What REALTORS ® Need to Know about the - Northern Michigan

What REALTORS ®

Need to Know about the

Uniform Appraisal Dataset from

Fannie Mae & Freddie Mac

Part 4 – 2 HMG, LLC © | The Uniform Appraisal Dataset from Fannie Mae and Freddie Mac

For Further Information on Additional UAD Webinar Education

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About the Developers & Instructors

Richard Heyn, SRA and Dawn Molitor-Gennrich, SRA are the webinar's

developers and instructors. Both Rich and Dawn are AQB Certified USPAP

instructors and Certified Distance Education Instructors. Dawn is a former

member of the Appraisal Standards Board.

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to:

□ constitute an absolute solution to similar types of problems

encountered by real estate professionals. The presentation merely

provides guidance.

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attorney. If legal assistance is necessary, please consult your

personal attorney or other competent legal counsel.

Copyright © 2011 by Heyn, Molitor-Gennrich, LLC, Baroda, MI. All rights reserved.

HMG, LLC © | The Uniform Appraisal Dataset from Fannie Mae and Freddie Mac Part 4 – 3

Introduction

I. The GSEs and Loan Origination

Prior to September of 2011, Fannie Mae and Freddie Mac, also known as the GSEs (for

Government Sponsored Enterprises) received almost no information about the subject property

before they purchased a loan. They relied on a lender to represent and warrant that if the

lender sold a loan to either entity, everything in the loan file from the loan application to the

credit report and on to the appraisal report would be consistent with the requirements outlined

in their respective Selling Guides.

If the loan defaulted, or “turned nonperforming” the GSE would then take a hard look at the loan

file to see if the lender had complied with GSE requirements. If not, they would force the lender

to repurchase the loan. Unfortunately for the GSEs and taxpayers, these policies were

ineffective during times of high levels of defaults.

Realizing that voluntary lender compliance was ineffective, Fannie Mae and Freddie Mac, in

2009, began laying the foundation for a new lending initiative called the Uniform Mortgage Data

Program, or UMDP. This new program would require lenders to electronically deliver loan

documents and appraisal reports prior to the GSEs purchasing the loan from the lender.

Subjecting the loan file to an automated review gives the GSEs the ability to either decline the

purchase or require the lender or appraiser to correct deficiencies prior to acceptance.

Reviewing an appraisal prior to or at the time of purchase may seem like an obvious element in

risk management, but as stated earlier, the GSEs have historically relied on the lender’s ability

to properly underwrite the loan and the lender’s signed representations and warranties, or

“reps and warrants.” Given the volume of loans processed by the GSEs, delays caused by the

simple logistical issues of getting a copy of the appraisal report and reviewing it prior to

purchase were considered too time consuming, therefore, unacceptable. Consequently, the

Uniform Mortgage Data Program instituted two elements to facilitate the electronic review of

appraisals – the Uniform Appraisal Dataset and the Uniform Collateral Data Portal.

II. The UMDP, UAD, and UCDP

The Uniform Mortgage Data Program (UMDP) initiative has a number of components that are

referred to by using different acronyms, so first let’s sort out the “alphabet soup” and then focus

on the two components that have the most significant ramifications regarding appraisal reports.

The general “umbrella” that covers the initiative is known as the Uniform Mortgage Data

Program, or UMDP. Under the UMDP are two requirements that specifically deal with the

appraisal report: the Uniform Appraisal Dataset (UAD) and the Uniform Collateral Data Portal

(UCDP). The objective of the Uniform Appraisal Dataset is to bring more standardization and

uniformity to the data reported by appraisers. The Uniform Collateral Data Portal is the


“electronic mailbox” that allows the GSEs to receive the appraisal reports transmitted to them

by lenders.

In addition to Fannie Mae and Freddie Mac, two other government agencies– the Federal

Housing Administration (FHA) and Veteran’s Administration (VA) require appraisers to submit

their appraisal reports using the standardized responses of the UAD, although FHA and VA do

not use the UCDP. Consequently, the overwhelming majority of appraisal reports are not

written in the new “language” of the UAD.

III. The Uniform Collateral Data Portal

The Uniform Collateral Data Portal is a means of electronically collecting the appraisal report

data, but it requires a standardized data file format. Once in this format the lender can deliver

to the Enterprises the appraisal report data electronically through the UCDP prior to loan

delivery. So the lender will provide the GSEs a PDF version of the appraisal report and an

electronic version of the appraisal report using a standardized data file format through a

uniform portal. This will allow the GSEs to ensure that the appraisal report "passes" the Rules

Set, which includes the Guide requirements for completeness and standardized responses.

IV. The Uniform Appraisal Dataset

Essentially, the UAD is a series of common appraisal data definitions and standardized

responses that must be used in UAD-complaint appraisal report forms. In the words of the

GSEs, the objective is “to enhance data quality and promote consistency in appraisal data.” In

layperson’s terms, it simply means that if a computer is going to “read” the report, the

responses must be from a list of items that the computer can understand. For example, prior to

the UAD, if an appraiser were reporting on a property that had a view of a golf course, he or she

might state “Golf Course” or “Fairway” in the data field for View. Under UAD requirements,

however, appraisers now pick from a defined list in their forms preparation software that has a

line item for Golf Course view. When the report prints to PDF or to paper, “Glfvw” appears on

the report.

In addition to dozens of new abbreviations and acronyms that appraisers must use, the GSEs

implemented new rating systems for condition and quality. These new rating systems are of

particular interest to REALTORS ® as loans involving properties with certain ratings are

ineligible for delivery to the GSEs.

For ease of adoption for lenders, vendors and appraisers the GSEs did not making significant

changes to the actual appraisal report forms. Instead, the primary focus is on developing clear

appraisal definitions (datasets) that will produce standardized responses to key data fields in

the report. These data fields are the ones that the GSEs have determined to be material to

understanding the value and for which the data, in their opinion, had previously been

insufficient.


A. The four UAD-Compliant Appraisal Report Forms

The only forms to which the uniform dataset applies are:

� Uniform Residential Appraisal Report (Form 1004/70) and Exterior-Only Inspection

Residential Appraisal Report (Form 2055/2055)

� Individual Condominium Unit Appraisal Report (Form 1073/465) and Exterior-

Only Inspection Individual Condominium Unit Appraisal Report (Form 1075/466)

The GSEs will also accept other appraisal report forms completed using the uniform dataset

standards, where applicable. In other words, if an appraiser uses the standardized

responses on GSE report forms other than the ones identified above it will be acceptable to

the GSEs.

V. UAD Specifications Guide and Other UAD Resources

The Uniform Appraisal Dataset Specification: Appendix D was released by the GSEs on December

16, 2010. While not published specifically or exclusively for appraisers, it serves as a guide for

appraisers wanting to comply with the UAD. It is an essential document for REALTORS ® who

want to be able to “decipher” the cryptic abbreviations now found in appraisal reports and

properly understand the condition and quality ratings. The URL for this publication at the time

this handbook was developed is:

https://www.efanniemae.com/sf/lqi/umdp/pdf/uadappendixdfieldreqs.pdf

The GSEs occasionally distribute FAQs on the UAD and UMDP. These can be obtained by

visiting Fannie Mae’s webite at:

www.efanniemae.com

At the homepage, click on “appraisers” and when the next page appears, click on “UAD Page”

which will take you to a page with a number of UAD resources, including any recent FAQs.


VI. Significant URAR Data Fields

This handout reviews significant data fields in the order that they appear on the appraisal

report, using the URAR form as the example. Not every data field is addressed, only those

pertinent to REALTORS®.

A. Contract section

The UAD calls for the appraiser to identify the “sale type” using a predefined list created by the

GSEs. This requirement applies to the comparables as well, so don’t be surprised if you receive

more calls or emails from appraisers than occurred in the past regarding the circumstances

behind the sale, for example an appraiser may ask if the transaction is a short sale, and what

were the short-sale processing fees.

Fannie Mae’s and Freddie Mac’s guidelines require a lender to provide the appraiser with a

copy of the sales contract in a purchase transaction. The guidelines clearly state that “the

lender must provide the appraiser with a copy of the complete, ratified sales contract and all

addenda for the property that is to be appraised…” Additionally, it is considered unacceptable

practice for an appraiser to fail to analyze and report on the sales contract. While these

requirements have been in effect for some time, it was difficult for the GSEs to enforce it prior to

the existence of UCDP.

While GSE guidelines specifically address the lender, any party to the transaction can provide

the sales contract to the appraiser; it does not have to be only the lender or the lender’s agent.

If the appraiser is not supplied with a copy of the contract and checks the “did not analyze”

checkbox, the UCDP will notify the lender of a “hard stop” and the lender will have to put the

transaction on hold until the appraiser is supplied with and reviews the contract. The file will

then need to be resubmitted to the UCDP.

The obvious point here for REALTORS ® is to simply make sure the appraiser has received a

copy of the sales contract to avoid UCDP problems that will delay the timely processing of the

transaction.


B. Site section

1. View - Requirement

The data field for “View” is a good example of what the GSEs refer to as a

“repurposed” data field – i.e., a data field that has been assigned new and additional

functions by the GSEs. The way that appraisers respond to this data field is a two-

step process.

a. Step 1: Overall View Rating

The first step is for the appraiser to rate the view to describe the overall effect

on value and marketability. Only one selection is allowed.

b. Step 2: View Factor

In the second step of the process the appraiser reports the “View Factor” from a

list of GSE approved, abbreviated entries. At least one, but not more than two,

view factors can be selected. If the property has more than two view factors, the

appraiser can include additional description in the comments of the Site Section

or on an addendum.


� Other. If a view factor not on the list materially affects the value of the

subject property, the appraiser can enter a description of the view factor

associated with the property in the allowed space under “View.” The

description will print on the appraisal report (the word “Other” will not).

c. Competing views

Properties that have both “Beneficial” and “Adverse” views are not reported as

“Neutral.” A good view and a bad view, per the GSEs, do not “offset” or

“neutralize” each other. The word “neutral” in this context means a view that is

neither beneficial nor adverse regarding the value and marketability of the

property. Basically, a “neutral” view has no effect on the value. Therefore, if the

appraiser reported the view as “neutral” it would be considered misleading.

The appraiser is to report which of the view factors would be most influential,

given the market are and price range. The design of the dwelling and manner in

which it's oriented on the site will likely be a factor. If the design and

orientation take advantage of the beneficial view and minimize the adverse

view, it is likely that the good view will a greater influence on the value.

Likewise, if the design and orientation emphasize the adverse view it will likely

affect the value negatively.


C. Improvement section

The GSEs have instituted some significant new requirements regarding the data field for

property condition. The new requirements call for a rating system wherein you select an overall

condition rating of “C1” through “C6.” As stated earlier, this new rating system is important to

REALTORS® because properties with condition ratings of C5 or C6 are may be considered to be

unacceptable by the GSEs.

1. Labeling condition – Is it relative or absolute?

It is important to understand the perspective from which to view the condition of the subject

property – relative or absolute.

Illustration: Is condition relative or absolute?

Question: Does the condition of other neighborhood properties affect how an

appraiser should report the condition of the subject property?

Suppose the subject dwelling has a worn-out roof, but most of the other neighborhood

properties have worn out roofs as well. Should the “condition” of the subject, therefore,

be reported differently than if the other homes in the neighborhood mostly had roofs

in good condition?

Answer: No. A property’s condition is not somehow elevated from poor to average just

because it’s surrounded by homes that are in similar condition.

2. Condition Rating Definitions: C1 through C6

C1 Rating

The improvements have been very recently constructed and have not

previously been occupied. The entire structure and all components are new

and the dwelling features no physical depreciation.* (Bold added for

emphasis.)

*Note: Newly constructed improvements that feature recycled materials and/or

components can be considered new dwellings provided that the dwelling is

placed on a 100% new foundation and the recycled materials and the recycled


components have been rehabilitated/re-manufactured into like-new condition.

Recently constructed improvements that have not been previously occupied are

not considered “new” if they have any significant physical depreciation (i.e.,

newly constructed dwellings that have been vacant for an extended period of

time without adequate maintenance or upkeep).

The key words in the definition are “recently constructed,” “not previously occupied,” “new,”

and “no physical depreciation.” This rating is for improvements where all the components are

new (including the substructure and superstructure) and have suffered no physical

deterioration.

The definition allows for the use of recycled materials and components in “like-new” condition.

However, a C1 improvement must have a new foundation (substructure); otherwise, an

improvement cannot be categorized as C1.

Furthermore, even if a dwelling has never been occupied, to qualify for the C1 rating, it must not

display any physical deterioration. Consider the case of a “new” dwelling that has been vacant

for an extended period of time without adequate maintenance or upkeep.

C2 Rating

The improvements feature no deferred maintenance, little or no physical

depreciation, and require no repairs. Virtually all building components are new

or have been recently repaired, refinished, or rehabilitated. All outdated

components and finishes have been updated and/or replaced with

components that meet current standards. Dwellings in this category either

are almost new or have been recently completely renovated and are similar in

condition to new construction. (Bold added for emphasis.)

The key words in the definition are “no deferred maintenance,” “updated,” “renovated,” “almost

new,” and “meets current standards.” This rating applies to improvements with no deferred

maintenance (no repairs are needed) and little or no physical deterioration. Virtually all

components (short-lived items) must be new or recently repaired, refinished, and/or

rehabilitated. All outdated components and finishes must be updated and/or replaced with

components that meet current standards.

This rating applies to homes that are nearly new or older homes that essentially have been

gutted and renovated, but with the substructure and superstructure remaining intact. In other

words, C2 homes don’t quite meet the C1 category because they are not 100% new.


C3 Rating

The improvements are well maintained and feature limited physical

depreciation due to normal wear and tear. Some components, but not every

major building component, may be updated or recently rehabilitated. The

structure has been well maintained. (Bold added for emphasis.)

The key words in the definition are “well maintained,” “limited physical depreciation,”

“updated,” and “rehabilitated.” Some components, but not every building component (including

the substructure, superstructure, and short-lived items), may be updated or recently

rehabilitated. The improvement, however, is not new or nearly new.

C4 Rating

The improvements feature some minor deferred maintenance and physical

deterioration due to normal wear and tear. The dwelling has been adequately

maintained and requires only minimal repairs to building

components/mechanical systems and cosmetic repairs. All major building

components have been adequately maintained and are functionally adequate.

(Bold added for emphasis.)

The key words in the definition are “adequately maintained,” “minimal repairs,” “cosmetic

repairs,” and “functionally adequate.” All building components (including the substructure,

superstructure, and short-lived items) have been, at best, adequately maintained and is

functionally adequate, but not updated or recently rehabilitated.

C5 Rating

The improvements feature obvious deferred maintenance and are in need of

some significant repairs. Some building components need repairs,

rehabilitation, or updating. The functional utility and overall livability is

somewhat diminished due to condition, but the dwelling remains useable and

functional as a residence. (Bold added for emphasis.)


The key words in the definition are “obvious deferred maintenance,” “some significant repairs,”

“livability…diminished,” and “useable.” This rating is for improvements that feature obvious

deferred maintenance and are in need of some significant repairs. Due to the improvement’s

condition, the functional utility and overall livability are diminished; although the dwelling

remains useable.

C6 Rating

The improvements have substantial damage or deferred maintenance with

deficiencies or defects that are severe enough to affect the safety,

soundness, or structural integrity of the improvements. The improvements

are in need of substantial repairs and rehabilitation, including many or most

major components. (Bold added for emphasis.)

The key words in the definition are “deficiencies or defects,” “affect…safety, soundness, or

structural integrity,” and “substantial repairs.” Due to the improvement’s condition, the safety,

soundness, or structural integrity is at risk, as are the occupants.

3. Condition Rating – Quick reference guide

Ratings Quick Reference Definitions

C1 New; never before occupied and on a new foundation.

C2 Almost new condition; could be a few years old but still in

near-perfect condition or of any age if it has been totally

renovated and is in near-new condition, but is not on a

new foundation.

C3 Well maintained and displays little (if anything) in the

way of deferred maintenance.

C4 Adequately maintained and needs only minimal repairs.

C5 Livable condition but shows obvious signs of deferred

maintenance and needs repairs, rehabilitation, or

updating.

C6 Severe deficiencies or defects in structural integrity that

could affect the safety of the occupants.


4. Properties that make loans ineligible for delivery to the GSEs

SPECIAL NOTE ON C5 RATING:

Fannie Mae will purchase loans that involve C5 properties while Freddie Mac will not.

Also, many lenders simply do not make loans on properties that are not C4 or better.

Remember that a C4 rating is an improvement, which is “adequately maintained”

meaning it only needs “minimal repairs,” and is “functionally adequate.” Any

improvement inferior to a C4 rating is either a C5 or C6.

SPECIAL NOTE ON C6 RATING:

The C6 rating is a “special case” and triggers significant loan and appraisal requirements

that must be fulfilled before the loan is saleable to either GSE; therefore, expect a C6

rating to cause delays in processing a loan and obtaining financing. Whereas the other

ratings are based on an “overall” condition that considers all aspects of the dwelling, the

C6 rating is an “either/or” rating. Either a dwelling does have or does not have issues

related to safety, soundness or structural integrity. In other words, if any portion of a

dwelling is affected by safety, soundness or structural integrity, the entire dwelling must

be rated a C6 overall. Conversely, even if a dwelling is in “rough shape” if issues

affecting safety, soundness or structural integrity are not present, the dwelling would be

rated a C5 or better, but not a C6 rating.

5. Recommendations for REALTORS ® regarding C5 and C6 properties.

• Be realistic about the property’s condition with yourself and the buyer. Waiting for the

appraiser to state obvious inadequacies will only forestall inevitable conflicts.

• Be familiar with the policies of lenders you use regarding C5 and C6 properties.

• Sellers should be informed that they will either have to make repairs or wait for the

right buyer, such as an all-cash investor who will accept the property as-is.

• Buyers should be informed that property’s purchased in as-is condition will require

their own funds to be expended for repairs or alterations.

• Recognize that the need to “match” certain properties with certain buyers takes on a

greater importance with C5 and C6 dwellings.

6. Kitchens & Bathrooms – Updated, Not Updated, Remodeled? – Requirement

After the appraiser rates the condition, he or she will, in their forms preparation

software, be asked an additional set of “string questions” using “lists” that are not on the

appraisal report form. This is another example of what the GSEs refer to as a

“repurposed” data field.


Question: Any Material Work. The appraiser mist first answer if the property has had

any material work done to the kitchen(s) or bathroom(s) in the prior 15 years.

1. If the answer is “No.” The text entry, “No updates in the prior 15 years” is

automatically generated by the software.

2. If the answer is “Yes.” The appraiser will select responses from “lists” for both

the kitchen(s) and bathroom(s) regarding the updating or remodeling of those

improvements.

a. Question: Level of Work Completed. The first selection from the kitchen and

bath lists will relate to the level of work completed. The appraiser indicates

whether the room has not been updated, has been updated, or has been

remodeled. There can only be one entry for level of work for the kitchen and

bathroom, even if there is more than one kitchen or bathroom.

b. Question: Timeframe Identified. The appraiser then selects the timeframe

within which the majority of the updating or remodeling took place. The list is:

� Less than one year

� One to five years ago

� Six to ten years ago

� Eleven to fifteen years ago and

� Timeframe unknown

Definitions of Updated, Not Updated, and Remodeled – Requirement

Updated

The area of the home has been modified to meet current market

expectations. These modifications are limited in terms of both scope and

cost.

An updated area of the home should have an improved look and feel, or

functional utility. Changes that constitute updates include refurbishment and/or

replacing components to meet existing market expectations. Updates do not

include significant alterations to the existing structure.

Implicit in the definition is that the market expectations are measured within the

context of the neighborhood and submarket’s price range. In other words, purchasers of


modest, less expensive homes are not expecting fixtures and finish materials not

typically found in that price range.

The definition states that the updated area should have an “improved” look and feel, or

functional utility. Updates do not include significant alterations.

Not Updated

Little or no updating or modernization. This description includes, but is

not limited to, new homes.

Residential properties of fifteen years of age or less often reflect an original

condition with no updating, if no major components have been replaced or

updated. Those over fifteen years of age are also considered not updated if the

appliances, fixtures, and finishes are predominantly dated. An area that is “Not

Updated” may still be well maintained and fully functional, and this rating does

not necessarily imply deferred maintenance or physical/functional

deterioration.

A kitchen or bathroom that is labeled not updated means just that – not updated; no

material work has been done to those improvements. The definition is not restricted to

improvements more or less than 15 years of age. While it may seem counterintuitive,

this category includes new homes (new construction) as well as the “perfectly

preserved” home – the one with all the original flooring, wallpaper, cabinets, counters,

fixtures, etc., in mint condition.

Remodeling

Significant finish and/or structural changes have been made that increase

utility and appeal through complete replacement and/or expansion.

A remodeled area reflects fundamental changes that include multiple alterations.

These alterations may include some or all of the following: replacement of a

major component (cabinet(s), bathtub, or bathroom tile), relocation of

plumbing/gas fixtures/appliances, significant structural alterations (relocating

walls, and/or the addition of square footage). This would include a complete

gutting and rebuild.

Remodeling is considered more extensive than updating. The definition uses the terms

“fundamental changes” and “multiple alterations” followed by examples that include

replacement of major building components, relocation of fixtures and appliances,

significant alterations, and increasing the size of the dwelling.


Do not confuse updating or remodeling with overall condition. It’s important to

remember that this discussion about updating and remodeling applies only the kitchens

and baths and is distinct from the overall condition.

Just because an improvement had a recently updated or remodeled kitchen or bathroom

does not automatically result in a condition rating of C2 or C3. The condition rating is an

“overall” rating of the improvement, not a rating of a portion of the home. So if the same

home had otherwise been harshly treated or had underlying structural issues, its

“overall” condition rating could be a C4, C5 or even C6.

Conversely, a new or nearly new home may be in very good condition and receive a C1

or C2 “overall” rating but still be identified in the appraisal report as having a kitchen

and bath that is “not updated.”

D. Sales Comparison Approach Section

As with page one of the appraisal report, this handout will comment only on the data fields on

page two that are of significance to REALTORS®


The same reporting requirements apply to both the subject and comparable property

characteristics. In other words, if the UAD calls for given abbreviations to be used to

describe the subject, the same abbreviations apply to the comparable properties. This

precludes the use of terms like “similar,” inferior,” or “superior” to describe

comparables as well as terms like “average” or “typical.”

1. Sales or Financing Concessions

This two-line field is used to report sale type, financing type, and any concessions

involved in each comparable sale.

a. Sale Type

Line 1 is used to indicate the sale type for each comparable. Valid sale types

include:

b. Type of Financing

Line 2 is used to report the type of financing applicable to the comparable and

the amount of concessions, if any.

Valid financing abbreviations include:


2. Type of Transaction/Date of Sale/Time

For each comparable, the appraiser will first identify the status type or type of

transaction from this list.

a. Active status

Active status is referring to an active listing, which is identified with the entire

word “Active” rather than an abbreviation.

The following abbreviations identify the date status type.

b. Contract, Expired, or Withdrawn status

Properties under contract (pending) and listings that have either expired or

been withdrawn are identified with a single letter on the Date of Sale/Time grid

line as c, e, or w, respectively, followed by the contract, expired, or withdrawn

date (MM/YY format).

c. Settled sale status

“Settled sales” are reported with both the settlement date (closed date) and the

contract date (meeting of the minds).


3. Location

The location data field in the Sales Comparison Approach Section grid is much like

the View field on Page 1 and requires the use of abbreviations.

a. Step 1 – Location Rating

First, the appraiser will identify one location rating only for the subject and each

comparable from one of the following choices:

b. Step 2 – Location Factor

Second, the appraiser will choose at least one but no more than two entries from

the “list” that best identify the location factor(s) for the subject and each

comparable.

If a location factor not on the list materially affected the sale price of the

comparable or if additional location factors beyond two choices materially

affected the sale price of the comparable, the appraiser must provide a

description of such location factor(s) in the comments or in an addendum. The

subject’s location rating and factor(s) are to be addressed on Page 1 in the

Neighborhood and/or Site Sections and correspond with the rating/factor(s)

identified in the sales comparison grid.


c. Special note on Location

The Location data field in the sales comparison grid is only to be used to adjust

for differences between properties in the same neighborhood. If an appraiser

uses comparables from different neighborhoods and adjustments are

warranted, the appraiser is to report those adjustments on one of the three

blank lines at the bottom of the grid.

4. Quality

The new Q1–Q6 ratings may be the most challenging issue of the entire Uniform

Appraisal Dataset. Appraisers are required to rate the quality level of the subject

dwelling on a scale with Q1 being the best quality and Q6 the worst quality. The intent

of the GSEs was to establish a meaningful rating system that actually speaks to the

quality of the dwelling. In a sampling of almost 300,000 appraisal reports, the GSEs

found that 44% referred to quality in terms of building materials like “Frame,” “Brick,”

“Aluminum,” etc., and that another 48% were rated as “Average.” Less than one-half of

one percent was rated “Fair” and virtually none were of poor quality.

Note: The quality ratings in the UAD were developed independently and are proprietary

to the GSEs.1

a. Basic obligations in reporting a quality rating

The new quality ratings require the appraiser to select only one quality rating for

the subject property and each comparable property. The quality rating must

represent the overall quality of the property.

Illustration: Is quality relative or absolute?

Question: Does the quality of other neighborhood properties affect how the appraiser

should report the quality of the subject property and each comparable property?

Answer: No. It’s the same as the condition issue. The quality of a structure is based on

facts that are unaffected by the quality of surrounding properties.

1 Fannie Mae & Freddie Mac UAD FAQs, Question 42, dated 4/12/2011.

URL: https://www.efanniemae.com/sf/lqi/umdp/pdf/uadfaqs.pdf


b. Quality rating definitions: Q1 through Q6

Q1 Rating

Dwellings with this quality rating are usually unique structures that are

individually designed by an architect for a specified user. Such residences

typically are constructed from detailed architectural plans and specifications

and feature an exceptionally high level of workmanship and exceptionally

high-grade materials throughout the interior and exterior of the structure.

The design features exceptionally high-quality exterior refinements and

ornamentation, and exceptionally high-quality interior refinements. The

workmanship, materials, and finishes throughout the dwelling are of

exceptionally high quality. (Bold added for emphasis.)

The key word in the definition is “exceptional.” According to the GSEs, less than one

percent of the residences in the nation qualify for this rating.

Q2 Rating

Dwellings with this quality rating are often custom designed for construction

on an individual property owner’s site. However, dwellings in this quality

grade are also found in high-quality tract developments featuring residences

constructed from individual plans or from highly modified or upgraded plans.

The design features detailed, high-quality exterior ornamentation, high-

quality interior refinements, and detail. The workmanship, materials, and

finishes throughout the dwelling are generally of high or very high-quality.

(Bold added for emphasis.)

The key word in the definition is “high-quality.” This rating often applies to plans

designed by an architect for a home to be built on an individual property owner’s

site or in a housing development specifically for custom-built homes.

Although, a dwelling’s quality is totally a function of its building components,

regardless of its location, the appraisal principle of conformity states that value is

created and sustained when the characteristics of a property conform to the

demands of its market.2 Therefore, it would not be uncommon (but not a

requirement of the definition) to find homes of this quality congregated in a custom-

built housing development.

2 The Dictionary of Real Estate Appraisal, 5

th ed. Chicago: Appraisal Institute, 2010.


Q3 Rating

Dwellings with this quality rating are residences of higher quality built from

individual or readily available designer plans in above-standard residential

tract developments or on an individual property owner’s site. The design

includes significant exterior ornamentation and interiors that are well

finished. The workmanship exceeds acceptable standards and many

materials and finishes throughout the dwelling have been upgraded from

“stock” standards. (Bold added for emphasis.)

The key words in the definition are “higher quality,” “above-standard,” “exceeds

standards,” and “upgraded.” So it appears that one might describe a Q3

improvement as “better than standard.” The improvement was likely built from

available or modified architectural or designer plans but less likely a custom set of

plans. Again, as with the C3 rating, it would not be uncommon (but not required) to

find homes of this quality congregated in a semi-custom housing development.

Q4 Rating

Dwellings with this quality rating meet or exceed the requirements of

applicable building codes. Standard or modified standard building plans

are utilized and the design includes adequate fenestration and some

exterior ornamentation and interior refinements. Materials, workmanship,

finish, and equipment are of stock or builder grade and may feature some

upgrades. (Bold added for emphasis.)

The key words in this definition are “meet,” “standard,” “adequate,” and “builder

grade.” So it appears that a Q4 improvement might be described as a “builder-plan”

commonly designed by a builder’s draftsperson (and not an architect) consisting of

standard finishes with some design and upgrade features. Unlike the prior ratings, it

would be common (but not required) to find homes of similar quality congregated in

a mass-produced tract housing development.


Q5 Rating

Dwellings with this quality rating feature economy of construction and basic

functionality as main considerations. Such dwellings feature a plain design

using readily available or basic floor plans featuring minimal fenestration and

basic finishes with minimal exterior ornamentation and limited interior detail.

These dwellings meet minimum building codes and are constructed with

inexpensive, stock materials with limited refinements and upgrades. (Bold

added for emphasis.)

The key words in this definition are “economy,” “minimal,” “inexpensive,” and

“stock.” This rating applies to improvements with a plain exterior design and basic

floor plan with a minimal amount of finish and fit and no or limited upgrades. The

term “minimum code compliance” applies to Q5 dwellings.

Q6 Rating

Dwellings with this quality rating are of basic quality and lower cost; some

may not be suitable for year-round occupancy. Such dwellings are often

built with simple plans or without plans, often utilizing the lowest quality

building materials. Such dwellings are often built or expanded by persons

who are professionally unskilled or possess only minimal construction

skills. Electrical, plumbing, and other mechanical systems and equipment

may be minimal or non-existent. Older dwellings may feature one or more

substandard or non-conforming additions to the original structure. (Bold

added for emphasis.)

The key words in this definition are “basic,” “lower cost,” “simple,” “unskilled,” and

“substandard.” Such improvements might be commonly found in cottages, cabins,

etc., that are used as vacation homes. The descriptor for this rating might read, “One

step above camping!”

Note: A mortgage loan secured by a property with a quality rating of Q1 – Q5 is

eligible to be sold to the GSEs. However, a property with a Q6 rating generally does

not meet the GSE’s property eligibility requirements.


Quality Rating – Quick reference grid

Ratings Quick Reference Definitions

Q1 Exceptional quality improvements; few will qualify.

Q2 High quality or very high quality but not exceptional quality.

Q3 Above-standard, higher quality finish with noteworthy

ornamentation and/or design.

Q4 Builder-grade dwelling that meets code and may have some

upgrades.

Q5 Economy structure with basic functionality.

Q6 Built of the lowest possible quality, often constructed in a non-

professional manner and substandard in functionality.

5. Basement

The UAD has some very specific requirements for reporting basement

characteristics and features. These same requirements apply to both the subject

and the comparables.

a. Size, Finish, and Access

On Line 1 the appraiser is to report three items and three items only:

1. Total size of the basement area in square feet (sf),

2. Finished area in square feet (sf, not as a percentage), and

3. Type of basement access available, which can be expressed in one of three

standardized ways:

a. Walk-out – abbreviation: wo,

b. Walk-up – abbreviation: wu or,

c. Interior only – abbreviation: in.


b. Room Count and Type of Rooms

On Line 2 the appraiser is to report:

1. Number of each type of finished room and

2. Identify the room type using the following abbreviations:

a. Recreation Room – abbreviation: rr

b. Bedroom – abbreviation: br

c. Bathroom – abbreviation: ba. Separate a full bath from a half bath

with a period (.)

d. Other Rooms – abbreviation: o

3. Apply the same method used for the subject to determine the standardized

bathroom count:

a. A three-quarter bath is to be counted as a full bath in all cases.

b. Quarter baths (baths that feature only a toilet) are not to be included

in the bathroom count.

c. The number of full and half baths must be entered, separated by a

period. The full bath count is represented to the left of the period.

The half bath count is represented to the right of the period.

4. If there are no rooms in the finished space, the second line will be blank.

Note: If information about the basement is not readily available in the normal

course of business, the appraisal report must include an explanation that each figure

used, such as square feet, percentage finished, or room count, is an “estimate” and

identify the source for that information. If the information is “unknown,” then

describe what due diligence efforts were undertaken but unsuccessful in obtaining

this information.


One of the last things we want to cover in this handout relates to how to understand

the reporting of the appraiser’s adjustments in the sales comparison grid. Not the

amount of adjustment, but why some lines on the grid have adjustments, some have

zeros and yet others are just left blank by the appraiser.

When reviewing a sales comparison grid, at first, it may seem as if some of the

entries are incorrect, or at least inconsistent. Some of the adjustment fields are

blank, while zeros have been entered in others. Some comparables have the same

description as the subject and are not adjusted, while other comparables have the

same description but are adjusted.

Odd as this may seem, all these entries are accurately disclosed and consistent with

the UAD requirements stated in Appendix D.

If the subject and comparable descriptions differ but no adjustment is warranted the

UAD calls for the appraiser to enter a zero, indicating that even though there is a

physical difference, the appraiser determined no adjustment was warranted. For

example, the descriptions and adjustments on the “View” line identify that the

subject has a beneficial mountain and water view, yet there was no adjustment

between the subject and Comparable 1, which had a beneficial mountain and golf

course view. Why? The appraiser in this case determined that both views were

equally valuable and that no adjustment was warranted. So the appraiser entered a

zero to indicate that he or she had considered the difference.


CLOSING REMINDER: Earlier in this handout, we provided a link to “Appendix D”, from

the GSEs, which is your “go-to” guide for understanding reports written in the

“language” of the UAD. The URL for Appendix D also appears, along with several others,

on the following page. At the end of Appendix D, is an Exhibit Section. It contains the

condition and quality definitions as well as a list of the UAD abbreviations created by

the GSEs that can be and are encouraged to be used by the appraiser when completing a

UAD report. Appraisers sometimes refer to this list as the “decoder ring” for the UAD.

We encourage you to have this list handy when you are reading an appraisal report

that’s been prepared in compliance with the UAD.


UMDP, UAD, UCDP, AND MISMO-XML URL LINKS

Topic Fannie Mae Link (Freddie Mac distributed the same information; only the

Fannie Mae URL is provided)

Uniform

Mortgage

Data Program

https://www.efanniemae.com/sf/lqi/umdp/

https://www.efanniemae.com/sf/lqi/umdp/pdf/umdpupdate121610.pdf

Uniform

Appraisal

Dataset

Overview

https://www.efanniemae.com/is/appraisers/index.jsp?from=hp

https://www.efanniemae.com/sf/lqi/umdp/uad/index.jsp

https://www.efanniemae.com/sf/lqi/umdp/pdf/uadoverview.pdf

Uniform

Collateral

Data Portal

https://www.efanniemae.com/sf/technology/commitloandel/ucdp/index.jsp

https://www.efanniemae.com/sf/technology/commitloandel/ucdp/pdf/ucdpover

view.pdf

MISMO http://www.mismo.org/

UAD Field

Specifications:

Appendix D

https://www.efanniemae.com/sf/lqi/umdp/pdf/uadappendixdfieldreqs.pdf

Uniform Loan

Delivery

Dataset

https://www.efanniemae.com/sf/lqi/umdp/pdf/ulddoverview.pdf

https://www.efanniemae.com/sf/lqi/umdp/pdf/ulddfaqs.pdf

Documents

What REALTORS ® Need to Know about the - Northern Michigan