Freddie Mac (Federal Home Loan Mortgage Corporation) has rather strict appraisal requirements, most importantly, regarding the independence and expertise of approved appraisers. Creating accurate property appraisals is challenging whenever the real estate market is in flux, whether it's heating up or cooling down. Establishing an appropriate fair market value depends on comparing recent (usually within six months) sales of similar homes in the same neighborhood. Becoming familiar with Freddie Mac appraisal standards helps you become a more knowledgeable buyer or seller.
Appraiser Independence Requirements
Since the real estate "meltdown" of 2007, all major secondary mortgage market buyers, including Freddie Mac, have tightened their rules mandating that certified appraisers must be independent third parties to home sales. AIR apply to all single-family and two- to four-unit home appraisals originated after October 15, 2010. All appraisers must be certified and licensed by the state in which the home exists to complete Freddie Mac appraisals. Appraisers hired by lenders must be "appropriately trained and qualified" to generate reasonable appraisals, according to the Freddie Mac website.
Appraisers Not Selected by Lenders
Mortgage lenders cannot accept appraisers chosen by mortgage brokers or real estate agents, regardless of their training and experience. According to the Freddie Mac website, their appraisal requirements no longer permit appraisals from professionals "selected, retained or compensated" by a mortgage or real estate broker. This Freddie Mac appraisal requirement is intended to further ensure the independence, objectivity and accuracy of the real estate appraisal.
Appraisers must adhere to the Uniform Standards of Professional Appraisal Practice. Lenders must give appraisers the sales contract, if a purchase, terms of the financing requested, information about any monetary concessions outside of the contract terms and any additional lender requirements. Lender staff must be properly trained to analyze the appraisal to ensure the appraiser's opinion justifies the value stated. For example, all adjustments for the three or more comparable sales must be logical and reasonable.
Comparable Sales Data
Appraisals should include appropriate comparables. Appraisers must certify that these comparables are the most similar recent home sales to the subject property. The number and amount of all adjustments must be supported and reasonable. Should adjustments be high or the number of adjustments appear excessive, Freddie Mac may question the propriety of the comparable homes. The burden is on the appraiser to certify that the comparables used are the most similar homes sold in the immediate area.
Lenders must monitor and determine the accuracy of appraisals for Freddie Mac. It is strongly recommended that lenders follow Freddie Mac's best practices guidelines to ensure appraisal accuracy. Freddie Mac recommends using respected automated valuation models, such as Home Value Explorer, Home Value Calibrator or other similar valuation tools to support the accuracy of appraisals. Lenders must have procedures to address any indications that suggest a home's valuation is in question. Lenders are permitted to order a second appraisal when questions about valuation appear.
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