Why This Matters for Your Home Purchase
When you apply for a mortgage, the appraiser will examine every aspect of the property's improvements — from the roof to the foundation. This section of the appraisal report determines whether your future home meets Fannie Mae's standards and how its features compare to other properties in the neighborhood. The improvements section goes beyond just listing what exists. The appraiser evaluates whether the home fits the neighborhood character, identifies any needed repairs, and assesses special features that might add or detract from value. This analysis directly impacts your loan approval and the final appraised value.
How Improvements Must Fit the Neighborhood
Your home's improvements should match the surrounding area in age, style, design, and construction materials. A ultra-modern glass house in a neighborhood of 1950s ranch homes might face market resistance, which the appraiser must address. The appraiser looks for compatibility issues that could hurt resale value. Poor plumbing, outdated electrical systems, or design choices that don't appeal to typical buyers in the area all get flagged. However, many older neighborhoods benefit from architectural variety — custom-built homes from different eras often create desirable character rather than problems. If your property doesn't conform to neighborhood standards, the appraiser must explain how this affects value and marketability. They'll use comparable sales to show whether similar non-conforming properties sell successfully in the area.
Special Considerations for Unique Properties
Fannie Mae accepts loans on unique housing types like earth houses, geodesic domes, and log homes, but the appraiser needs adequate market data to determine reliable value. The key question: can the appraiser find enough comparable sales to support their valuation? If recent comparable sales of similar unique properties exist, your loan moves forward normally. If the appraiser can't find exact matches but can make sound adjustments using older sales, competing neighborhoods, or other reliable market data, the property still qualifies. The deal-breaker comes when the property is so unique that no market evidence exists. Without comparable sales or market acceptance data, Fannie Mae won't purchase the loan. Interestingly, 3D printed homes with traditional designs don't count as unique properties. Lenders treat them like standard site-built homes, though appraisers must note "3D Printed Home" in their reports.
Age Requirements and Property Condition
Fannie Mae places no restrictions on a home's actual age. A well-maintained 100-year-old house can qualify just as easily as new construction. The critical factor is condition and market acceptance in the neighborhood. The appraiser compares actual age to effective age to gauge maintenance quality. A 30-year-old home with an effective age of 20 years shows excellent upkeep. Conversely, a 10-year-old home with an effective age of 20 years signals maintenance problems or defects. When appraisers make adjustments for "Year Built" in their comparable sales analysis, they must explain their reasoning. This helps lenders understand whether age differences between properties affect value.
Square Footage Measurement Standards
All appraisers must follow the American National Standard Institute (ANSI) guidelines when measuring your home's square footage. This creates consistency across all appraisals and prevents disputes over living area calculations. The appraiser measures above-grade and below-grade areas separately. Fannie Mae considers any level below-grade if any portion sits below ground level, regardless of finish quality or windows. Your beautiful walk-out basement with high-end finishes still counts as below-grade space. Rooms with ceiling heights below ANSI standards get reported as "nonstandard finished area." The appraiser calculates this space separately and explains why it doesn't meet standard requirements. These areas can still add value but won't count toward your main living area total.
Energy-Efficient Features and Their Value
Special energy-saving features must be identified and analyzed in your appraisal. This includes solar panels, programmable thermostats, low-e windows, insulated ducts, and energy-efficient certifications. The appraiser notes these features and compares them to similar properties. The challenge with energy features: appraisers cannot simply add their installation cost to the home's value. They must analyze actual market reaction to these improvements. A $20,000 solar system might add $15,000 in value, $25,000 in value, or nothing at all, depending on local buyer preferences. One important caveat: leased solar panels don't add value to your home. Since you don't own them, they're considered personal property and excluded from the appraisal.
Accessory Dwelling Units Create Complexity
If your property includes an accessory dwelling unit (ADU) — like a converted garage apartment or backyard cottage — the appraiser handles it differently than main house square footage. The ADU gets reported separately and cannot be added to your primary dwelling's living area. The appraiser must determine whether your property qualifies as a single-family home with an ADU or a multi-unit property. Factors include separate utility meters, unique postal addresses, and legal rental status. This classification affects your loan type and requirements. Even illegal ADUs can work if they conform to neighborhood patterns. The appraiser must find at least two comparable sales with similar non-compliant uses and demonstrate market acceptance. The appraisal report must clearly state the illegal use.
What Documents You Need
You don't provide documents directly for the improvements analysis — the appraiser gathers this information during their property inspection. However, having certain paperwork ready can help: Building permits for any additions or major renovations show proper construction. If permits don't exist, the appraiser will note this and assess the work quality's impact on value. Energy efficiency certifications, warranties, or documentation for special features help the appraiser identify and properly credit these improvements. Solar panel ownership documents prove you own rather than lease the system. Property surveys or previous appraisals can help resolve boundary questions or square footage discrepancies, though the current appraiser will make their own measurements.
Common Problems That Complicate Appraisals
Unusual floor plans often create appraisal challenges. Bedrooms without nearby bathrooms, kitchens on different levels from dining rooms, or other awkward layouts may hurt market appeal. The appraiser must find comparable sales with similar layout issues or make value adjustments. Unpermitted additions require careful evaluation. The appraiser examines work quality and determines market impact. High-quality unpermitted work might add full value, while poor workmanship could detract from overall property value. Properties with significant outbuildings like large barns or silos raise questions about residential versus agricultural use. The lender must confirm the property's residential nature regardless of any value the appraiser assigns to farm structures. Inconsistent square footage measurements between appraisals can delay closings. If your property was previously appraised with different square footage, the current appraiser must explain any discrepancies and justify their measurements.
References
For the official guidelines, see B4-1.3-05: Improvements Section of the Appraisal Report in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B4-1.3-05, Improvements Section of the Appraisal Report (06/04/2025)
Overview
Conformity of Improvements to Neighborhood
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
and , 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 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
). 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 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
, 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.
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
for additional information on footprint sketches and floor plans.
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
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
, 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
, 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.
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.
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
.
The table below provides references to the Announcements that have been issued that are related to this topic.
SEL-2020-05
