Freddie Mac Single-Family Seller/Servicer Guide Section 5605.5 — Improvements analysis

Freddie Mac Single-Family Seller/Servicer Guide Section 5605.5 — Improvements analysis

5605.5: Improvements analysis (01/26/26) Refer to Bulletin 2025-7, which announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers may submit to the Uniform Collateral Data Portal® appraisal reports that use UAD 3.6 before the mandatory effective November 2, 2026 version of this section. This section contains requirements related to: ■ Property condition and quality of construction ■ Required permits ■ Unusual floor plans ■ Rehabilitated or renovated property ■ Non-conformity to the Neighborhood and non-traditional or unique property types ■ Outbuildings on a property (a) Property condition and quality of construction The appraisal report must contain an accurate description of the improvements and describe any factors that may affect the market value or marketability of the subject property. The appraiser is responsible for reporting the condition and quality that best describe the overall condition and quality of the subject property. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-19 For appraisal reports that are required to be completed using the Uniform Appraisal Dataset (UAD), the appraiser must use the condition and quality ratings and the level of updating definitions identified in Exhibit 36, Condition and Quality Ratings and Level of Updating Definitions. For appraisal reports that are not required to be completed using the UAD, the UAD specifications may be used to the extent they are applicable to the particular appraisal report form. The condition and quality ratings must be based on a holistic view of the property and any improvements. When selecting the condition and quality ratings, the appraiser must: ■ Consider all improvements to determine overall condition and quality ratings and select the ratings that best reflect a holistic view of the property ❑ If any portion of the improvements has a quality of construction consistent with the Q6 quality rating, the property must be identified with a Q6 quality rating ❑ If any portion of the improvements is impacted by one or more deficiencies that are consistent with a C5 or C6 condition rating, the property must be identified with a C5 or C6 condition rating ■ Describe the subject property on an absolute basis as of the effective date of the appraisal report, meaning the property must be rated on its own merits. Ratings should not be selected on a relative basis, meaning a rating is not selected based on how the property relates or compares to other properties. The condition and quality ratings for comparable properties must be made on an absolute basis and reflect the condition and quality of the comparable property as of the date of sale of the comparable property. ■ As necessary, provide additional commentary, descriptions and explanations to enable the intended users of the appraisal report to understand the property condition and quality (i) Properties consistent with a Q6 quality rating A Mortgaged Premises consistent with a Q6 rating is not acceptable collateral to secure a Mortgage sold to Freddie Mac unless all issues that caused the property to be rated with a Q6 quality rating are cured before delivery of the Mortgage to Freddie Mac. In such cases, when an appraisal report is delivered with the Mortgage, the appraisal report must be completed “subject to” and the reported quality rating must reflect the hypothetical condition that would exist if the repairs or alterations were completed. Note: See Section 5605.8 for information related to appraisal reports completed “subject to” repairs or alterations and PDRs with required repairs. Examples that are consistent with a Q6 quality rating include, but are not limited to: Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-20 ■ Quality such that the property is not habitable as a year-round residence ■ Minimal or non-existent electrical, plumbing and/or other mechanical systems ■ Substandard additions to the original structure ■ Other quality related deficiencies that make the property unacceptable to typical purchasers in the Market Area Exceptions: Issues that caused the property to have a Q6 quality rating may be cured after the Settlement Date if: ■ The Mortgage is a CHOICERenovation® Mortgage delivered pursuant to Section 4607.1(b) or a CHOICEReno eXPress® Mortgage delivered pursuant to Section 4607.1(c), and the: ❑ Issues are cured as part of the completion of the renovations ❑ Renovations are eligible renovations under Section 4607.6 ■ The Mortgage is secured by a property with incomplete improvements and delivered pursuant to Section 5601.3 (ii) Properties with deficiencies consistent with a C5 or C6 condition rating A Mortgaged Premises with deficiencies consistent with a C5 or C6 condition rating is not acceptable collateral to secure a Mortgage sold to Freddie Mac unless all issues that caused the property to be rated with a C5 or C6 condition rating are cured before delivery of the Mortgage to Freddie Mac. In such cases, when an appraisal report is delivered with the Mortgage, the appraisal report must be completed “subject to” and the reported condition rating must reflect the hypothetical condition that would exist if the repairs or alterations were completed. Note: See Section 5605.8 for information related to appraisal reports completed “subject to” repairs or alterations and PDRs with required repairs. Examples of deficiencies that are consistent with C5 or C6 rating include, but are not limited to: ■ Active roof leak(s) ■ Incomplete construction or remodel (including missing or severely damaged cabinets or countertops, missing plumbing fixtures in the kitchen or bathroom(s), etc.) Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-21 ■ Missing or damaged exterior components that would allow water or other elements to enter the dwelling ■ Missing or severely damaged interior drywall or plaster such that the wall framing is exposed (excluding basements) ■ Standing water in the property, water seepage/intrusion or significant plumbing leaks ■ Uncapped wiring ■ Curled, cupped or missing roof shingles ■ Missing or severely damaged floor coverings in the majority of the living area (excluding basements) ■ Damaged or failing foundations ■ A mechanical system that is non-functional, or ■ A sanitary system with evidence of failure Exceptions: Deficiencies that caused the property to have a C5 or C6 condition rating may be cured after the Settlement Date if: ■ The Mortgage is a CHOICERenovation Mortgage delivered pursuant to Section 4607.1(b) or a CHOICEReno eXPress Mortgage delivered pursuant to Section 4607.1(c), and the: ❑ Deficiencies are cured as part of the completion of the renovations ❑ Renovations are eligible renovations under Section 4607.6 ■ The Mortgage is secured by a property with incomplete improvements and delivered pursuant to Section 5601.3 (iii) Appraisal reports completed “subject to” an inspection If there are property conditions that require further investigation, the appraisal report must be completed “subject to” an inspection by an appropriately licensed professional or another person trained in the particular field of concern. Examples of conditions that may require an inspection include, but are not limited to, observations of: ■ Severe cracks in foundations or walls Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-22 ■ Evidence of infestation, or ■ Potentially contaminated water source The Seller must include in the Mortgage file evidence of the repair or an inspection report that indicates the condition does not require repair. See Section 5605.8 for additional information related to appraisal reports completed “subject to” an inspection. (iv) Existing properties with minor needed repairs or deficiencies or deferred maintenance Freddie Mac allows an appraisal report to be completed “as is” for an existing property when there are minor needed repairs, deficiencies or deferred maintenance. The appraisal report must reflect adjustments for these conditions in the appraisal report, when necessary. Examples of acceptable minor needed repairs, deficiencies and deferred maintenance items include, but are not limited to: ■ Worn floor finishes or coverings ■ Minor cracks in windows ■ Minor damage to interior walls ■ Damaged or missing interior doors ■ Damaged or missing window screens or cabinetry doors ■ Missing handrails ■ Damaged or deteriorating countertops ■ Missing hardware (such as handles) ■ Missing light fixtures, electrical panel/breaker box covers, electrical switches or faceplates ■ Damaged or missing trim ■ Minor plumbing leaks that do not cause damage (such as dripping faucets) ■ Deteriorated sidewalks Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-23 (b) Required permits If there are additions or alterations that were made without required permits, the appraisal report should contain comments on the quality and appearance of the work. (c) Unusual floor plans An unusual floor plan, such as a home with tandem bedrooms or a bathroom off the kitchen, does not make a property ineligible as security for a Mortgage delivered to Freddie Mac. The appraisal report should include commentary that addresses whether an unusual floor plan or similar obsolescence is found in other properties in the Market Area. To the extent possible, comparable properties should have similar obsolescence to demonstrate marketability and support value of the subject property. (d) Rehabilitated or renovated property For properties that have recently undergone rehabilitation or renovation, the appraisal report must identify the changes made and contain photographs of the rehabilitation or renovation. The photographs must meet the requirements in Section 5604.2(a). (e) Non-conformity to the Neighborhood and non-traditional or unique property types When the subject property does not conform to its Neighborhood in terms of type, design, age, materials or techniques used in its construction, the appraisal report must reflect the effect of the nonconformance on the property’s value and marketability. Mortgages secured by non-traditional types of properties are eligible for delivery to Freddie Mac. Examples of non-traditional or unique property types include, but are not limited to: ■ “Barndominiums” (barn conversions or barn-style buildings) ■ “Shouses” (living-space and work/storage combinations) ■ Berm homes ■ Log homes ■ Geodesic dome dwellings The appraisal report must include comparable sales that demonstrate the subject property’s dwelling type or style is marketable. Additional analysis may be required to determine whether the design or style represents a mixed-use configuration. (See Section 5601.5 for mixed-use requirements.) The appraisal report may contain traditional homes as comparable sales for non-traditional or unique properties if the appraiser identifies any differences between the subject and Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-24 comparable sales and adjusts for any differences between the subject property and the comparable sales and can justify and support the use of the comparable sales in the appraisal report. (f) Outbuildings on a property The Seller must consider outbuildings on a subject property, such as barns or stables, in the underwriting process to determine whether the subject property is primarily residential or non-residential. A subject property with a small barn or stable may be acceptable if the contributory value of the outbuilding is minimal in relation to the total appraised value of the subject property. The appraisal report must demonstrate (e.g., through the use of comparable sales, pending sales, listings) that these characteristics are typical for residential properties in the Market Area. Note: When a subject property has a large outbuilding, such as a large barn or silo, or multiple outbuildings or facilities for farm animals, the subject property may be agricultural or non-residential and ineligible as security for a Freddie Mac Mortgage, regardless of whether the appraiser assigns value to these improvements. 5605.5: Improvements analysis (Future effective date 11/02/26) This section contains requirements related to: ■ Property condition and quality of construction ■ Highest and best use ■ Disaster mitigation ■ Required permits ■ Unusual floor plans ■ Rehabilitated or renovated property ■ Non-conformity to the Neighborhood and non-traditional or unique property types ■ Outbuildings on a property (a) Property condition and quality of construction The appraisal report must contain an accurate description of the improvements and describe any factors that may affect the market value or marketability of the subject property. For Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-25 appraisal reports that are required to be completed using the Uniform Appraisal Dataset (UAD), the appraisal report must include: ■ A description of all defects, damages, or deficiencies that impact the subject property. Defects, damages and deficiencies are items that: ❑ Rise to the level of recommending repair, replacement, or inspection by an individual with expertise in the industry, ❑ Negatively affect the integrity or composition of the site itself, ❑ Negatively affect the soundness or structural integrity of the improvements, ❑ Measurably impact the marketability or value of the subject property, or ❑ Are incomplete ■ Condition and quality ratings consistent with the definitions in Exhibit 36, Condition and Quality Ratings ■ The overall, interior, and exterior condition and quality rating for the Mortgaged Premises, including a reconciliation of the overall quality and condition ratings The overall quality and condition ratings must reflect the quality and condition of the Mortgaged Premises as though any required repairs, inspections, or completions have been satisfactorily completed ■ The “as is” overall condition rating, excluding all required repairs, alterations or inspections. If any portion of the improvements is impacted by one or more deficiencies that are consistent with a C5 or C6 condition rating, the “as is” overall condition rating of the property must be C5 or C6. ■ The condition status of each interior and exterior feature and a description of both the condition status and the update status for certain components of the property (e.g., kitchen, bathroom, flooring) The overall condition and quality ratings must describe the subject property as of the effective date of the appraisal report on an absolute basis, not on a relative basis (i.e., the property must be rated on its own merits rather than on how it relates or compares to other properties). The quality and condition ratings for comparable properties must also be made on an absolute basis and reflect the quality and condition of the comparable property as of the date of sale. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-26 For appraisal reports that are not required to be completed using the UAD, the UAD specifications may be used to the extent they are applicable to the following appraisal report forms: ■ Form 1032, One-Unit Residential Appraisal Field Review Report ■ Form 1033, One-Unit Residential Appraisal Desk Review Report ■ Form 1072, Two- to Four-Unit Residential Appraisal Field Review Report (i) Properties consistent with a Q6 quality rating A Mortgaged Premises consistent with a Q6 rating is not acceptable collateral to secure a Mortgage sold to Freddie Mac unless all issues that caused the subject property to be rated with a Q6 quality rating are cured before delivery of the Mortgage to Freddie Mac. In such cases, when an appraisal report is delivered with the Mortgage, the appraisal report must be completed “subject to” and the reported quality rating must reflect the hypothetical condition that would exist if the repairs or alterations were completed. Note: See Section 5605.9 for information related to appraisal reports completed “subject to” repairs or alterations and PDR requirements for verifying completion. Examples of defects, damages or deficiencies that are consistent with a Q6 quality rating include, but are not limited to: ■ A lack of basic architectural designs and may not meet local building code ■ Materials and amenities are low quality, alternate, or non-customary ■ Construction or installation reflects unskilled workmanship and may not be adequately equipped to support year-round occupancy, or ■ Other quality related deficiencies that make the subject property unacceptable to typical purchasers in the Market Area Exceptions: Issues that caused the property to have a Q6 quality rating may be cured after the Settlement Date if: ■ The Mortgage is a CHOICERenovation® Mortgage delivered pursuant to Section 4607.1(b) or a CHOICEReno eXPress® Mortgage delivered pursuant to Section 4607.1(c), and the: ❑ Issues are cured as part of the completion of the renovations ❑ Renovations are eligible renovations under Section 4607.6 Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-27 ■ The Mortgage is secured by a property with incomplete improvements and delivered pursuant to Section 5601.3 (ii) Properties with deficiencies consistent with an “as is” C5 or C6 condition rating A Mortgaged Premises with deficiencies consistent with an “as is” condition rating of C5 or C6 is not acceptable collateral to secure a Mortgage sold to Freddie Mac unless all issues that caused the subject property to be rated with a C5 or C6 condition “as is” rating are cured before delivery of the Mortgage to Freddie Mac. In such cases, when an appraisal report is delivered with the Mortgage, the appraisal report must be completed “subject to” and the reported condition rating must reflect the hypothetical condition that would exist if the repairs or alterations were completed. Note: See Section 5605.9 for information related to appraisal reports completed “subject to” repairs or alterations and PDR requirements for verifying completion. Examples of defects, damages or deficiencies that are consistent with a C5 or C6 condition rating include, but are not limited to: ■ Active roof leak(s) ■ Incomplete construction or remodel (including missing or severely damaged cabinets or countertops, missing plumbing fixtures in the kitchen or bathroom(s), etc.) ■ Missing or damaged exterior components that would allow water or other elements to enter the dwelling ■ Missing or severely damaged interior drywall or plaster such that the wall framing is exposed (excluding basements) ■ Standing water in the property, water seepage/intrusion or significant plumbing leaks ■ Uncapped wiring ■ Roofing that is significantly worn, cupped, curled or missing shingles ■ Missing or severely damaged floor coverings in the majority of the living area (excluding basements) ■ Damaged or failing foundations ■ A mechanical system that is non-functional, or ■ A sanitary system with evidence of failure Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-28 ■ No functional kitchen or bathroom or the kitchen or all bathrooms in disrepair Exceptions: Deficiencies that caused the property to have a C5 or C6 condition rating may be cured after the Settlement Date if: ■ The Mortgage is a CHOICERenovation Mortgage delivered pursuant to Section 4607.1(b) or a CHOICEReno eXPress Mortgage delivered pursuant to Section 4607.1(c), and the: ❑ Deficiencies are cured as part of the completion of the renovations ❑ Renovations are eligible renovations under Section 4607.6 ■ The Mortgage is secured by a property with incomplete improvements and delivered pursuant to Section 5601.3 (iii) Appraisal reports completed “subject to” an inspection If there are property conditions that require further investigation, the appraisal report must be completed “subject to” an inspection by an appropriately licensed professional or another person trained in the particular field of concern. Examples of conditions that may require an inspection include, but are not limited to, observations of: ■ Severe cracks in foundations or walls ■ Evidence of infestation, or ■ Potentially contaminated water source The Seller must include in the Mortgage file evidence of the repair or an inspection report that indicates the condition does not require repair. See Section 5605.8 for additional information related to appraisal reports completed “subject to” an inspection. (iv) Existing properties with minor defects, damages or deficiencies Freddie Mac allows an appraisal report to be completed “as is” for an existing property when there are minor defects, damages or deficiencies. The appraisal report must reflect adjustments for these conditions in the appraisal report, when necessary. Examples of acceptable minor defects, damages or deficiencies and deferred maintenance items include, but are not limited to: ■ Worn floor finishes or coverings Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-29 ■ Minor cracks in windows ■ Minor damage to interior walls ■ Damaged or missing interior doors ■ Damaged or missing window screens or cabinetry doors ■ Missing handrails ■ Damaged or deteriorating countertops ■ Missing hardware (such as handles) ■ Missing light fixtures, electrical panel/breaker box covers, electrical switches or faceplates ■ Damaged or missing trim ■ Minor plumbing leaks that do not cause damage (such as dripping faucets) ■ Deteriorated sidewalks (b) Highest and best use For a Mortgage to be eligible for sale to Freddie Mac, the present land use of the subject property must also be the highest and best use of the subject property as improved (or as proposed per plans and specifications). (c) Disaster mitigation If the subject property or a comparable sale has disaster mitigation features designed to prevent or reduce the impact of natural disasters on the property, the appraisal report must identify those features. Examples of disaster mitigation features include, but are not limited to, fire resistant decking or exterior walls, flood vents, fortified roof, impact resistant shingles and storm shutters. (d) Required permits If additions or alterations were made without required permits, the appraisal report should contain comments on the quality and appearance of the work. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-30 (e) Unusual floor plans An unusual floor plan, such as a home with tandem bedrooms or a bathroom off the kitchen, does not make a property ineligible as security for a Mortgage delivered to Freddie Mac. The appraisal report should include commentary that addresses whether an unusual floor plan or similar obsolescence is found in other properties in the Market Area. To the extent possible, comparable properties should have similar obsolescence to demonstrate marketability and support value of the subject property. (f) Rehabilitated or renovated property For properties that have recently undergone rehabilitation or renovation, the appraisal report must identify the changes made and contain photographs of the rehabilitation or renovation. (g) Non-conformity to the Neighborhood and non-traditional or unique property types When the subject property does not conform to its Neighborhood in terms of type, design, age, materials or techniques used in its construction, the appraisal report must reflect the effect of the nonconformance on the property’s value and marketability. Mortgages secured by non-traditional types of properties are eligible for delivery to Freddie Mac. Examples of non-traditional or unique property types include, but are not limited to: ■ “Barndominiums” (barn conversions or barn-style buildings) ■ “Shouses” (living-space and work/storage combinations) ■ Berm homes ■ Log homes ■ Geodesic dome dwellings ■ Container homes The appraisal report must include comparable sales that demonstrate the subject property’s dwelling type or style is marketable. Additional analysis may be required to determine whether the design or style represents a mixed-use configuration. (See Section 5601.5 for mixed-use requirements.) The appraisal report may contain traditional homes as comparable sales for non-traditional or unique properties if the appraiser identifies any differences between the subject and comparable sales and adjusts for any differences between the subject property and the comparable sales and can justify and support the use of the comparable sales in the appraisal report. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-31 (h) Outbuildings on a property The Seller must consider outbuildings on a subject property, such as barns or stables, in the underwriting process to determine whether the subject property is primarily residential or non-residential. A subject property with a small barn or stable may be acceptable if the contributory value of the outbuilding is minimal in relation to the total appraised value of the subject property. The appraisal report must demonstrate (e.g., through the use of comparable sales, pending sales, listings) that these characteristics are typical for residential properties in the Market Area. Note: When a subject property has a large outbuilding, such as a large barn or silo, or multiple outbuildings or facilities for farm animals, the subject property may be agricultural or non-residential and ineligible as security for a Freddie Mac Mortgage, regardless of whether the appraiser assigns value to these improvements.

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