Fannie Mae’s list of naughty words

When you think of certain neighborhoods in the Sacramento area, what comes to mind when hearing about Oak Park, The Fab 40s, Empire Ranch, Del Paso Heights or Granite Bay? In laymen’s terms some might categorize particular areas as desirable or undesirable, rich or poor, or ultimately good or bad. But descriptions like this will quickly send appraisers to Fannie Mae’s naughty list.

Fannie Mae frowns upon the following language (taken verbatim from the Fannie Mae Selling Guide 3/31/11 Part B, Subpart 4, Chapter 1).

Unacceptable terminology for appraisal reports includes:
– pride of ownership, no pride of ownership, lack of pride of ownership
– poor neighborhood
– good neighborhood
– crime-ridden area
– desirable neighborhood or location
– undesirable neighborhood or location
– other subjective terminology that can result in erroneous conclusions is equally unacceptable

Fannie Mae is determined to ensure appraisers stay objective about the criteria they use to describe and value property. Appraisers need to not let their personal opinions, beliefs or subjective judgements about certain neighborhoods influence the content or outcome of an appraisal. In addition to the above terminology, appraisal forms designed by Fannie Mae state on the first page that “race and racial composition are not appraisal factors.”

For the record, it’s my true joy to serve clients on all ends of the economic and social spectrum – and to show respect and dignity no matter what neighborhood I am working in on any given day. This is exactly why I remove my shoes when entering all houses no matter what the zip code (well, unless the carpet is filthy of course).

Question: What do you think of Fannie Mae’s “naughty list” of words? If you are a real estate agent, I’d be curious to hear your take too.

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  1. Michael Bolton says

    The more Fannie Mae, Freddie Mac, HUD, FHA tell us what we can say or not say, the more we become form fillers and less appraisers. A great example is the UAD changes coming. With that said, if someone is using that type of verbiage then they probably shouldn’t be in the business. Ryan, I’m with you 100% on the shoe thing, when I’m doing an inspection I’m a guest in their home and I treat all “Homes” the same.

  2. AnneGraviet says

    What are your thoughts about noting that it’s convenient to check-cashing & thrift stores, strip clubs and tattoo parlors?

    • says

      Anne, facts are facts. I think we can share specific facts so long as they are relevant to the client and the job at hand. The real question comes down to whether it’s important and relevant to note specific types of businesses or not. That’s going to have to be the call of appraisers and agents – and we must be cautious not to show bias by only mentioning certain businesses as opposed to others too. You probably encounter this all the time with your BPOs as a real estate agent. A few years back I was assisting in some BPO work for a local big REO agent. They would write, “the subject property is located within a redevelopment area of Sacramento that has a reputation of being associated with several types of activity – some good and some not so good.” They were being careful in their language. Yet at the same time they used “lack of pride of ownership” all the time. I personally say things like “The area is comprised mainly of older single family housing which vary tremendously in terms of age, style, size, quality and especially overall condition.” I go into more detail to talk about some houses being vacant and/or needing repairs as well as others having been updated in recent years. I just think we need to stick to the facts with stuff like this.

      I did an appraisal for an REO client last year and I noted there were three murders in the immediate neighborhood recently (one across the street too). One buyer actually backed out of this property because of the murders. I shared this information in the report because it was specific information (not just “this is a high-crime area”) for the local market that I felt was relevant for the local real estate market.

      • says

        Your choice of wording effectively communicates the neighborhood far more effectively than high crime, bad or poor neighborhood.
        Well said. I find it offensive to black list certain words or phrases. I find it very effective to communicate much more information as your example.

        Good job!

        • says

          I hear you, Bill. It doesn’t quite feel right to me on some levels, though I get where Fannie Mae is coming from. Sticking with the facts is a much better description. Thank you.

  3. AnneGraviet says

    It was important and relevant because it was an oddball property in the wrong location and a previous agent had equally compared to a property in Antelope. I’m like, ummm.. one you can walk from your cul de sac over to an award-winning school and the other you can walk to over a lap-dance.. not really equal other than size and age.

    Speaking of which, “walking-distance” and “walk to” are no-no’s. I’m told it shows bias towards people who can walk and many people cannot. So I write “within 3 blocks to the park” for example.

  4. says

    I believe its in place rightfully so that the end client gets a reflection of the facts of the property and area versus someones opinion of an area they may not live in. Pride of Ownership reflects an opinion about someones ‘pride” versus “evidence of deferred maintenance” which more directly comes down to the condition. That also another reason why its important to show “street scenes” shot in photos, that will usually give the end client an idea of the condition of the neighborhood. Banks, the govt and basically anyone has to be be careful of perceived discrimination or violations of fair housing so at least having the list of words not allowed assists, it sure did in the beginning of this REO phase for BPOs, “heavy traffic area” versus “the wal mart version of a drug dealer works from 9 to 5 in front of our asset” or even worse some of the BPOs that I have seen while conducting client tours, they are prime for someone twisting the contents if ever part of a litigation action.

    In the end, its my belief that my clients have bigger legal budgets than I do so I am just going to go with their direction versus spending thousands of dollars defending what I meant when I say X, when an attorney is trying to make it out to appear I am trying to say Y

    Put it in reverse:
    Why did you Mr Agent say the property was a “poor neighborhood” (what would your answer be and how could that be twisted)

    Why Mr Agent would you say the neighborhood showed signs of deferred maintenance? (Mr Lawyer if you look at my photos, you’ll see I noted both the houses across the street has roofs at the end of their economic lives and were patched with different colors of roofing material and our subject had the rear fence falling over and patched with different types of building materials not consistent with those materials used to repair a fence, note the rear tin shed doors nailed to the missing fence boards to close the open hole in the fence”

    I guess its how you would answer it. But if they provided documents showing the average income of the neighborhood was above poverty line than your notion of a poor neighborhood would revert back to your biased opinion.


    • says

      Excellent points, Bruce. Thanks for your detailed comment. Very good examples for why agents need to choose words carefully. I think you said it well, “I believe it’s in place rightfully so that the end client gets a reflection of the facts of the property and area versus someones opinion of an area they may not live in.” By the way, I just got back from an inspection in Wilton. I saw your name on on one of the sales during my initial research. Keep up the great work!!

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