Many appraisers misunderstand the place Fannie Mae has in our work, and that misunderstanding helps create misleading appraisals.
Fannie Mae is a participant in the secondary market, buying mortgages from lenders and turning around and selling them to investors. This helps provide lenders with the funds to make new loans. When Fannie acquires and then sells the loan, your appraisal goes along with it.
Now, Fannie Mae deals with only a certain type of collateral. Fannie does not deal with loans secured by industrial property or commercial property; residential property alone is the world that Fannie participates in. But, it gets more specific than that: although Fannie Mae does get involved with other types of residential properties, Fannie generally deals with single family residential properties that are “typical,” such as a three-bedroom / two-bath home in a suburban area.
Fannie has other specifics in mind in determining if a mortgage loan is the type they will buy and sell on the secondary market. We’re all familiar with them: comparables within one mile of the subject; net and gross adjustments that do not exceed 15% and 25%; the home can’t be on a large acreage parcel, etc.
For example, if the property you are appraising is on 122 acres, it is not Fannie Mae collateral. If your subject property is so unusual that the best comparables have adjustments in the range of 60% to 80%, then that property may not be Fannie Mae collateral. If that property does not conform to the type that Fannie works with, it is called “non-conforming” collateral, just as a medical office building would be the type of collateral and type of loan not suitable for purchase by Fannie Mae.
It’s rather like playing Monopoly; some people always go for Broadway and Park Place; others like the trio of Oriental, Vermont, and Connecticut Avenues; some absolutely love the railroads. Lets say you like to go for the lower end to middle trios, such as between “GO” and “Free Parking.” Another player offers to sell you Park Place. You may decide that it’s a nice property, but you don’t really want to spend that much money on one parcel, and there’s a good chance you’ll never get Boardwalk, so you just aren’t interested. So, too, Fannie Mae has property preferences.