Comparable Sale Selection Influenced By Fannie MAE?

Appraisers are in total Control of the Comparable Sales Selected - Right? Not Always and this has a direct impact on values. Like it or not this is what Appraisers must deal with when producing Appraisals For Lenders who sell their loans to Fannie Mae.

Some Terms that Appraisers must live by when dealing with Lender/Fannie Mae Appraisals. 

1. Bracketing: Appraisers must Bracket most everything when it comes to Comp Selection. Bracketing means that the comps must be inferior and superior to the Subject when it comes to Square Footage, Sales prices, Bed and Bath Count, Lot Sizes, pretty much everything. Lenders/Fannie Mae want to make sure that the subject is not the BEST or the WORST in the area, therefore Bracketing Was Born. 

The problem is that sometimes the best comps may ALL be inferior or superior to the subject under one or more of the above categories. However, since this is a requirement, Appraisers are forced to select sales that may not be truly comparable to the Subject in order to BRACKET their sales.....this can either drag DOWN or INFLATE values depending upon how these variances are adjusted by the Appraiser....Not good. 

2. Aggregates: Fannie Mae has finally removed this requirement which involves the number of adjustments required in order to bring the sales in line with the Subject. If there are large or many adjustments, Aggregate Percentages will be exceeded. This forced Appraisers to make LOW adjustments when larger ones were really indicated in the market. This process also resulted in UNDER and OVER Valuation of properties. SOME Lenders still look at these numbers and prefer lower Aggregates or Different Comps.  Many Appraisers are Still trying to fly under the Aggregate Radar by not making the size adjustments warranted for variances between them and the Subject in order to avoid the Lender Asking for other comps to be considered and used. 

** Ideally the fewer the adjustments to sales, the more comparable they should be to the Subject and thus resulting in lower Aggregates. But this is NOT always the case. There may be a perfect comp but it is smaller or larger than the subject and that is the only variance. I would rather take this comp and make that square footage adjustment than to select one outside of the Subject area just to keep the Aggregates LOW. 

3. Location and Distance: Ideally Comps should be within the same market location as the subject as well as in the same School Districts. The whole idea is to choose sales that buyers would consider good REPLACEMENTS for the Subject.Would they consider this sale in place of the Subject...Yes or No?

 Fannie Mae and Lenders have this unrealistic Goal of keeping Sales within 1 MILE of the Subject. In our area, this is completely unrealistic. Good comps may be miles away from the subject. Fannie MAE does not want Appraisers to CROSS over Major Roads or Highways to get comps. We all know major Roads or Highways are crossed all the time including School District Locations. So what may happen is Appraisers will try to find comps within 1 mile of the subject YET they may not be as comparable as one a few miles away! Again in an effort to fly under the Distance/Location Radar.  A Good Appraiser will use the BEST comps and explain in detail why they are the best. Others do not want to deal with this hassle and use closer sales that are  not as comparable. 

4. Bed & Bath Count: This bears repeating under the Bracketing Category especially if YOU have a listing involving this situation. 

Fannie Mae and Lenders want to make sure that Appraisers BRACKET BED and BATH count. What about those unique situations where you have a good quality ranch over a finished basement and there is only 1 bedroom and 1 or 1/2 baths on the main floor but the terrace level has 2 to 3 more bedrooms and 1-2 more baths? This happens frequently with Lake Homes, but off Lake, it becomes very difficult to find at least one Comparable (which is required) with this same set up. This does not mean they do not exist, but they may not have sold recently or have not sold in the same neighborhood as the subject. 

IF Appraisers try to use a comp with the same bed and bath count, typically they have sold for far less than the Subject as they are NOT comparable except for the same Bed and Bath count. Appraisers have to EXPLAIN this in detail in order to be accepted by the Lender. This one sale may bring the total value for the Subject Down, UNLESS they can justify giving this comp far less weight in the report. A Good Appraiser can do this effectively. 

It is up to the UNDERWRITER as to whether they will accept the Appraiser's explanation or Lack of providing at least one sale that has same bed and bath count.  

Realtors when you list such a property be prepared to come up with at least ONE Sale with the same set up that you feel is comparable and provide this to the Appraiser if given the change come contract time or place it in the home with your Packet of information for the Appraiser. 

As always we so appreciate all the referrals you have sent our way for your Pre-Listing and Pre-Sale Appraisals. The value of such a report has proven to be invaluable to Realtors, Buyers and Sellers alike!