Property Appraisal

A. Purpose of Appraisal

An appraisal establishes the value and marketability of the real property that is the security for the loan. The re-use of an appraisal from a previous transaction that has closed is not allowed for a subsequent transaction.

The underwriter must have a complete and accurate description to determine whether the property is adequate collateral for the loan. Adverse conditions (such as declining property values or the presence of environmental hazards), may affect the borrower’s motivation to repay the loan.

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B. Roles

Appraiser Definition

The appraiser is defined as the individual who personally:

Inspected the property being appraised (including interior when applicable)

Inspected the exterior of the comparables

Performed the analysis

Prepared and signed the appraisal report as the appraiser

The appraiser must be appropriately licensed in the same state as the subject property.

Appraiser’s Role

The appraiser’s role is to provide AmMAC with an appraisal report that contains an accurate description of the property and an objective, impartial and unbiased opinion of value.

The appraiser must complete the appropriate appraisal form with detailed and accurate information about the property, neighborhood, and recent comparable sales. The appraiser provides an opinion of value for the real property based on a logical analysis of this information and professional judgment.

Lender’s Role

The Lender is responsible for obtaining an independent, disinterested assessment and valuation of the property used as collateral for the loan. To ensure compliance with appraiser selection criteria, AmMAC appraisals must be ordered through a centralized process which prevents any contact between the broker and appraiser.

Third Party/Appraisal Management Company Role

AmMAC utilizes the services of a third party company to maintain our panel of approved appraisers as well as perform QC on the appraisals prior to delivery, to ensure they meet AmMAC’s/USPAP requirements.

In addition, all appraisal ordering is routed to this service provider via AmMAC’s Broker Portal. However neither AmMAC nor the broker has the ability to select the specific appraiser who will perform the assignment (except that AmMAC has the right to add or remove appraisers to our approved panel). The service provider also provides a method for AmMAC to request corrections, explanations and/or process value disputes through an independent process. The broker cannot request corrections nor otherwise speak to nor engage the appraiser at any time.

C. Appraisal Methods for Value

There are three acceptable methods for determining the property value:

Cost Approach

Income Approach

Market Value Approach

The market approach is generally given the most weight in determining the value of residential properties.

D. Use of Appraisal Not Ordered by AmMAC

Appraisals ordered by someone other than AmMAC or their correspondent or broker  (e.g., the borrower or the seller) may not be used for lending purposes at AmMAC. Appraisals prepared for other lenders (not AmMAC) also may not be used for lending purposes at AmMAC.

Although the appraisal order is placed by AmMAC brokers, the selection of the actual appraiser completing the report is made by the AmMAC Appraisal Portal, based on the qualified appraisers on AmMAC’s appraiser panel, for the subject property area. It is never permissible for the broker to have any direct contact or communication with the appraiser. All clarifications and questions regarding valuation, will be handled by AmMAC operations staff.Top of Form

E. Appraiser Policy

AmMAC approves appraisers for our approved appraiser panel that meet the following criteria:

• Certified Residential or Certified General License only
• License current and in good standing as of the date of completion of the appraisal.
• Minimum E&O Policy of $1.0 million and must not contain exclusions of/for:
  • Coverage for any economic loss
  • Claims arising out of an appraiser’s negligence in the “preparation or approval of maps, plans, opinions or reports”
  • Claims relating to “municipal zoning or code issues”
  • Claims relating to mold
  • Claims relating to the appraiser’s misuse of a client’s data.
• Compliance with AmMAC policies and USPAP rules are required in order to remain on the panel.
• The appraiser cannot have been previously removed from the AmMAC panel.

Appraiser License Documentation Requirements:

A copy of the appraiser's license/certification and E&O Policy is required as a part of each appraisal delivered to AmMAC.

AmMAC reserves the right to deem an appraisal unacceptable due to appraisal or appraiser quality concerns.

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F. Number of Appraisals Required

Appraisal requirements are determined by the total AmMAC loan amount or by loan type, detailed in the table below. Appraisal and review products must be ordered through the Appraisal Request process via AmMAC’s website.

Loan Amount	Appraisal Documentation Required
< $1,500,000 (Purch, R/T Refi)	One Full Appraisal1 completed by a certified appraiser
> $1,500,000 (Purch, R/T Refi)	Two Full Appraisals1 completed by a certified appraiser
All Cash Out Refi Loan Amounts	Two Full Appraisals1 completed by a certified appraiser
1. A full appraisal is one prepared on Form 1004/70, (i.e., a 2055 or 1075 Summary Report is not acceptable).

G. Purchase Contracts

The appraiser must be provided the complete contract for sale for the subject property, although it is not necessary to provide inspections that are mentioned in the contract. However, if the appraiser specifically recommends one or more inspections in the appraisal report, then those inspections are required as a condition of AmMAC’s loan approval, and must be reviewed by the Underwriter. The appraiser must analyze and report his or her conclusions on any current contract for sale for the subject property and any offering or listing for sale for the subject property as of the effective date of the appraisal. Appraiser must report on each occurrence or listing and provide the data source(s), offering price(s), and dates.

Any changes or amendments made to the sales contract (address changes, clarifications or changes to seller contributions or to any property characteristic) during the process of the loan, must be provided to the appraiser to comment if the updates or changes have any effect on the value.

When a higher sales price is renegotiated after initial contract acceptance, AmMAC will lend on the lower of the ORIGINAL sales contract or the appraised value unless:

Amended purchase contracts for new construction properties may be accepted when material changes to features, finishes or other property characteristics have been made that impact the tangible value of the property. If applicable, an updated appraisal must be obtained to verify the value of the modifications.

I. Appraisal Requirements

Appraisals must be prepared on Form 1004/70 (including the Market Conditions Addendum) and conform to all USPAP and AmMAC UW Requirements.

J. FORM 2055 – Exterior-Only Inspection Appraisal

The Form 2055 (Quantitative Analysis Appraisal Report) is a streamlined appraisal which allows an exterior-only inspection and utilizes only the sales comparison approach to value.

This appraisal option is not permitted.

1. FORM 1075 – Exterior-Only Inspection Appraisal

The Form 1075 (Quantitative Analysis Appraisal Report) is a streamlined appraisal which allows an exterior-only inspection and utilizes only the sales comparison approach to value.

This appraisal option is not permitted.

K. Property Use

Zoning Classification - AmMAC will provide financing on properties that are zoned only for residential use. The property use should be legal under the zoning requirements.

Illegal Use - AmMAC will not finance a mortgage on a property if the improvements do not constitute a legally permissible use of the land.

Legal Non-Conforming Use – AmMAC will not finance a mortgage on property that constitutes a legal non-conforming use, regardless of the ability to rebuild.

Resale Deed Restrictions

Resale Deed Restrictions are a right in perpetuity or for a certain number of years, stated in the form of a restriction, easement, covenant, or condition in any deed, mortgage, ground lease, agreement or other instrument executed by or on the behalf of the owner of the land. Resale Deed restrictions may limit the use of all or part of the land to occupancy by persons or families of low-income or moderate-income or on the basis of age, or may restrict the resale price of the property to ensure its availability to future low-income and moderate-income borrowers. The restricted resale price provides a subsidy to the homeowner, in an amount equal to the difference between the sales price and the market value of the property without resale-deed restrictions. The resale deed restrictions are binding on current and subsequent property owners, and remain in effect until they are formally removed or modified, or terminate in accordance with their terms (such as at a foreclosure sale or upon acceptance of a deed-in-lieu of foreclosure).

AmMAC will not lend on units in a subdivision or project covered by resale deed restrictions.

Highest and Best Use

In addition to information on compliance with zoning or land-use regulations, the appraiser must indicate whether the property's current use represents the highest and best use of the land. This is especially critical in neighborhoods that are experiencing a change in land use. For example, when commercial development is underway in a neighborhood, single-family dwellings may not be the highest and best use for the land. In fact, the land may be more valuable without the dwellings.

AmMAC will not lend on dwellings that do not represent the highest and best use for the land on which they are built.

L. Key Property Characteristics

Flood Hazard Area

The Borrower must obtain flood insurance prior to closing for any property located within an area designated by the Federal Emergency Management Agency (FEMA) as a Special Flood Hazard Area (SFHA). The SFHA’s are identified as a zone beginning with an A (including AE, AO, etc.) or V (including VE, VO, etc.). Flood insurance is not required on properties located in Flood Zones B, C, D, or X.

Flood insurance is required if any part of the principal structure is located within a Special Flood Hazard Area. If the loan is secured by multiple buildings (e.g. barns, sheds, greenhouses, etc.) with a value greater than $1,000, flood insurance coverage will be required for each building.

Note: FEMA does permit non-residential buildings to be insured under one general policy if the insurance provider permits, and as long as the policy includes a schedule separately listing each building. Sheds, barns, pool houses, workshop, etc. are considered non-residential and are able to be insured under a general property form. They can be included in one policy as long as each building and coverage for each building is listed.

The flood zone listed on the flood insurance provider’s evidence of flood coverage must reflect a high risk zone beginning with an A or V and not a low or moderate risk zone beginning with a B, C, D, or X, unless the flood insurance provider advises the low or moderate risk zone on the evidence of insurance has been “Grandfathered”.

Non-Participating Community - FEMA designates communities as either "participating" or "non-participating" in the National Flood Insurance Program. AmMAC will not finance properties located in a Special Flood Hazard Area if the community is "non-participating", even if flood insurance can be obtained. AmMAC will finance properties in a "non-participating" community only if they are not located in a Special Flood Hazard Area.

Mechanical Systems

The appraiser must comment on the condition and adequacy of the heating, electrical and plumbing systems.

Heating - The Borrower must provide a heating certification from a licensed heating contractor whenever the property has a gravity furnace. Any inadequacies must be corrected prior to closing. A solar or wood-burning heating system must contain a back-up system to be considered acceptable. Space heaters are acceptable only if they are permanently affixed, continuously fueled, externally vented, and considered adequate and common for the area. Property marketability must not be affected.

Electrical - The electrical service for dwellings of 1,000 or more square feet must be at least 100 amps, unless the Borrower provides a clear electrical certification by a licensed contractor prior to closing.

Plumbing - The Borrower must provide a certification from a licensed plumber whenever the appraisal indicates the plumbing system is inadequate or is in fair or poor condition. Any inadequacies must be corrected prior to closing.

Utilities

The appraiser must indicate whether the water supply and sanitary sewer facilities are public or private.

Certifications Needed - The Borrower must provide a certification for a private well or septic system (including cesspool) for all transactions (purchase or refinance) where the appraiser notes a potential for septic or well issues. See following pages for requirements for New_Construction and for Massachusetts_Property_Reqts.

Certification Age - The maximum age of the well or septic certification is six months.

Licensing - The professional who certifies that the well, septic system, etc. is acceptable must be licensed by the county or state. If the individual is not licensed or cannot provide a license number, he must provide verification from the state or county that he has been issued a permit. Include a copy of the permit.

New Construction - Well and septic certifications are not required on new construction if the Borrower provides a certificate of occupancy indicating the well and/or septic system complies with the local health authority.

Private Septic System - The report should be provided by a city, county, state or governing body official OR qualified entity stating:   The sewage disposal system complies with applicable local and/or state health standards, is in proper working order, and can be expected to function satisfactorily; OR   Local and/or state health standards do not apply for the sewage disposal system; however, it is found to be in proper working order and adequate for the property. Massachusetts Property Requirement - The State of Massachusetts requires inspections of private sewage (septic) systems on all purchase transactions and any other transaction involving the transfer of title. If the subject property is serviced by a private septic system, certification signed by an approved Department of Environmental Protection Septic Inspector stating that the system is in proper working order and complies with all applicable local health standards is required. The Certification must indicate that the system has been inspected at or within 2 years prior to the transfer of title. If repairs are required, the Borrower must provide evidence that the repairs have been completed.

Private Water Supply – Whenever there is a private water supply, the appraiser must comment if any of the following exist within ¼ mile of the subject (if so, additional inspections are required to ensure water source has not been contaminated): Intensive agriculture Coal mining or gas drilling (including Hydraulic Fracturing or “Fracking”) Dump, junk yard or landfill Dry Cleaning Factory Gas Station A licensed plumbing contractor or the local municipality's housing inspector or engineer must certify that:   The water supply system is in proper working order and pumping an adequate supply of water for the property, AND   The water supply is potable and complies with local and/or state health authority standards. In the absence of a local health authority, a reputable chemical testing agency must certify that the water is fit for human consumption.

Cisterns - Properties using a cistern as the water source are unacceptable.

Spring, Lake Or River - Properties using a spring, lake or river as the water source are unacceptable.

Community Wells - Properties using a community well as the water source are unacceptable.

Off-Site Utilities - Generally, private well or septic facilities must be located on the subject site. However, off-site private facilities are acceptable if the owners of the subject property have the right to access the facilities on an ongoing basis. The Borrower must provide a copy of the recorded, legally binding agreement for access to and maintenance of the facilities.

M. Comparable Sales

Proximity of Comps

The appraiser must specifically describe the distance of each comparable sale from the subject property.

In urban or suburban areas, comparable sales should be in the same neighborhood or subdivision and within 1 mile of the subject property.

	In rural areas, a comparable property must be within 5 miles of the subject and be in the same municipality/township and the same school district as the subject property.
	AmMAC’s QC review of the comparable sales chosen by the appraiser, will rank available sales into Tiers based on the following factors: Similarity in bed/bath count to the subject. Similarity in Gross Living Area (GLA) with the subject. Geographic proximity to the subject. Chronologic proximity Land Use Code See Comparable Sale Tiers for more details. If sales exist that our ranking process assigns a higher Tier level than those used by the appraiser, then up to 6 of these alternate comparable sales will be sent to the appraiser to specifically address why those sales were not used. If no higher Tier sales exist other than those used by the appraiser, then no further analysis of alternate comparables is required.
	Similarly, if AmMAC’s list of alternate sales provided to the appraiser includes foreclosure or short sale comparable sales, they can be ignored if there is only one as this suggests distressed sales are not a significant factor in the subject’s market. However, if more than one of the alternate sales provided are foreclosure or short sales, then they must be used since that suggests that distressed sales are likely to be a factor in the subject’s immediate market.

The appraisal will be acceptable if some or all of the comparable sales used are not from AmMAC’s highest ranked comparables, provided the appraiser has invalidated the use of any/all comparable sales provided by AmMAC which DO meet our criteria for ranking comparability above.

Sale Date of Comps

Because property values fluctuate with changes in the market, comparable sales should have been sold within six months of the appraisal date. If there is a lack of recent sales activity, the appraiser can use comparable sales that sold up to twelve months prior to the appraisal date. When using comps that are more than six months old, the appraiser must explain why more recent sales were not used and comment on any changes in market conditions since the comps were sold.

Time Adjustments

It is permissible for the appraiser to make positive or negative time adjustments. Upward adjustments are limited to the lesser of the actual documented market movement (as indicated below) or 10%. Downward adjustments are made at the full amount of market movement as indicated below:

• Positive Time Adjustments:
  • The Market Conditions Addendum (FNMA 1004MC) reflects that the Overall Trend is increasing.
  • The Market Conditions Addendum reflects “Median Sale Price as % of List Price” for the “Current – 3 Months” time frame of > 100%. The final market adjustment applied by the appraiser cannot exceed this amount, but in no event can it exceed 10% of the sales price of the comp if the “Current – 3 Months” value exceeds 110%.
• Negative Time Adjustments:
  • The Market Conditions Addendum (FNMA 1004MC) reflects that the Overall Trend is decreasing.
  • The Market Conditions Addendum reflects “Median Sale Price as % of List Price” for the “Current – 3 Months” time frame of < 100%. The time adjustment applied by the appraiser should not be less than the amount by which this is below 100%.
  • In all cases where the appraiser indicates the market is decreasing, LTV/CLTV will be reduced by 10% from the program maximum.

Time adjustments in the absence of this documentation will not be allowed.

Adjustments to Comps

In order to ensure the most comparable sales are used, AmMAC requires the following:

Excessive Line Item Adjustments – The appraiser must explain individual adjustments which are more than 10% of the comparable's sale price. AmMAC generally considers an adjustment of this magnitude to be indicative of a lack of comparability to the subject so the appraiser’s explanation should specifically address why this comparable is better than any others in the market.

Net Adjustments - The net adjustments to each comparable should not exceed 15% of the sale price of the comparable. If the adjustment exceeds 15%, the appraiser must comment on the reasons for not using a more similar comparable or explain that no more similar comparables exist.

Gross Adjustments - The gross adjustments to each comparable should not exceed 25% of the sale price of the comparable. The gross adjustment is calculated by adding all individual adjustments whether or not the adjustment was positive or negative.

If gross adjustments exceed 25% of any comparable's sale price, the appraiser must comment on the reasons for not using a more similar comparable or explain that no more similar comparables exist. If all 3 comparable sales used by the appraiser exceed this 25% gross adjustment limit, it suggests a lack of solid comparable sales. In order to ensure the most accurate valuation possible, a 2^nd appraisal must be ordered (AmMAC will bear the cost of it) and value will be based on the lower of the 2 appraisals.

AmMAC Policy – Redlining

AmMAC does not consider the racial composition, color, national origin or other prohibited characteristic(s) of the residents of a neighborhood to be a reliable appraisal factor. As a matter of policy, AmMAC will reject any loan supported by an appraisal report which makes a direct or implied reference to race color, national origin or other prohibited characteristic(s).

N. Comparable Sales Tiers

AmMAC uses data analytics to identify available comparable sales in the subject’s market, to facilitate our evaluation of the comparable sales used by the appraiser. The Tiers are not considered a replacement for the appraiser’s judgment regarding the best comparables for the subject, however, they are intended to provide a cross-check to those used in the appraisal. We recognize that the appraiser may still have valid reasons for choosing comparables in lower Tiers but they must address those reasons specifically for comparable sales we send them that have higher Tier rankings than the sales used in the appraisal. Tiers are calculated as follows:

Tier	Proximity to Subject	# Bedrooms	# Baths	Gross Living Area	Date of Sale	Sales Price	Land Use Code
Tier 1	<=0.5 miles	Same as subject	+/- 1 of subject	+/- 15% (or +/- 200 sq. ft. if GLA < 1400)	< = 6 months	Must show	Same or equivalent
Tier 2	<=0.5 miles	Same as subject	+/- 1 of subject	+/- 15% (or +/- 200 sq. ft. if GLA < 1400)	< = 12 months	Must show	Same or equivalent
Tier 3	<=0.5 miles	+/- 1 of subject	+/- 1 of subject	+/- 25% (or +/- 350 sq. ft. if GLA < 1400)	< = 6 months	Must show	Same or equivalent
Tier 4	<= 1.0 miles	+/- 1 of subject	+/- 1 of subject	+/- 15% (or +/- 200 sq. ft. if GLA < 1400)	< = 6 months	Must show	Same or equivalent
Tier 5	<= 1.0 miles	+/- 2 of subject	+/- 2 of subject	+/- 25% (or +/- 350 sq. ft. if GLA < 1400)	< = 12 months	Must show	Same or equivalent
Tier 6	<= 5.0 miles	+/- 2 of subject	+/- 2 of subject	+/- 25% (or +/- 350 sq. ft. if GLA < 1400)	< = 12 months	Must show	Same or equivalent
Tier 7	Any comparable sale that does not conform to Tiers 1-6

O. Appraisal Dispute/Correction

When an appraisal report is deficient, additional clarification of information or methodology must be requested from the appraiser in order to make an informed decision. The estimate of value must be based on adequate data, logical analysis and judgment, and must present a clear and reasonable conclusion.

When comparable sales data is provided by parties that have a financial interest in either the sale or financing of the subject property (i.e. the broker, the realtor, the seller, etc.), the appraiser must verify the data with a party that does not have a financial interest in the subject transaction.

If underwriting is unable to obtain a revised appraisal that adequately addresses its concerns, a second appraisal will be required in order to proceed with the loan.

P. Second Appraisals

A second appraisal is ordered when:

A second appraisal is required for the loan program.

The value of the initial appraisal is inconclusive based on AmMAC’s guidelines for comparable sales requirements. Only one additional appraisal may be ordered in those cases where value is inconclusive. If the value remains inconclusive after an additional appraisal is re-ordered, then the loan must be declined.

Q. Reconciliation of Value

In purchase money transactions, the LTV/CLTV will be based on the lower of the sales price or the appraised value. For transactions requiring 2 appraisals, “appraised value” is the lower of the two appraisals.

If the subject property has been owned less than 12 months but >= 6 months, max LTV/CLTV is reduced, but the appraised value will be either the lower of 2 appraisals (in the case of a cash out refi) or the current appraised value (in the case of a rate and term refi). See Total Seasoning Requirements for more information. But regardless of refinance type, there is no look-back to the original purchase price.

If the subject has been owned 12 months or more, LTV/CLTV will be based on the appraised value if only one appraisal is ordered, or the lowest of the 2 appraisals in those cases where 2 appraisals are required.