Under Fannie Mae Selling Guide B4-1.3-03 regarding over-improvements (for example, an in-ground pool amenity in a neighborhood where pools are not typical), which statement is correct?
Correct Answer
D) Comment on it and show its contributory value in the grid; it does not by itself make the loan ineligible.
For the cited Fannie assignment, describe the overimprovement and reflect its supported contributory value in sales comparison. The amenity’s cost is not automatically its contribution, and atypicality does not necessarily make the property ineligible. Avoid assuming the full improvement is worthless or always overimproved solely from a label.
Why This Is the Correct Answer
Option D is correct because Fannie Mae requires the appraiser to comment on over-improvements and indicate their contributory value in the Sales Comparison Approach adjustment grid. The contributory value is what the market supports, which may be less than the cost. The presence of an atypical amenity does not on its own disqualify the loan.
Why the Other Options Are Wrong
Option A: An amenity that is atypical for the neighborhood makes the loan ineligible for purchase.
Option A is wrong because it says an amenity atypical for the neighborhood makes the loan ineligible for purchase. The guidance calls for commenting on the over-improvement and showing its contributory value, not treating it as an automatic eligibility bar.
Option B: Over-improvements are valued at full replacement cost new, with no market adjustment.
Option B is wrong because it says over-improvements are valued at full replacement cost new with no market adjustment. Cost is not the same as contribution, and the appraiser reflects the market-supported contributory value in the adjustment grid.
Option C: Appraisers are prohibited from mentioning pools, views or other amenities anywhere in the report.
Option C is wrong because it claims appraisers are prohibited from mentioning pools, views or other amenities. The guidance does the opposite and requires the appraiser to comment on over-improvements.
Comment and contribute
For an over-improvement, the appraiser comments on it and shows what it contributes, not what it cost.
How to use: Use this when a question pairs an atypical amenity with Fannie Mae reporting requirements.
Exam Tip
Distinguish cost from contributory value, and do not assume an unusual feature makes a property ineligible.
Common Mistakes to Avoid
- -Adjusting for the full cost of an over-improvement
- -Assuming an atypical amenity makes the loan ineligible
- -Leaving the over-improvement out of the report
Concept Deep Dive
Analysis
This question tests Fannie Mae's guidance on over-improvements such as a pool in a neighborhood where pools are not typical. The appraiser must comment on the over-improvement and show its contributory value in the sales comparison grid. An atypical amenity does not by itself make the loan ineligible.
Background Knowledge
An over-improvement is an improvement whose cost exceeds what the market will pay for it in that location. Its contribution to value is measured by market evidence, typically through paired sales or other adjustment support. Fannie Mae asks appraisers to describe such features and reflect their contributory value rather than their cost.
Real-World Application
An appraiser values a home with a large in-ground pool in a neighborhood where few homes have one. The appraiser notes the pool as an over-improvement and uses market evidence to support a contributory value adjustment well below its installation cost.
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