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Beginning on September 1, 2011, Fannie Mae and Freddie Mac are requiring appraisers to include a “Quality Rating Code” on all appraisal reports. According to the Federal Housing Finance Agency, the new Uniform Appraisal Dataset (UAD), was created to improve the quality and consistency of appraisal data on loans delivered to the GSEs, Freddie Mac and Fannie Mae.” This is done by defining “all fields required for an appraisal submission for specific appraisal forms and standardizing definitions and responses for a key subset of fields.”
We’ll see if standardizing the required fields and Quality Rating Codes (QRC) has the desired effect of creating consistent appraisals regardless of geographic location. In the meantime, here are the QRC and what they mean:
C1: 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.
C2: 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 All outdated components and finishes have been updated and/or replaced with components that meet current standards.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.
C3: 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.
C4: 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.
C5: 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.
C6: 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.
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.
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It will be interesting to see whether standardizing the required fields and Quality Rating Codes (QRC) results in more consistent real estate appraisals (regardless of geographic location).
However, it’s possible that this could make the appraisal process more cumbersome and expensive for lenders and also for buyers.
As Realtors and real estate professionals, we don’t want the process to be more expensive for buyers, especially with housing markets already too fragile and crowded with nervous buyer prospects.
I totally agree with you. In my opinion, many of the rules and regulations that have been created as a result of the mortgage melt-down have had more negative unintended consequences that outweigh the improvements that were intended. My recent blog post about streamlining foreclosures instead of bogging them down in legalities touches on your point as well. Thanks for commenting!
I have to respectfully disagee from a buyers perspective and even from a sellers. As a seller, I have the integrity that I don’t want to sell a C5/Q5 home to an unsuspecting buyer who is just too naïve to know better. As someone who knows absolutely nothing about this stuff and how it works, I really appreciate this new law in that it allows the appraiser to put a more objective assessment on a property. That makes ME (a buyer) a WHOLE lot more confident in the property I’m about to plunk down a lot of $ for. I am in the process of buying a home on Lake Lure. I certainly wouldn’t buy a house that was at C5/Q5 unless the price was SIGNIFICANTLY reduced enough that a builder could go in and fix it for the price difference. Even then, I would be hesitant.
On an even more subjective note: I think that the market is slow there because people attach great times to “their” lakehouse without being objective. Houses that people enjoyed so much over the past 15,20 or even 40 years have fond memories and they attach an extra 20-30% to them, above their true value. Some of the prices of the 30+ yr old houses that are 1800-2400 sq ft and in the 800k all the way to 1.5M are ludicrous. When they get the appraisal, they are shocked that their home is worth $400,000 less than what they were asking. Then the buyer and seller are stuck…certainly, the buyers’ mortgage company is not going to support a loan well above and beyond it’s appraisal. I am fortunate in that I found a house where the seller’s own many houses and were objective (at least after a year of no bites) in their asking price. They came down in price over $300k once they realized that what they were asking was ridiculous. They came down another $50k this past July , settled on a price with us $70k less than that, and we will likely close in a few weeks. I think when a seller puts a ridiculous price out there, it turns off many perspective buyers. There is a house currently on the market for 1.55M. It’s a very nice house, with a gorgeous view, well kept, and probably worth $1.1M with all it’s upgrades, but to ask almost $500k more than it would appraise for, is ridiculous……but they may get a sports celebrity or international buyer who says, “I like it, I’ll pay whatever they want”….and so it goes….they may actually get the big payday, but I doubt it.
I am needing to know where I can find the photo requirements for the 1004 form, for conventional lending.
Do the mortgage companies give additional consideration for homes or commercial buildings that include solar panels? Is this considered a real or personal property issue on solar?