source:
  type: guide
  id: fnma-sel-b4-1.3-05
  authority: Fannie Mae Selling Guide B4-1.3-05 — Improvements Section of the Appraisal
    Report
  description: Fannie Mae Selling Guide B4-1.3-05 — Improvements Section of the Appraisal
    Report.
  coverage_tier: operative
obligations:
- id: fnma-sel-b4-1.3-05-full
  canonical_id: fnma-sel-b4-1.3-05-full
  section: Fannie Mae Selling Guide B4-1.3-05 — Improvements Section of the Appraisal
    Report
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B4-1.3-05 — Improvements Section of the Appraisal
      Report
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B4-1.3-05, Improvements Section of the Appraisal Report (06/04/2025)
      Introduction This topic contains information on reviewing the Improvements section
      of the appraisal report form, including: Overview Conformity of Improvements
      to Neighborhood Unique Housing Types Actual and Eﬀective Ages Remaining Economic
      Life Energy Eﬃcient Improvements Published May 6, 2026 563 Layout and Floor
      Plans Above- and Below-Grade Area(s) Gross Building Area Accessory Dwelling
      Units Additions without Permits Properties with Outbuildings Uniform Appraisal
      Dataset (UAD) 3.6 Policy Overview The appraisal must provide a clear, detailed,
      and accurate description of the improvements. The description must be as speciﬁc
      as possible, commenting on such things as needed repairs, additional features,
      and modernization, and should provide supporting addenda, if necessary. If the
      subject property has an accessory dwelling unit, the appraisal should describe
      it. Conformity of Improvements to Neighborhood The improvements should conform
      to the neighborhood in terms of age, type, design, and materials used for their
      construction. If there is market resistance to a property because its improvements
      are not compatible with the neighborhood or with the requirements of the competitive
      market because of adequacy of plumbing, heating, or electrical services; design;
      quality; size; condition; or any other reason directly related to market demand,
      the appraiser must address the impact to the value and marketability of the
      subject property. However, the lender should be aware that many older neighborhoods
      have favorable heterogeneity in architectural styles, land use, and age of housing.
      For example, older neighborhoods are especially likely to have been developed
      through custom building. This variety may be a positive marketing factor. Unique
      Housing Types In the appraisal and appraisal report review processes, special
      consideration must be given to properties that represent unique housing for
      the subject neighborhood. Loans secured by unique or nontraditional types of
      housing, including, but not limited to, earth houses, geodesic domes, and log
      houses, are eligible for sale to Fannie Mae provided the appraiser has adequate
      information to develop a reliable opinion of market value. It is not necessary
      for one or more of the comparable sales to be of the same design and appeal
      as the property that is being appraised, although appraisal accuracy is enhanced
      by using comparable sales that are the most similar to the subject property.
      On a case-by-case basis, both the appraiser and the underwriter must independently
      determine whether there is suﬃcient information available to develop a reliable
      opinion of market value. This will depend on the extent of the diﬀerences between
      the special or unique property and the more traditional types of houses in the
      neighborhood and the number of such properties that have already been sold in
      the neighborhood. A 3D printed home with a traditional design and constructed
      using conventional building materials is not considered a unique or nontraditional
      housing type. Lenders should follow the standard eligibility and comparable
      sales selection requirements for site-built housing. See B4-1.3-08, Comparable
      Sales and B4-1.3-09, Adjustments to Comparable Sales, for additional information.
      To identify this construction method, the appraiser must enter "3D Printed Home"
      in the bottom free-form description ﬁeld of the Sales Comparison Published May
      6, 2026 564 Approach grid in the appraisal for the subject property and comparable
      sales (if applicable). When appraising unique properties, if the appraiser cannot
      locate recent comparable sales of the same design and appeal, but is able to
      determine sound adjustments for the diﬀerences between the comparables that
      are available and the subject property and demonstrate the marketability of
      the property based on older comparable sales, comparable sales in competing
      neighborhoods, the existence of similar properties in the market area, and any
      other reliable market data, the property is acceptable as security in a sale
      of the loan to Fannie Mae; if the appraiser is not able to ﬁnd any evidence
      of market acceptance, and the characteristics of the property are so signiﬁcantly
      diﬀerent that they cannot establish a reliable opinion of market value, the
      property is not acceptable as security in a sale of the loan to Fannie Mae.
      Fannie Mae does not specify minimum square footage or ﬁnished area requirements
      for properties with the exception of manufactured housing (see B4-1.4-01, Factory-Built
      Housing: Manufactured Housing). There should be comparables of similar size
      to the subject property to support the general acceptability of a particular
      property type. Actual and Eﬀective Ages Fannie Mae does not place a restriction
      on the actual age of the dwelling. Older dwellings that meet Fannie Mae’s general
      requirements are acceptable. Improvements for all properties must be of the
      quality and condition that will be acceptable to typical purchasers in the subject
      neighborhood. The relationship between the actual and eﬀective ages of the property
      is a good indication of its condition. A property that has been well-maintained
      generally will have an eﬀective age somewhat lower than its actual age. On the
      other hand, a property that has an eﬀective age higher than its actual age probably
      has not been well- maintained or may have a particular physical problem. In
      such cases, the lender should pay particular attention to the condition of the
      subject property in its review of any appraisal report. When the appraiser makes
      adjustments for the “Year Built,” they must explain the adjustments that were
      made. Remaining Economic Life Fannie Mae does not have any requirements related
      to the remaining economic life of the property. However, related property deﬁciencies
      must be discussed in the sections of the appraisal report that address the improvements
      analysis and comments on the condition of the property. Fannie Mae’s appraisal
      report forms are designed to meet the needs of several diﬀerent user groups;
      consequently, the report forms address the remaining economic life for the property
      being appraised. However, appraisers are not required to report this information.
      If appraisers report this information, lenders do not need to consider remaining
      economic life because any related property deﬁciencies will be discussed in
      the sections of the appraisal report that address the improvements analysis
      and comments on the condition of the property. Energy Eﬃcient Improvements An
      energy-eﬃcient property is one that uses resource-eﬀective design, materials,
      building systems, and site Published May 6, 2026 565 orientation to conserve
      nonrenewable fuels. Special energy-saving items must be recognized in the appraisal
      process and noted on the appraisal report form. For example, when completing
      the appraisal report (Form 1004), special energy-eﬃcient items are to be addressed
      in the Improvements section in the Additional features ﬁeld. The nature of these
      items and their contribution to value will vary throughout the country because
      of climactic conditions, diﬀerences in utility costs, and overall market reaction
      to the cost of the feature. Some examples of special energy-eﬃcient features
      may include, but are not limited to, energy eﬃcient ratings or certiﬁcations,
      programmable thermostats, solar photovoltaic systems, solar panels, low-e windows,
      insulated ducts, and tank-less water heaters. Appraisers must compare energy-eﬃcient
      features of the subject property to those of comparable properties in the Sales
      Comparison Approach adjustment grid. Appraisers may augment the Sales Comparison
      Approach in evaluating any impact (either positive or negative) to the value
      of energy eﬃciency improvements with either the income or cost approach; however,
      appraisers cannot adjust the value of the property on a mechanical dollar-for-dollar
      basis based on equipment and installation cost, or the discounted present value
      of expected cost savings of the equipment over the useful life of the equipment;
      or solely based on the cost or income approach. The appraiser must also analyze
      the market reaction to the energy eﬃcient feature. Solar panels that are leased
      from or owned by a third party under a power purchase agreement or other similar
      ﬁnancing arrangement must be considered personal property and not be included
      in the appraised value of the property. See B2-3-04, Special Property Eligibility
      Considerations, for additional eligibility requirements for properties with
      solar panels. Layout and Floor Plans Dwellings with unusual layouts and ﬂoor
      plans generally have limited market appeal. A review of the room list and ﬂoor
      plan for the dwelling unit may indicate an unusual layout, such as bedrooms
      on a level with no bath, or a kitchen on a diﬀerent level from the dining room.
      If the appraiser indicates that such inadequacies will result in market resistance
      to the subject property, they must make appropriate adjustments to reﬂect this
      in the overall analysis. However, if market acceptance can be demonstrated through
      the use of comparable sales with the same inadequacies, no adjustments are required.
      Above- and Below-Grade Area(s) Appraisers must follow the American National
      Standard Institute (ANSI) Square Footage-Method for Calculating: ANSI® Z765-2021
      ("ANSI standard") when measuring, calculating and reporting the above- and below-grade
      square footage(s). This includes ﬁnished and unﬁnished area(s) of the subject
      for attached and detached single- family dwellings, including manufactured homes.
      This is applicable to all hybrid appraisals and appraisals requiring interior
      and exterior inspections. If state law or a regulatory requirement mandates
      adherence to a diﬀerent measurement standard, the appraisal report must note
      the standard required and explain how it was applied. Note: The ANSI standard
      cannot be used to measure apartment/multifamily buildings; however, it must
      be used in all other cases for single-family dwellings including townhomes,
      rowhouses, and detached dwellings. When measuring apartment unit in a condo
      or co-op project building, the appraiser must use interior perimeter measurements.
      Published May 6, 2026 566 The appraiser must be consistent when reporting the
      ﬁnished above-grade square footage, below-grade square footage, and room count.
      The need for consistency also applies from report to report. For example, when
      using the same transaction as a comparable sale in multiple reports, the room
      count, and square footage(s) must not change. The square footage of any nonstandard
      ﬁnished area(s) (NSFA) such as ﬁnished area(s) with direct interior access from
      within the dwelling not conforming to the ANSI ceiling height requirements or
      accessed through unﬁnished area(s) (e.g. an unﬁnished hallway, a room, a staircase,
      etc.) must be calculated and reported separately in accordance with the ANSI
      standard. Additionally, the appraiser must provide the reason(s) this area does
      not comply with the ANSI standard and also acknowledge any contribution of the
      additional square footage. Appraisers should include rooms located above-grade
      in nonstandard ﬁnished areas in the room count(s) (Total Rooms, Bedrooms, Bath(s))
      in the Improvements section and in the Sale Comparison Approach grid of the
      appraisal report to comply with Uniform Appraisal Dataset requirements. All
      other areas of the dwelling that do not conform with ANSI deﬁnition of ﬁnished
      area is reported as unﬁnished area. Fannie Mae considers a level to be below-grade
      if any portion of it is below-grade, regardless of the quality of its ﬁnish
      or the window area of any room. Therefore, a walk-out partially below-grade
      area with ﬁnished rooms would not be included in the above-grade square footage
      or room count. Rooms that are not included in the above-grade room count may
      add substantially to the value of a property, particularly when the quality
      of the ﬁnish is high. For that reason, the appraiser should report below-grade
      areas separately and make appropriate adjustments for them on the Basement &
      Finished Rooms Below-Grade line in the Sales Comparison Approach adjustment
      grid. Above-grade ﬁnished area that is not designated as an accessory dwelling
      unit (ADU) but is attached to the dwelling with no direct interior access is
      reported separately as noncontinuous ﬁnished area. This area and any detached
      structure(s) with ﬁnished area(s) must be reported on a diﬀerent line in the
      adjustment grid and not included as part of the subject''s reported ﬁnished
      area(s), nonstandard ﬁnished area(s), or room counts. If there are multiple
      non-continuous areas, then report the combined square footage in one line of
      the Sales Comparison grid. When using sketching or 3D scanning software, the
      resulting output must conform to the ANSI standard. See Exhibits for Appraisals
      in B4-1.2-01, Appraisal Report Forms and Exhibits for additional information
      on footprint sketches and ﬂoor plans. Gross Building Area The gross building
      area is the total ﬁnished area including any interior common areas, such as
      stairways and hallways of the improvements based on exterior measurements; is
      the most common comparison for two- to four-unit properties; must be consistently
      developed for the subject property and all comparables used in the appraisal;
      must include all ﬁnished above-grade and below-grade living areas, counting
      all interior common areas such as stairways, hallways, storage rooms; and cannot
      count exterior common areas, such as open stairways. Fannie Mae will accept
      the use of other comparisons for two- to four-unit properties, such as the total
      above- grade and below-grade areas discussed in the Above- and Below-Grade Area(s),
      provided the appraiser Published May 6, 2026 567 explains the reasons they did
      not use a gross building area comparison, and clearly describes the comparisons
      that were made. Accessory Dwelling Units An ADU is generally an additional living
      area independent of the primary dwelling that may have been added to, created
      within, or detached from the primary dwelling. The ADU must have basic requirements
      for living, sleeping, cooking, and bathroom facilities on the same parcel as
      the primary dwelling. See B2-3-04, Special Property Eligibility Considerations,
      for complete ADU eligibility requirements. When reporting the living area of
      an ADU, it should not be included with the ﬁnished above-grade square footage
      calculation of the primary dwelling. It should be reported and adjusted for
      on a separate line in the grid, unless the ADU is contained within or part of
      the primary dwelling with interior access and above grade. If a standalone structure
      does not meet the ADU minimum requirements, it should be treated as any other
      ancillary structure and included as a separate line item in the sales comparison
      approach then adjusted based on its contributory value to the subject property.
      Whether a property is deﬁned as a one-unit property with an ADU or a two- to
      four-unit property will be based on the characteristics of the property, which
      may include, but are not limited to, the existence of separate utility meter(s),
      a unique postal address, and whether the unit can be legally rented. The appraiser
      must determine compliance with this deﬁnition as part of the analysis in the
      Highest and Best Use section of the appraisal. When there is an ADU, the appraisal
      report must include a description of the ADU and analysis of any eﬀect it has
      on the value or marketability of the subject property. The appraisal report
      must demonstrate that the improvements are acceptable for the market. An aged
      settled sale will qualify as a comparable, and an active listing or under contract
      sale will qualify as a supplemental exhibit to show marketability. Zoning for
      an ADU If it is determined that the property contains an ADU that is not allowed
      under zoning (where an ADU is not allowed under any circumstance), the property
      is eligible under the following additional conditions: The lender conﬁrms that
      the existence will not jeopardize any future property insurance claim that might
      need to be ﬁled for the property. The illegal use conforms to the subject neighborhood
      and to the market. The property is appraised based upon its current use. The
      appraisal report states that the improvements represent a use that does not
      comply with zoning (“illegal” use). The appraisal report demonstrates that the
      improvements are typical for the market through an analysis of at least two
      comparable sales with the same non-compliant zoning use. Aged settled sale(s)
      with the same non-compliant zoning use are acceptable if recent sales are not
      available. At a minimum, the appraisal report must include a total of three
      settled sales. See B4-1.3-04, Site Section of the Appraisal Report, for subject
      property zoning information. Additions without Permits If the appraiser identiﬁes
      an addition(s) that does not have the required permit, the appraiser must comment
      on the quality and appearance of the work and its impact, if any, on the market
      value of the subject property. Published May 6, 2026 568 Properties with Outbuildings
      A lender must give properties with outbuildings special consideration in the
      appraisal report review to ensure that the property is residential in nature.
      Descriptions of the outbuildings should be reported in the Improvements and
      Sales Comparison Approach sections of the appraisal report form. Type of Outbuilding
      Acceptability Minimal outbuildings, such as small barns or stables, that are
      of relatively insigniﬁcant value in relation to the total appraised value of
      the subject property. The appraiser must demonstrate through the use of comparable
      sales with similar amenities that the improvements are typical of other residential
      properties in the subject area for which an active, viable residential market
      exists. An atypical minimal outbuilding. The property is acceptable provided
      the appraiser’s analysis reﬂects little or no contributory value for it. Signiﬁcant
      outbuildings, such as silos, large barns, storage areas, or facilities for farm-type
      animals. The presence of the outbuildings may indicate that the property is
      agricultural in nature. The lender must determine whether the property is residential
      in nature, regardless of whether the appraiser assigns value to the outbuildings.
      Uniform Appraisal Dataset (UAD) 3.6 Policy Lenders using UAD 3.6 must follow
      the requirements in the UAD 3.6 Policy Supplement. Recent Related Announcements
      The table below provides references to the Announcements that have been issued
      that are related to this topic. Announcements Issue Date Announcement SEL-2025-04
      June 04, 2025 Announcement SEL-2023-08 September 06, 2023 Announcement SEL-2022-03
      April 06, 2022 Announcement SEL-2021-11 December 15, 2021 Published May 6, 2026
      569 Announcements Issue Date Announcement SEL-2020-05 September 02, 2020 Announcement
      SEL-2020-04 August 05, 2020'
  judgment: false
