requires no repairs.  This rating is give if   property is “almost” new or has been totally renovated.

C-3 – Existing home, well maintained but evidence of normal wear and tear.

C-4 – Existing home, minor deferred maintenance and requires only minimal repairs.

C-5 – Existing home, major deferred maintenance and in need of significant repairs but the home is still livable as a residence.

C-6 – Existing home, severe defects that affect safety, soundness and livability.  If property receives this rating, it’s not eligible for conventional loan.

New Construction

Q-1 – Unique home individual designed by an architect for a specific user and details are exceptionally high quality.

Q-2 – Custom designed home built on individual property owner’s land or high-quality tract lots.  Workmanship and materials are high quality.

Q-3 – Built from readily available blue prints in above-standard tract lots or individual’s land. Materials in home are up-graded from standard materials and workmanship exceeds standards.

Q-4 – Standard or modified blue prints.  Materials, workmanship, finish work are stock builder grade and may have some upgrades.

Q-5 – Basic, standard quality, economy homes with limited interior design.  Meets minimum building codes and inexpensive construction, stock materials and limited upgrades.

Q-6 – Low cost and may not be suitable to year-round use.  Low quality and could be built by non-qualified builder with or without plans. May not be able to obtain a convention loan if receives this rating. 

I just wanted you to know the new rating codes in case you need to explain it to your clients. 

Call me if you have any questions.