Why Appraisal Adjustments Matter to Your Loan
When you apply for a mortgage, the appraiser compares your home to similar properties that sold recently. No two homes are identical, so the appraiser adjusts the sale prices of comparable properties to account for differences. These adjustments directly affect your home's appraised value, which determines how much you can borrow. Say your home has 2,000 square feet and the appraiser uses a comparable sale with 1,800 square feet. The comparable sold for $400,000. If the market shows buyers pay $50 per square foot for additional space, the appraiser adds $10,000 to that comparable's sale price ($50 × 200 square feet). This adjusted price of $410,000 helps support your home's value. The key word here is "market-based." Fannie Mae requires appraisers to research what buyers actually pay for differences between properties. They cannot use shortcuts like "$20 per square foot" if local market data shows buyers pay $100 per square foot.
How Financing Concessions Affect Your Appraisal
Financing concessions happen when sellers pay costs that buyers normally cover. These concessions can inflate the sale price of comparable properties, making your home appear more valuable than it actually is. Common financing concessions include the seller paying your closing costs, buying down your interest rate, covering loan origination fees, or paying homeowner association dues. The appraiser must identify these concessions in comparable sales and adjust the sale prices downward. Here's how it works in practice. A comparable home sold for $450,000, but the seller paid $8,000 in buyer closing costs. The appraiser determines that without these concessions, the home would have sold for $445,000. The appraiser uses $445,000 as the adjusted sale price, not the actual $450,000 sale price. The adjustment amount depends on market reaction, not the dollar amount of the concession. If sellers commonly pay $5,000 in closing costs in your area, that concession might only inflate the sale price by $3,000. The appraiser adjusts by $3,000, not the full $5,000.
When Time Adjustments Apply
Time adjustments account for market changes between when a comparable property went under contract and your appraisal date. This matters because your appraisal reflects value on a specific date, but comparable sales happened weeks or months earlier. The appraiser looks at the contract date of each comparable sale, not the closing date. If a comparable went under contract six months ago when prices were 3% lower, the appraiser might adjust that sale price upward by 3%. Time adjustments work differently than overall market trends. Your local market might show 5% appreciation over the past year, but if comparable sales went under contract recently when the market was stable, no time adjustment applies. Recent comparable sales often receive no time adjustment. If a comparable went under contract last month and your appraisal is this month, the market likely did not change enough to warrant adjustment.
What Documents Support These Adjustments
Appraisers must document their adjustment decisions with specific market evidence. For financing concessions, they need details about what the seller paid for the buyer. This information comes from listing agents, closing statements, or reliable data sources. For time adjustments, appraisers use home price indices, paired sales analysis, or statistical modeling. They must explain their data sources and methodology in the appraisal report. The appraiser cannot simply state "adjustment made for square footage difference." They must explain how they determined the adjustment amount using market data. This might include recent sales showing price differences for similar square footage variations.
Common Problems That Delay Your Loan
Insufficient comparable sales create the biggest problems. In unique neighborhoods or for unusual properties, appraisers struggle to find truly similar sales. They must use the best available comparables and make larger adjustments, which underwriters scrutinize more carefully. Large adjustments raise red flags. If an appraiser makes significant adjustments to multiple comparables, the underwriter questions whether the property fits the neighborhood. This can delay your loan while the lender requests additional analysis or a second appraisal. Missing concession information also causes delays. If the appraiser cannot determine what concessions sellers paid in comparable sales, they must explain why the information is unavailable. Legal restrictions or uncooperative agents sometimes prevent access to this data. Inconsistent time adjustments create problems too. If the appraiser adjusts some comparables for time but not others with similar contract dates, the underwriter will question the analysis.
How This Affects Your Home Purchase
These adjustment rules protect you from overpaying for a home. Without proper adjustments, comparable sales with financing concessions would artificially inflate your home's appraised value. You might borrow more than the home is actually worth. The market-based adjustment requirement ensures appraisers research local conditions rather than using generic formulas. This produces more accurate valuations that reflect what buyers actually pay in your specific market. However, these rules can work against you in competitive markets. If sellers commonly offer large concessions to attract buyers, the adjusted comparable sales might be lower than current asking prices. Your home might appraise for less than your contract price. Understanding these rules helps you evaluate appraisal results. If your home appraises low, review the comparable sales and adjustments. Look for financing concessions that might have inflated the original sale prices or time adjustments that might not reflect current market conditions.
References
For the official guidelines, see B4-1.3-09: Adjustments to Comparable Sales in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
No spam · Unsubscribe anytime
Original Fannie Mae Guideline Text
B4-1.3-09, Adjustments to Comparable Sales (06/04/2025)
Sales or Financing Concessions
Market Conditions Analysis and Time Adjustments
Appraiser’s Comments and Indicated Value in the Sales Comparison Approach
Uniform Appraisal Dataset (UAD) 3.6 Policy
Analysis of Adjustments
Fannie Mae does not have specific limitations or guidelines associated with net or gross adjustments. The number and/or amount of the dollar adjustments must not be the sole determinant in the acceptability of a comparable. Ideally, the best and most appropriate comparable would require no adjustment; however, this is rarely the case as typically no two properties or transaction details are identical. The appraiser’s adjustments must reflect the market’s reaction (that is, market based adjustments) to the difference in the properties. For example, it would be inappropriate for an appraiser to provide a $20 per square foot adjustment for the difference in the finished above-grade area based on a rule-of-thumb when market analysis indicates the adjustment should be $100 per square foot. The expectation is for the appraiser to analyze the market for competitive properties and provide appropriate market based adjustments without regard to arbitrary limits on the size of the adjustment.
If the extent of the appraiser’s adjustments to the comparable sales is great enough to indicate that the property may not conform to the neighborhood, the underwriter must determine if the opinion of value is adequately supported. (For further information regarding comparable selection, see
.)
When there are no truly comparable sales for a particular property because of the uniqueness of the property or other conditions, the appraiser must select sales that represent the best indicators of value for the subject property and make market supported adjustments to reflect the actions of typical purchasers in that market.
Sales or Financing Concessions
Comparable sales that include sales or financing concessions must be adjusted to reflect the impact, if any, on the sales price of the comparables based on the market at the time of sale. For information related to sales or financing concessions for the subject transaction, see
.
Examples of sales or financing concessions include:
interest rate buydowns or other below-market rate financing;
loan discount points;
loan origination fees;
closing costs customarily paid by the buyer;
payment of condo, co-op, or PUD fees or assessment charges;
refunds of (or credit for) the borrower’s expenses;
absorption of monthly payments;
assignment of rent payments; and
inclusion of non-realty items in the transaction.
The dollar amount of sales or financing concessions paid by the seller must be reported for the comparable sales if the information is reasonably available (see UAD Appendix D: Field–Specific Standardization Requirements, for data entry instructions). Sales or financing data should be obtained from parties associated with the comparable transaction, such as the broker, buyer or seller, or a reliable data source. If information is not available because of legal restrictions or other disclosure-related problems, the appraiser must explain why the information is not available. If the appraisal report does not provide enough space to discuss this information, the appraiser must make an adjustment for the concessions on the form and include an explanation in an addendum to the appraisal report.
The amount of the negative dollar adjustment for each comparable with sales or financing concessions should be equal to any increase in the purchase price of the comparable that the appraiser determines to be attributable to the concessions. The need to make negative dollar adjustments for sales or financing concessions and the amount of the adjustments to the comparable sales is not based on how typical the concessions might be for a segment of the market area. Large sales or financing concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate. Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller, as a strict cash equivalency approach would dictate, are not appropriate.
Fannie Mae recognizes that the effect of sales or financing concessions on sales prices can vary with the amount of the concessions and differences in various markets. Adjustments must reflect the difference between what the comparables actually sold for with the sales or financing concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions. If the appraiser’s analysis determines that the market’s reaction is the full amount of the financing concession, a dollar-for-dollar adjustment is acceptable.
Positive adjustments for sales or financing concessions are not acceptable. For example, if local common practice or law results in virtually all of the property sellers in the market area paying a 1% loan origination fee for the purchaser, and a property seller in that market did not pay any loan fees or concessions for the purchaser, the sale would be considered as a cash equivalent sale in that market. The appraiser must recognize comparable sales that sold for all cash or with cash equivalent financing and use them as comparable sales if they are the best indicators of value for the subject property. Such sales also can be useful to the appraiser in determining those costs that are normally paid by sellers as the result of common practice or law in the market area.
Market Conditions Analysis and Time Adjustments
How to measure and analyze (market conditions) are critical elements in determining an accurate value because the appraisal is based on a specific date in time (effective date of appraisal). The comparable sales being considered must be analyzed by the appraiser to determine if there have been any changes in market conditions from the time the comparable went under contract to the effective date of the appraisal. This analysis will determine whether a time adjustment is warranted. A specific time adjustment to a comparable sale(s) may differ from the identified market trend since the determination of whether an adjustment is made to a comparable sale is based on market changes between the contract date of the comparable sale and the effective date of the appraisal. For example, the 12-month value trend may indicate a positive overall trend, however it's possible the market was stable (or declining) between the time period of the contract date of the comparable and the effective date of the appraisal. See this illustration for Market Condition Adjustments. Comparable(s) sales with a contract date that is recent in relation to the effective date of the appraisal will likely not have a time adjustment given the inability to identify a change in the market. The appraisal report must contain the market analysis that supports the indicated market trends, and any adjustments made for market conditions.
Because the appraisal is for a specific point in time (the effective date of the appraisal), the appraiser must analyze comparable sales for any changes in market conditions from their contract dates through the effective date to determine whether time adjustments are warranted. Time adjustments, or the lack thereof, must be supported by evidence. Use of home price indices (HPIs) to support time adjustments is consistent with our policy. The adjustment rates can also be determined through statistical analysis, modeling, paired sales, or other commonly accepted methods. The appraisal report must, at a minimum, summarize the supporting evidence and include a description of the data sources, tool(s), and technique(s) used.
Time adjustments should be supported by other comparables (such as sales, contracts) whenever possible; however, in all instances the appraiser must provide an explanation for the time adjustment in the appraisal report.
When completing Fannie Mae’s appraisal reports, the appraiser should provide the date of the sales contract and the settlement or closing date. Only the month and year need to be reported. For example, appraisers may use “s04/10” or “c02/10” where “s” reflects the settlement or closing date and “c” reflects the contract date. If the exact date is necessary to understand the adjustments, it must be explained elsewhere in the report or in an addendum. If the contract date is unavailable to the appraiser in the normal course of business, the appraiser must enter the abbreviation “Unk” for unknown, in place of the contract date.
Appraiser’s Comments and Indicated Value in the Sales Comparison Approach
The appraiser must provide fact-based and objective comment(s) that detail the work performed and data sources utilized for the market supported adjustments used, especially for the characteristics reported in the appraisal report form between the Sales or Financing Concessions and the Condition line items. A statement only recognizing that an adjustment has been made is not acceptable. When appropriate, the appraiser’s analysis should also include fact-based comments about a current contract, offering, or listing for the subject or comparable sales, current ownership, and recent prior sales or transfers. Additionally, the appraiser’s comments must reflect his or her reconciliation of the adjusted (or indicated) values for the comparable sales and identify why the sale(s) were given the most weight in arriving at the indicated value for the subject property. It should be noted that the indicated value in the Sales Comparison Approach must be within the range of the adjusted sales price of the comparables that are reported in the appraisal.
Uniform Appraisal Dataset (UAD) 3.6 Policy
Lenders using UAD 3.6 must follow the requirements in the
.
