Fannie Mae and Freddie Mac recently introduced significant updates to their selling and servicing guides, specifically impacting the way appraisers analyze market areas in their appraisals. These changes, effective for appraisals on loan applications dated on or after Feb. 4, 2025, aim to increase consistency, clarity, and transparency in appraisal reports.
In this blog, we take a closer look at what’s changing and what appraisers need to prepare for.
Key Selling Guide Updates for Appraisers
- Standardized Definitions
Fannie Mae and Freddie Mac have now standardized the definitions of “neighborhood” and “market area.” This addition to the glossary aims to ensure that appraisers, lenders, and other stakeholders are aligned in their understanding of these fundamental appraisal terms.
Neighborhood is defined as “a congruous group of complementary land uses” and market area is “the geographic region, for a subject property, from which most demand comes and in which most of the competition is located.”
- Enhanced Market Area Analysis
The market area analysis requirements have been updated to promote a more detailed and methodical approach. Appraisers are expected to:
Use a 12-month minimum timeframe: When analyzing the overall market trend, appraisers must use a minimum look-back period of 12 months. This will help provide a clearer, data-driven understanding of market conditions.
Distinguish market trends from comparable adjustments: The overall market trend does not always directly translate to adjustments applied to individual comparable sales. Appraisers should report these trends separately to avoid any misunderstanding regarding property-specific values. For a helpful example, see Fannie Mae’s market condition adjustments illustration, which highlights how to differentiate broader market trends from adjustments made to individual comparables.
- Selection of Comparable Sales
Clearer guidelines have been set regarding the selection and adjustments of comparable sales. Appraisers must illustrate the methodology used to determine specific adjustments for changes in market conditions, thereby increasing transparency in the adjustment process.
- Required Market Analysis Support
Appraisers must support their reported market trends with thorough, well-documented analysis. This requirement not only emphasizes the accuracy of appraisal data but also ensures that lenders and other stakeholders can better understand the basis for adjustments.
What These Selling Guide Updates Mean for Appraisers
These selling and servicing guide updates necessitate a more in-depth, standardized approach to market analysis, particularly concerning how appraisers report market conditions adjustments and overall market trends. Appraisers will need to adapt their data collection and analysis methods to meet these heightened expectations, ensuring that all adjustments are supported with robust data.
Appraisers are encouraged to adopt these practices now, even though they are not required until February 2025.
At McKissock, we know that market analysis is a fundamental cornerstone in completing a credible appraisal. Sign up for our Market Disturbances-Market Analysis in Atypical Markets and Cycles course to better understand the need for and requirements to develop a sound market analysis in residential appraisal assignments.
