• Jesse Ledbetter

How to read an appraisal: Part 5

Today we dive into the quality and condition on the URAR 1004.

Before we dive into the terms and definitions used by Fannie Mae, lenders, and appraisers, let's understand the difference in more basic terms.


The Capitol building is a structure of excellent quality and craftsmanship in every way, shape and form. When it was first built it was in excellent condition. However, in 1814 (and more recently) its condition was severely impacted. Likewise, I might build a hunting shack in the woods, with no insulation, running water, or features whatsoever. This would be a building of the lowest quality, but when it is first erected, its condition is brand new. Likewise, over time, this structure would degrade without maintenance and fall into disrepair.


Now with that understanding, let's look at Fannie Mae's definitions of Quality and Condition. FNMA requires that the property be ranked from Q1-Q6, and from C1-C6. The Capitol building when first built would be a Q1/C1. When the Capitol was burned, it would have been a Q1/C6 (note, the materials were still of excellent quality, but their condition was affected). Our hunting cabin would be a Q6/C1 when first built.


The vast majority of homes fall into the Q3-4 range. To be above or below this is really something "special." Homes that lack a conventional heat source immediately become a Q6. "Handyman Specials" where the handyman isn't as handy as they thought might be a Q5. Q2 and above homes feature most of their materials being either custom made or imported, craftsman with specialized skills are required for their construction. These homes are candidates for magazines, and therefore you will see fewer of them.


The vast majority of homes fall into the C3-C4 rating. Brand new homes are only a C1 until the new owner moves in, then they become C2 immediately. Homes that are in C5-6 condition have serious issues that need repair. A C6 home is not habitable. A C5 home is habitable but has a number of issues that affect livability.

In an ideal world, the comparables that are selected would all be of the same condition and quality, however, sometimes this is not possible. In these cases adjustments are made (which we will cover later on in the series).


Below this area we see the "Above Grade" area. As discussed before, ANY area of the home that has ANY portion below grade can not be reported here, except in rare exceptions. The reporting simply includes the total rooms in the home, bedrooms, bathrooms and Gross Living Area.


Bathrooms - are represented in the following format; a home with 1 full bath and 1 half bath is listed as a 1.1. This allows the appraiser to report up to 9 half baths in this field (ie. 1.9 would be a one bath, nine half bath home).


Bedrooms - there is a lot of talk in real estate on what makes a "bedroom." For example, some claim there needs to be a closet. This may or may not be true. The reality is there is only one legal requirement for a bedroom - direct egress; the occupant needs to be able to get out in case of a fire. Beyond this, the market dictates what is needed. In many older homes, the closet space is either non-existent or very small. However, buyers of old homes know this and expect this, so, they are still bedrooms. However, if a new builder were to apply that same logic to a new plan of homes, they would be sorely mistaken, and the buyer pool there expects larger closets and sometimes walk-in closets.


Next time we move to the basement and other features in the URAR 1004.

2 views0 comments

Recent Posts

See All

In a recent assignment, a loan officer and a real estate agent were baffled that a duplex could not be used as a comparable for a multi-family condo. The agent went as far as to say they had "comped i

Investopedia.com has a series on the history of redlining and use of restrictive deeds and covenants to perpetuate racial discrimination at a national and state level until the late 1970's, that is w

In every appraiser's toolbox there are three approaches to value that they reach for, the 1) Sales Comparison Approach, 2) Cost Approach, 3) Income Approach. There are objective and subjective factors