Appraiser Update

UAD 3.6 Quality and Conditions Ratings

UAD 3.6 introduces clearer, more robust definitions and guidance for how the appraiser rates property condition (C) and quality of construction (Q). The 3.6 definitions retain the same scale, 1 through 6, and the intent for each level is essentially the same, but we have enhanced the definitions to enable more consistent determination of the appropriate rating.

For example, the UAD 2.6 definition of C1 calls for very recent construction, not occupied, all components new, with no physical depreciation. The 3.6 definition adds an age limit of 12 months. Similarly, 3.6 clarifies that C2 means the property is new construction or remodeled “to the studs” within 36 months with no deferred maintenance nor repairs needed. We won’t take up space here with an exhaustive comparison of the changes, but we encourage every appraiser and professional consumer of appraisal reports to familiarize yourself with the new definitions and criteria.

You can find the UAD 3.6 Q and C rating definitions in several places including the Appendix F-1: URAR Reference Guide, the Selling Guide Supplement for UAD 3.6, and in the Uniform Appraisal Dataset (UAD) Specification Condition and Quality Rating Definitions.

Scope of Work in UAD 3.6

In our legacy (UAD 2.6) appraisal forms, the minimum required scope of work  is prescribed by static text in the Scope of Work section. The required level of inspection of the subject and the comparables is incorporated into the Scope of Work. Importantly, the appraiser is not allowed to edit the Scope of Work text nor change the minimum required scope of work.

Because of this, whenever we wanted to change the required level of inspection by the appraiser (such as during the COVID pandemic or when we created our desktop appraisal option), we had to launch new forms. This led to a proliferation of legacy appraisal forms that are almost identical with only minor differences in the Scope of Work and Certification sections.

Similar proliferation occured for condo appraisal forms (1073, 1075, and 1073 Desktop) not to mention hybrid appraisals. Because the differences between these forms are subtle, it can be challenging for readers of the report to recognize what scope of work was executed and whether that scope of work was compliant with mortgage lending requirements. 

UAD 3.6 takes a different approach. It removes the inspection disclosure from the Scope of Work text. Instead, the Assignment Information section of the report asks the appraiser to describe the Inspection Method for both the interior and exterior of the subject. The options for Inspection Method are: Physical, Virtual, or No Inspection. The appraiser’s answers are displayed in a space called the Scope of Inspection by Appraiser (and for the supervisory appraiser if applicable). 

Next, the appraiser is asked to report a Property Valuation Method. The allowable options are Traditional Appraisal, Hybrid Appraisal, Desktop Appraisal, or Exterior Appraisal. Each Property Valuation Method has a set of defining characteristics that pertain to inspection of the subject:

*Exterior appraisals are not a valid option under current Fannie Mae Selling Guide policy, so while the UAD would allow the appraiser to report an Exterior Appraisal, that would not satisfy Fannie Mae lending requirements.

The level of inspection is also incorporated into the Appraiser Certifications. Certification 10 is dynamic, offering three options: (a) the appraiser personally performed an onsite inspection of the interior and exterior of the subject; (b) the appraiser inspected the exterior of the subject from the street; or (c) the appraiser did not personally perform an onsite inspection.

Another challenge with the legacy UAD 2.6 forms is that, although the appraiser is allowed to expand the scope of work, the forms do not have a standardized way for reporting any expansion. UAD 3.6 resolves this by asking the appraiser if there is additional scope of work (Yes/No). When the response is Yes, then the appraiser describes the additional scope in a designated comment field. The additional scope of work cannot be contrary to, and should not repeat, the predefined Scope of Work text.

UAD 3.6 Training & Resources

Exploring UAD 3.6: New Sections for Disaster Mitigation and for Energy Efficient and Green Features 

UAD 3.6 introduces two new sections to the URAR, Section 5 (Disaster Mitigation) and Section 6 (Energy Efficient and Green Features). These share a common structure with other UAD 3.6 sections: first, the appraiser reports any relevant features (from a pick list). If there are no relevant features, then the appraiser is done with that section. If there are relevant features, then the appraiser is given the option of adding commentary and photos / exhibits that will display together in the report with the features list.

The Importance of Time Adjustments

In Dec. 2024, we made changes to our Selling Guide to clarify that appraisers must always analyze market conditions and must make market change adjustments (time adjustments) for any changes in market conditions revealed by their analysis. These changes were prompted by our observation that, during the rapid price increases experienced in 2020-2022, appraisers often made no time adjustments and failed to disclose any evidence in support of their decisions not to adjust.

While this is easy to see when markets are rapidly appreciating, it is even more important from a credit risk perspective when markets decline. Failure to make negative time adjustments when markets have declined between the contract date of the comp and the effective date of the appraisal results in an inflated valuation, potentially causing Fannie Mae loans to be mispriced or underinsured.

On Oct. 28, 2025, the Federal Housing Finance Authority published its latest House Price Index (HPI). Interestingly, it shows some regions of the country have recently experienced home price declines. For example, it found for the one month period from Jul. to Aug. 2025, prices declined 0.8% in the Pacific region.

In order to protect the public trust and achieve credibility, you must analyze for changing market conditions and make time adjustments if warranted by your analysis. Lenders, borrowers, agents, brokers, and builders should expect to see downward time adjustments in appraisals of properties where home prices have recently declined.

Selling Guide Requirements for AMCs 

Lenders have long been utilizing third-party vendors, known as AMCs, to manage appraisal procurement. A common misconception is that the implementation of the Home Valuation Code of Conduct (HVCC) in 2009, along with subsequent regulations, such as the Dodd-Frank Act and the GSEs’ Appraiser Independence Requirements (AIR), mandated the use of AMCs to ensure appraiser independence. None of these regulatory frameworks require lenders to engage AMCs. In fact, a significant portion of appraisals submitted to Fannie Mae is procured directly by lenders without AMC involvement. 

When electing to use an AMC, the lender remains responsible for ensuring the AMC’s compliance with AIR. Additionally, the lender must adhere to the Appraiser Selection Criteria outlined in the Fannie Mae Selling Guide B4-1.1-03: 

“Fannie Mae does allow lenders to use third-party vendors (for example, appraisal management companies) to manage the appraiser selection process. However, it should be noted that if a lender enters into a contract with any vendor, contractor, or third-party service provider, the lender is accountable for the quality of the work performed as if it was performed by an employee of the lender.” 

The introduction of UAD 3.6 improves transparency by enabling clearer identification of AMC involvement in the appraisal process. However, it does not alter Fannie Mae’s policies regarding AMC usage.

Educational Letters to AMCs 

In Jul. 2025, Fannie Mae began sending letters to AMCs detailing appraisal quality issues identified through Fannie Mae loan quality reviews completed in 2024. Each letter contains a comprehensive list of the issues identified for appraisals associated with that AMC. The appraisal reports are identified by the subject property address, appraiser name, and appraisal date.

Examples of issues frequently cited include inadequate comparable adjustment, failure to adjust for material differences, inaccurate reporting of comparable condition or quality, inappropriate comparable selection due to location, and use of physically dissimilar comparables (when more similar were available). 

AMCs can use this information for training, enhancing engagement instructions, and improving quality control (QC) processes. Initial feedback from AMCs has been appreciative. We plan to repeat this operation at least annually.