Under Fannie Mae's Selling Guide, zoning, highest and best use and present land use show the typical one-unit building site in a rural area is two acres. The subject is a house on two acres, and the site represents 45% of the appraised value. Which conclusion about eligibility is correct?
Correct Answer
A) Eligible, if comparable sales show it is typical for the area
Fannie Mae says that when the typical building site in an area is two acres, the loan will be eligible regardless of the percentage of total value the site represents, as long as the appraiser shows through comparable sales that the property is typical residential property for that neighborhood. There is no fixed site-to-value cutoff, and a typical two-acre site is not excess acreage to strip out. Rural location alone does not make a house a land-development property.
Why This Is the Correct Answer
Option A is correct because Fannie Mae states the loan is eligible regardless of the site's percentage of total appraised value, as long as comparable sales show the property is typical residential property for that neighborhood. Here the two-acre site matches the typical site set by zoning, highest and best use and present land use.
Why the Other Options Are Wrong
Option B: Ineligible, since the site exceeds a set share of total value
Option B applies a set share of total value as a cutoff, but the guide expressly says eligibility holds regardless of the percentage of value the site represents when typicality is shown.
Option C: Eligible, once the extra acreage is removed from the value
Option C removes the extra acreage from the value, but the two acres match the typical building site in the area, so there is no atypical excess to remove.
Option D: Ineligible, since rural acreage counts as land development
Option D treats rural acreage as land development, but a house on a typical rural building site can be a residential property; the focus is on typicality, zoning and present land use.
Typical site, typical sales
If the site is what the area typically offers and the comparables prove it, the site's share of value does not decide eligibility.
How to use: Use this when a question gives a high land-to-value ratio for a rural home and asks about eligibility.
Exam Tip
Watch for distractors that invent a percentage cutoff for site value; Fannie Mae's test here is typicality shown by comparable sales.
Common Mistakes to Avoid
- -Applying a site-to-value percentage cutoff
- -Treating every rural parcel as land development
- -Deducting a typical site's acreage as if it were excess land
Concept Deep Dive
Analysis
The question tests how Fannie Mae judges whether a rural property is residential in nature. The key judgment is that typicality, shown by comparable sales, controls rather than the share of value attributed to the site.
Background Knowledge
Fannie Mae does not purchase loans on agricultural-type properties, undeveloped land or land-development properties, so lenders look closely at sites larger than typical. For rural or relatively undeveloped areas, the lender focuses on the property's characteristics, zoning and present land use, and comparable sales are the evidence that the property is typical.
Real-World Application
In a farming county where zoning requires two-acre home sites, an appraiser values a ranch house on two acres. The appraiser uses three nearby sales of homes on similar acreage to show the property is typical residential property, even though land makes up a large share of value.
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