In a Fannie Mae appraisal, an addition lacks a required permit. What is the appropriate response?
Correct Answer
C) Describe it, disclose the permit status and analyze its market effect
Fannie Mae requires comment on the quality and appearance of an addition without required permits and its impact, if any, on market value. Describe and measure the space under the applicable standard and disclose supported relevant legal facts. GLA classification and market contribution are separate questions. Known lack of a permit cannot be converted into an uncertain fact merely by labeling it an extraordinary assumption; no automatic value contribution or discount follows.
Why This Is the Correct Answer
Option C is correct because Fannie Mae requires the appraiser to comment on the quality and appearance of an addition lacking a required permit and its impact, if any, on market value. Describing the space, disclosing the permit status and analyzing market reaction meets that requirement. No set contribution or discount follows from the lack of a permit alone.
Why the Other Options Are Wrong
Option A: Include it silently, without investigating any of its effects
Option A, including the addition silently without investigating its effects, fails to disclose the permit status and its possible market impact. Fannie Mae calls for comment on the work and its effect on value.
Option B: Leave the addition out of the property analysis
Option B, leaving the addition out of the analysis, ignores an existing improvement that the appraiser must describe and comment on. The addition may or may not contribute value, which must be analyzed rather than assumed away.
Option D: Treat the owner-reported construction cost as its contribution to market value
Option D, treating the owner-reported construction cost as the addition's contribution to market value, confuses cost with value. Contribution depends on market reaction, and an owner-reported cost is unverified as well.
Describe, disclose, analyze
For an unpermitted addition, describe the space, disclose the permit status and analyze what the market pays for it.
How to use: Use this three-step sequence for any unpermitted improvement question.
Exam Tip
Avoid answers that hide the issue, exclude the improvement entirely or equate cost with value. The best answer combines disclosure with market analysis.
Common Mistakes to Avoid
- -Ignoring the permit issue and valuing the space without comment
- -Using the owner's construction cost as the value contribution
- -Assuming unpermitted space has no value without market evidence
Concept Deep Dive
Analysis
This question tests how to handle an unpermitted addition in a Fannie Mae appraisal. Fannie Mae requires comment on the quality and appearance of the work and its impact, if any, on market value. The appraiser describes the addition, discloses its permit status and analyzes its market effect rather than hiding, excluding or costing it.
Background Knowledge
Additions built without required permits can raise questions about quality, safety and marketability. Fannie Mae guidance requires the appraiser to comment on the quality and appearance of such work and its impact on value. Measurement, GLA classification and market contribution are separate questions.
Real-World Application
An appraiser finds that a rear family room addition has no permit on file with the city. The appraiser describes the addition's quality and appearance, notes the missing permit and researches how buyers in the market react to similar unpermitted space. The report explains the supported effect on value, if any.
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