Understanding Appraisal Condition Ratings (C1 to C6)

Understanding Appraisal Condition Ratings (C1 to C6)

As part of the Uniform Appraisal Dataset (UAD), Freddie Mac and Fannie Mae require appraisers to rate the property condition on a standardized scale. Whether you’re a new or experienced appraiser, it’s a good idea to refresh your knowledge of the standard appraisal condition ratings to promote accuracy and consistency in your appraisal reports. Here’s an overview of the UAD condition ratings (from C1 to C6) and some guidelines on how to assign them.

Defining appraisal condition ratings

Appraisal condition ratings, also known as UAD condition ratings or property condition ratings, are the standardized rating system (from C1 to C6) an appraiser must use to provide the GSEs with information about the condition of the property improvements. The ratings are used to identify the overall condition of improvements for the subject property and also the comparable sales. In other words, the appraiser must take a “holistic view” of the property improvements.

For appraisals that are required to be completed with the UAD, appraisers must assign both a property condition rating (C1 to C6) and a quality of construction rating (Q1 to Q6). Additionally, as a subset of the appraisal condition ratings, appraisers must identify the level of updating. (More on that below.)

Breaking down the UAD condition ratings

The following are our translations of the individual UAD condition ratings. We recommend also verifying the specific definitions and additional notes provided by Freddie Mac and Fannie Mae.¹

Property Condition C1

C1 homes show no signs of physical wear and tear. The property improvements are new or nearly new, with no prior occupancy. The entire structure, along with its major and minor components, is in excellent condition.

Newly built improvements using recycled materials or components can be considered new as long as the home is on a 100% new foundation, the recycled materials and parts have been re-manufactured into like-new condition, and there is no notable physical depreciation.

Property Condition C2

C2 homes are either nearly new or have recently been completely renovated, resembling new construction in condition. The enhancements exhibit no deferred maintenance, minimal physical depreciation, and need no repairs. Nearly all building components are either new or recently repaired, refinished, or rehabbed. Outdated components and finishes have been replaced with ones meeting current standards.

Property Condition C3

A C3 home has been generally well-maintained, and it’s in its first cycle of replacing short-lived building components (e.g., appliances, HVAC, floor coverings). The improvements are well-kept, showing minimal physical depreciation from regular wear and tear. While some components—though not all major building elements—might be updated or recently rehabbed, the structure has not undergone a complete renovation.

Property Condition C4

A C4 home is an adequately maintained property. The property improvements show slight deferred maintenance and minor physical decline from regular wear and tear. The home has been fairly well-kept and needs only cosmetic or minor repairs. All of the major systems and building components are in decent condition and still function adequately, needing only minimal repairs. Some of the appliances, floor coverings, etc. are near the end of their life expectancy but still function properly.

Property Condition C5

A C5 home has not been adequately maintained but is functional and does not have any significant safety concerns. The enhancements show noticeable deferred maintenance and need substantial repairs. Certain building components require repairs, rehab, or updates. While the functional utility and overall livability are somewhat diminished, the structure remains usable and functional as a residential dwelling. Many of the short-lived building components are at the end of or past their life expectancy.

Property Condition C6

A C6 home is poorly maintained. The improvements suffer from significant damage or deferred maintenance, with defects severe enough to impact safety, soundness, or structural integrity. Substantial repairs and rehab are required, encompassing many or most major building components.

Whereas normally it would be inappropriate to assign either a lower or higher overall rating based on one or two minor inferior or superior areas of the property improvements, the C6 rating is an exception. If any part of the dwelling is rated a C6, then the entire thing must be rated a C6.

What happens if a property is rated C5 or C6?

Fannie Mae and Freddie Mac have specific eligibility requirements regarding which properties they will purchase or securitize.

Properties rated C6 are not eligible for sale to Fannie Mae. The appraisal will need to be completed “subject to” the repair of any deficiencies impacting impact safety, soundness, or structural integrity. The repairs must result in a condition rating of C5 or higher prior to delivery of the loan.¹

Properties rated C5 or C6 are not eligible for sale to Freddie Mac. The appraisal will need to be completed “subject to” repairs resulting in a minimum condition rating of C4 prior to delivery of the loan.2

Properties with eligible UAD condition ratings (e.g., C1, C2, C3, C4) can be appraised based on the “as is” condition of the property.

Breaking down the levels of updating

As previously mentioned, along with assigning a property condition rating, the appraiser must also identify the level of updating. This applies to any appraisals that are required to be completed with the UAD. Unlike the condition ratings, the levels of updating can describe specific areas of the home vs. the entire dwelling as a whole.

Below is an overview of the three levels of updating: not updated, updated, and remodeled. Again, these are our interpretations of the individual levels. We recommend also verifying the definitions provided by Freddie Mac and Fannie Mae.¹

Not Updated

This describes homes with little or no updating, including but not limited to new homes. Homes aged fifteen years or less are typically close to original condition without any updates. Homes over 15 years old are deemed not updated if the fixtures, appliances, and finishes are mostly out of style.

Note that an area labeled ‘Not Updated’ may still be well-kept and fully functional. This level does not necessarily indicate deferred maintenance or disrepair.

Updated

The area of the home has been altered to align with current market standards, with modifications constrained in both scope and cost. An upgraded section of the home should exhibit an enhanced appearance, feel, or functionality. Changes that are considered updates include refurbishing or replacing components to meet current market expectations, but exclude significant alterations to the existing structure.

Remodeled

A remodeled area exhibits fundamental changes, encompassing multiple alterations. Significant finish or structural modifications have been made that enhance utility and attractiveness, involving complete replacement or expansion. Alterations may include replacing major components (e.g., cabinets, bathtub, or bathroom tile), relocating plumbing fixtures and appliances, and making structural alterations (e.g., moving walls or adding square footage). This includes homes that have undergone a complete gut rehab.

Gain added insight into appraisal condition ratings and more with McKissock membership

With McKissock Unlimited Learning Membership, you can access unlimited appraisal CE courses, including Residential Construction and the Appraiser and GSE Appraisal Requirements and Guidelines. You also get access to Pro-Series Webinars, specialty skills training, and niche certification programs. Join today to get started, or contact us to learn more.

Resources

  1. B4-1.3-06, Property Condition and Quality of Construction of the Improvements (03/01/2023). Fannie Mae Selling Guide. (fanniemae.com)
  2. Appraisal Report and Property Eligibility FAQ. (freddiemac.com)