Fannie Mae and Freddie Mac Desktop Appraisals: Your Questions Answered

Real estate appraiser sitting at desktop computer, woman working from home on Fannie Mae and Freddie Mac desktop appraisal assignment

In January 2022, Fannie Mae and Freddie Mac announced a desktop appraisal option that goes live in mid-March 2022. In various articles and opinion pieces, some claim that desktop appraisals will solve the appraiser shortage and modernize the appraisal process, while others claim that they will cause the demise of the appraisal profession. McKissock does not endorse any position regarding whether appraisers should accept or reject desktop appraisal assignments. Our goal here is to provide insight into Fannie Mae and Freddie Mac desktop appraisals so that you can make an informed decision regarding acceptance or rejection.

Updated CE course! Enroll in Best Practices for Bifurcated and Hybrid Appraisals—now updated with Fannie Mae’s and Freddie Mac’s guidelines on how to complete the 1004 Desktop/70D appraisal form.

Below, you’ll find answers to the following questions covering what you need to know about Fannie Mae and Freddie Mac desktop appraisals:

  • What is a desktop appraisal?
  • Does USPAP require me to complete an inspection?
  • What data sources are used for identifying the subject’s relevant characteristics?
  • Are there any state restrictions?
  • Must I be competent in the subject’s market area?
  • Are extraordinary assumptions allowed?
  • Does the limited scope of work mitigate my liability?
  • Won’t these types of valuations be risky for the lender?
  • What is the difference between a sketch and a floor plan?
  • How do I get a floor plan?
  • Does the floor plan need to be verified?
  • Does the property need to be measured per ANSI measurement standards per Fannie Mae’s requirements?
  • Are the COVID-19 flexibilities to use data provided from interested parties still allowed?
  • What is the data source disclosure on the 1004 Desktop/70 D form?
  • Are there any time or cost savings associated with desktop appraisals?

What is a desktop appraisal?

Fannie Mae and Freddie Mac define a desktop appraisal as “an appraisal assignment for which the scope of work does not include field work by the appraiser and does not include reviewing a recent interior/exterior property data report.” An appraiser may be able to conduct a virtual inspection remotely; however, this would still be considered a desktop appraisal.

Does USPAP require me to complete an inspection?

USPAP does not require an appraiser to perform an inspection of a property as part of the appraisal process. However, USPAP does state that the appraiser is responsible for determining if the scope of work is too limited thereby affecting the overall credibility of the appraisal.

What data sources are used for identifying the subject’s relevant characteristics?

The appraiser may use secondary data sources including public records, MLS, internet, prior appraisals, building permits, satellite imagery, etc. Data regarding the property’s characteristics may be gathered from a variety of data sources, including interested third parties such as the homeowner, builder, or the buyer/seller agent.

Below is the 1004 Desktop/70D’s modified Statement of Assumptions and Limiting Conditions. It is important to note that the appraiser must include a floor plan (not a sketch), and it states that the appraiser has relied only on data that he or she considers reliable.

Are there any state restrictions?

A State Appraiser Regulatory Agency or Board may adopt standards that are more stringent than USPAP. While a state may not prohibit the use of a desktop appraisal, the state may restrict who can perform appraisal services and define what is considered appraisal practice. If property data is being gathered by a non-appraiser professional, the state may have restrictions, requirements, or constraints about who can gather property data and what type of data they can gather (opinion-based vs. factual) about the subject property. This pertains primarily to when property data is gathered by a non-appraisal professional engaged by the lender or AMC and shared with the appraiser for completing the desktop appraisal. It is critical that an appraiser is familiar with his/her state’s requirements and/or constraints pertaining to appraisal practice.

Must I be competent in the subject’s market area?

Fannie and Freddie do not allow the flexibilities available in USPAP for the appraiser to gain knowledge and experience. The appraiser must already be competent to complete the desktop appraisal assignment.This includes familiarity with the subject’s market area.

Furthermore, Freddie Mac states in their Desktop Appraisal FAQ document that “if the appraiser has not performed prior appraisal services in the area in which the subject property is located, the appraiser may not complete the assignment. This requirement applies to all appraisals performed on loans sold to Freddie Mac.”

Are extraordinary assumptions allowed?

Freddie Mac and Fannie Mae do not permit extraordinary assumptions about the reliability of information provided by other sources for desktop appraisals. Per Fannie Mae, an extraordinary assumption is not required as appraisers must have data sources that they consider reliable. The assumption that data sources may not be accurate is not considered an extraordinary assumption.

Instead, the Statement of Assumptions and Limiting Conditions #3 on the 1004 Desktop/70 D appraisal form states that “the appraiser makes no guarantees, express or implied, regarding the accuracy of this data.” Be aware that the appraiser must have a reasonable basis for relying on the data from third-party sources. Nevertheless, this does not obligate an appraiser to verify every piece of data provided by third parties, as this statement also indicates that the appraiser assumes there are not any material omissions and makes no guarantee of the accuracy of the data.

Does the limited scope of work mitigate my liability?

It is important to note that the appraiser must, at a minimum, obtain and review adequate and reliable information for the subject property. As with any limited scope appraisal, a desktop appraisal assignment does not suspend the appraiser’s responsibility of determining if the scope of work is sufficient for producing credible appraisal results. Accordingly, the appraiser must determine if the limited scope of work yields reliable data of the real property’s relevant characteristics regardless of any authorized flexibility offered by any agencies or GSEs.

Based on the pre-printed scope of work below, the appraiser needs to find the data and public sources depended on to be not only reliable, but also adequate. Additionally, note that in these Fannie Mae and Freddie Mac desktop appraisals, the appraiser does not visit the neighborhood or observe the comparable sales from the street.

Won’t these types of valuations be risky for the lender?

Currently, the transactions eligible for the Fannie Mae/Freddie Mac desktop appraisal option is somewhat limited. The loan must be for a purchase transaction, with the loan-to-value (LTV) ratio less than or equal to 90%, and the loan is secured by a one-unit principal residence. Second homes, condos, manufactured homes, two-to-four-unit properties and more are not eligible. As the desktop option is limited to purchase transactions, there is likely to be more data available to the appraiser, such as MLS information, interior photos, and a seller’s property disclosure statement, than would be available in other non-purchase transactions.

What is the difference between a sketch and a floor plan?

Freddie Mac states in their Desktop Appraisal FAQ that “the floor plan is an interior detail of the dwelling’s layout. By including interior walls, the floor plan shows the relationship between rooms and reflects interior flow. Windows, doors, bath fixtures, appliances, and the like do not need to be included on the floor plan, unless their location affects the appeal, marketability, or value of the property.”

How do I get a floor plan?

A floor plan may be forwarded to the appraiser from the lender. The lender may have received a floor plan from the selling agent, a builder, the homeowner, or another source. Sometimes, MLS includes 3-D imagery including a floor plan created from this technology, or the selling agent simply uploads a floor plan as a document in the MLS listing.

A remote virtual inspection may be completed by the appraiser by working with the homeowner, the selling real estate agent, or a third-party professional. This practice gained acceptance by many during the months of COVID-19 social distancing, its advantages became known, and it is likely to become more widely accepted in the foreseeable future. Virtual inspections can be managed through virtual meeting technology such as Zoom, Skype, Teams, or through a variety of smartphone apps and technology including RemoteVal, INvision, FaceTime, and more.

Does the floor plan need to be verified?

If the floor plan comes from the listing real estate agent, the homeowner, or other interested parties, the appraiser will need to decide if the floor plan comes from a reliable source or may have to take steps to verify the reliability of the floor plan herself.

One possible way of verifying the floor plan is through a remote virtual inspection. Another possible verification technique is to compare the floor plan provided to another source such as the subject’s model floor plan on the subdivision’s website. An appraiser may also use a combination of public sources available to determine if the floor plan provided appears reasonable.

For example, the MLS listing may include a 360-degree video of the home’s interior, and the appraiser can virtually walk through the home and confirm the floor plan’s layout is consistent with the video. Some lenders and AMCs will work with a third-party data collector or technology company that will visually capture the details of a property, including interactive interior and exterior tours of the subject property and a floor plan.

Does the property need to be measured per ANSI measurement standards per Fannie Mae’s requirements?

Appraisers must follow the Square Footage-Method for Calculating ANSI® Z765-2021 only for appraisals requiring interior and exterior inspections by the appraiser. Thus, the ANSI standard is not required for desktop appraisals.

Are the COVID-19 flexibilities to use data provided from interested parties still allowed?

Fannie/Freddie intentionally removed Certification #10 when allowing temporary appraisal flexibilities due to the COVID-19 pandemic. This flexibility is no longer allowed, and Certification #10 was restored on the 1004 Desktop/70 D form. This certification obligates the appraiser to verify “from a disinterested source, all information in this report that was provided by parties who have a financial interest in the sale or financing of the subject property.”

What is the data source disclosure on the 1004 Desktop/70D form?

The new 1004 Desktop/70D forms require the appraiser to include specific information in the four fields located at the top of the Additional Comments Section on Page 3 of the appraisal report. The appraiser is indicating the data source used, and whether the appraiser has performed a prior appraisal on the subject property and is using that information to complete the desktop assignment or has not completed a prior appraisal on the subject property and is relying on information from other sources (e.g., tax data, MLS, data cooperatives, etc.).

Are there any time or cost savings associated with Fannie Mae and Freddie Mac desktop appraisals?

To determine if there are any time or cost savings associated with a desktop appraisal, an appraiser should realistically consider the time spent on the inspection process of a traditional full appraisal and compare it to the time that will be needed to verify data about the subject property gathered from other sources.

The complexity of the assignment and the availability and reliability of the data must all be considered when deciding whether to accept or complete a desktop appraisal assignment. For some appraisers, desktop appraisal services may be a convenient and advantageous product to include in a lineup of appraisal services. For others, desktop appraisals may not be a viable option.

Learn more in our online course, Best Practices for Bifurcated and Hybrid Appraisals—now updated with Fannie Mae’s and Freddie Mac’s guidelines on how to complete the 1004 Desktop/70D appraisal form.

Written by Jo Traut. Jo A. Traut is the Curriculum Program Director, Appraisal at McKissock Learning. She is a real estate appraisal and valuation compliance professional with 25 years experience in residential appraising, operations management, risk analysis, quality assurance, and appraisal regulations. Jo is an AQB Certified USPAP Instructor and holds the CDEI accreditation.

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