BAM Key Details:

  • On March 1, Fannie Mae updated its Selling Guide. Among the updates is changes to valuation modernization.
  • Fannie Mae states it is “transitioning to a range of options to establish a property’s market value.” 

Home appraisals have long been an issue of debate within the real estate industry. And many on both sides of the industry agree: the process is far from perfect.

The good news is Fannie Mae is working to eliminate discrepancies that can occur with traditional appraisals. 

On March 1, Fannie Mae updated its Selling Guide, announcing it is “transitioning to a range of options to establish a property’s market value,” including new alternatives to the traditional appraisal.

Fannie Mae’s Updates to Valuation Modernization

In its announcement, Fannie Mae stated:

We are on a journey of continuous improvement to make the home valuation process more efficient and accurate. As such, we are transitioning to a range of options to establish a property’s market value, with the option matching the risk of the collateral and the loan transaction. The spectrum balances traditional appraisals with appraisal alternatives.

Fannie Mae

Fannie Mae’s website shows the full spectrum of appraisal options:

appraisal options

Source: Fannie Mae

The spectrum is broken into two categories. The first is value acceptance, which includes two new options for borrowers, both driven by data, models and technology. These offer automatic value certainty with rep and warrant relief. 

The second category is value determination, which is appraisal driven and includes the traditional appraisal method, along with hybrid and desktop options. These receive value certainty with rep and warrant relief from an underwriter score of 2.5 or lower. 

Below are Fannie Mae’s definitions of each appraisal option:

  • Value acceptance (appraisal waiver): “Uses data and a modeling framework to confirm the validity of the value/sale price. For purchases and refinances; especially well-suited for low-risk refinances when the subject and market data is abundant.” 
  • Value acceptance + property data: “Property data is collected by a trained and vetted third party (real estate agent, insurance inspector, appraiser, etc.). Lender reviews data and warrants property eligibility.”
  • Hybrid appraisal: “Property data collected by a trained and vetted third party (real estate agent, insurance inspector, appraiser, etc.) is passed to an appraiser to perform an enhanced version of a desktop appraisal. For loans that do not qualify for value acceptance or do not have reliable prior observations of the subject property.”
  • Desktop appraisal: “Appraiser completes the appraisal without physically inspecting the property, using data from various sources (agents, homeowners, MLS, tax records, etc.). Best suited for purchase transactions.”
  • Traditional appraisal: “Appraiser collects the property data and completes the market analysis required for the appraisal. For complex property types or situations where data is sparse.”

    The new appraisal alternatives aim to reduce cycle times and borrower costs—both a win for buyers in today’s market. 

    The update states that while lenders can take advantage of completion alternatives immediately, updates to Desktop Underwriter® will not be complete until the weekend of April 15, 2023. For more information, see Fannie Mae’s Selling Guide Announcement.