Government-Sponsored enterprises (GSEs) Fannie Mae and Freddie Mac recently introduced significant updates to their selling and servicing guides, specifically impacting the way appraisers analyze market areas in their appraisals. These changes, effective for appraisals on loan applications dated on or after Feb. 4, 2025, aim to increase consistency, clarity, and transparency in appraisal reports.
In this blog, we take a closer look at these changes and what they mean for real estate appraisers.
Key Selling Guide Updates for Appraisers
Standardized Definitions
The GSEs Fannie Mae and Freddie Mac have now standardized the definitions of “neighborhood” and “market area.” This addition to the glossary aims to ensure that appraisers, lenders, and other stakeholders are aligned in their understanding of these fundamental appraisal terms.
Neighborhood is defined as “a congruous group of complementary land uses” and market area is “the geographic region, for a subject property, from which most demand comes and in which most of the competition is located.”
Enhanced Market Area Analysis
The market area analysis requirements have been updated to promote a more detailed and methodical approach.
Appraisers are expected to:
Use a 12-month minimum timeframe: When analyzing the overall market trend, appraisers must use a minimum look-back period of 12 months. This will help provide a clearer, data-driven understanding of market conditions.
Distinguish market trends from comparable adjustments: The overall market trend does not always directly translate to adjustments applied to individual comparable sales. Appraisers should report these trends separately to avoid any misunderstanding regarding property-specific values.
For a helpful example, see Fannie Mae’s market condition adjustments illustration, which highlights how to differentiate broader market trends from adjustments made to individual comparables.
Selection of Comparable Sales
Clearer guidelines and requirements have been set regarding the selection and adjustments of comparable sales. Appraisers must illustrate the methodology used to determine specific adjustments for changes in market conditions, thereby increasing transparency in the adjustment process.
Required Market Analysis Support
Appraisers must support their reported market trends with thorough, well-documented analysis. This requirement not only emphasizes the accuracy of appraisal data but also ensures that lenders and other stakeholders can better understand the basis for adjustments.
What These Selling Guide Updates Mean for Appraisers
These GSE appraisal selling and servicing guide updates require a more in-depth, standardized approach to market analysis, particularly concerning how appraisers report market conditions adjustments and overall market trends. Appraisers will need to adapt their data collection and analysis methods to meet these heightened expectations, ensuring that all adjustments are supported with robust data.
Note that these practices are now required, as the GSE updates went into effect on Feb. 4, 2025.
Appraisers Share Their Go-To Sources for Understanding Market Dynamics
You may be wondering what resources and tools can help you comply with the new GSE market analysis requirements for appraisals. As part of our monthly survey series, we asked our community of real estate appraisers, “What are your go-to sources for understanding market dynamics?”
Here’s a quick list summarizing all the answers we received, followed by quoted comments from appraisers below:
- MLS
- Local real estate professionals (Realtors, developers, buyers, brokers, property managers)
- Federal Reserve
- Fannie Mae/Freddie Mac
- FHFA House Price Index
- Bureau of Labor Statistics
- State government websites
- Town and county websites
- Local newspapers
- RE Magazine
- Newsletters
- Analysis programs
- CoreLogic
- Spark
- Synapse
- CoStar
- ParcelQuest
- 1004 MC
- Zillow
- Redfin
- Continuing education classes
- Previous appraisal assignments
“I call the agents to verify every sale. I have learned so much from asking them what they are seeing in the markets.”
“MLS, Realtors, developers, buyers – can give significant insight into local EI & EP.”
“Typically, while reviewing an appraisal, we look at market research from area town and county websites as well as realtor information such as Zillow.”
“I try to take a well-rounded market approach that begins with a big picture national market, then the state, then I use the MLS to narrow it down to county and towns.”
“Customizable market trend reports in MLS. I also compare my MLS market trend reports to comparable properties in the market area using self-generated CMA reports in MLS.”
“My MLS and export my data into Spark for analysis. I also use my own Excel spreadsheets for some analytics.”
“My primary source for market dynamics is a comprehensive analysis of MLS data, focusing on comparable sales and their sale trends. Additionally, I review macro trends, using InfoSparks data from my MLS, for the county and zip code-level trends. Other key market indicators include the Zillow Home Price Index (HPI), Freddie Mac HPI, and FHFA HPI calculators.”
“Our gold standard data source is the local MLS. The data is there. The hard part is the analysis. If you are willing to learn how to use a spreadsheet, you can get your market dynamics laid out for you in short order. We do a new analysis for every appraisal and have been doing non-linear time adjustments for over 5 years. It’s amazing what you can do with Excel.”
Sharpen Your Market Analysis Skills
At McKissock, we know that market analysis is a fundamental cornerstone in completing a credible appraisal. Sign up for our Market Disturbances-Market Analysis in Atypical Markets and Cycles course to better understand the need for and requirements to develop a sound market analysis in residential appraisal assignments.
You can also sign up for our 7-hour CE course GSE Appraisal Requirements and Guidelines which explores what Fannie Mae and Freddie Mac require for appraisers and appraisals.
Additionally, stay abreast of the latest industry trends and updates with our Pro-Series Webinars and our appraisal podcast, Beyond the Numbers.
Did you know you can access hundreds of appraisal CE courses and many other resources—including the new Market Conditions Adjustment Excel Worksheet—when you become a McKissock Unlimited CE Member?
Ready to grow your appraisal career and expand your expertise? Explore CE Membership.
