Fannie Mae Updates Appraisal Guidelines: Market Analysis & Comparables (SEL-2024-07)

Hi, I'm Daniel Yoder, an appraiser here at Valuemate. As we continue to navigate the evolving landscape shaped by initiatives like UAD 3.6 and the Uniform Property Dataset (UPD), it's crucial to stay informed about specific guideline changes from the GSEs. Recently, Fannie Mae, in collaboration with Freddie Mac, announced updates aimed at enhancing consistency and transparency in how we analyze and report market areas and comparable sales data. These changes, detailed in Selling Guide Announcement SEL-2024-07, directly impact our appraisal reports and are worth understanding well before their effective date.

These updates specifically target the Market Area analysis section of the appraisal report and are effective for loans requiring an appraisal with applications dated on or after February 4, 2025. Let's break down what's changing.

Standardizing Key Definitions

A foundational step towards consistency is the introduction of standardized definitions for the terms "Neighborhood" and "Market Area." Fannie Mae and Freddie Mac have worked together on these, and the updated definitions are now included in the Selling Guide Glossary (specifically, see sections E-3-13 for 'M' terms and E-3-14 for 'N' terms). Having clear, common definitions helps ensure everyone is speaking the same language when discussing the geographic areas relevant to the subject property.

Refining Market Trend Analysis

The recent announcement provides more specific guidance on determining and reporting market trends:

• Minimum Timeframe: Appraisers must now establish a minimum timeframe of 12 months from which the overall market trend is derived. This provides a more robust basis for evaluating general market movements.
• Overall Trend vs. Individual Adjustments: The guidance clarifies that the derived overall market trend (based on the 12-month+ analysis) may differ from the specific time adjustments applied to individual comparable sales. This acknowledges that short-term fluctuations or specific comparable characteristics might warrant different adjustments than the broader market trend suggests.
• Methodology Illustration: Crucially, appraisers are now required to include an illustration of the methodology used to determine specific comparable sale time adjustments resulting from changes in market conditions. You can't just state an adjustment; you need to show how you arrived at it.
• Supporting Analysis: The appraisal report must include the market analysis that supports both the indicated overall market trend and the market-derived time adjustments applied to the comparables.

Comparable Sales Selection

While the core principles of selecting the best comparable sales remain, the updated guidance (found in Selling Guide section B4-1.3-08) reinforces the requirements and likely benefits from the enhanced clarity around market area definition and trend analysis.

Why These Adjustments Matter

These refinements align directly with the broader goals of the UAD and Forms Redesign initiative. By standardizing definitions and requiring clearer explanations for trend derivation and time adjustments, the GSEs aim to:

1. Promote Consistency: Ensure appraisers are applying similar frameworks when analyzing market data.
2. Increase Transparency: Allow report users (lenders, reviewers, etc.) to better understand the appraiser's rationale for market trends and adjustments.
3. Enhance Credibility: Clearly documented analysis strengthens the support for the final value conclusion.

Getting Prepared

While the effective date is February 4, 2025, it's wise to familiarize yourself with these changes now. Review the updated Selling Guide sections mentioned in SEL-2024-07, particularly:

• B4-1.1-02 (Lender Responsibilities - although it impacts appraiser selection/review)
• B4-1.3-03 (Neighborhood Section of the Appraisal Report)
• B4-1.3-08 (Comparable Sales)
• B4-1.3-09 (Adjustments to Comparable Sales)
• E-3-13 & E-3-14 (Glossary Definitions)

Understanding these updated requirements for defining market areas, analyzing trends over a minimum 12-month period, and illustrating time adjustment methodology will be key to delivering compliant and credible appraisal reports going forward. Stay tuned for more updates as the industry continues its transition.