Freddie Mac Single-Family Seller/Servicer Guide Section 5605.2 — Definition of market value

Freddie Mac Single-Family Seller/Servicer Guide Section 5605.2 — Definition of market value

5605.2: Definition of market value (06/04/25) An appraisal must be based on the following definition of market value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. Buyer and seller are typically motivated Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-2 2. Both parties are well informed or well advised, and each is acting in what he or she considers his or her own best interest 3. A reasonable time is allowed for exposure in the open market 4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto, and 5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale *Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a Market Area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third-party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar-for-dollar cost of the financing or concession, but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment. The market value estimate of the subject property must not include value assigned to furniture or any other personal property. 5605.3: Subject property, contract and Neighborhood description (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: ■ Identifying the subject property address, legal description, occupancy status, property rights, listing information and lender/client ■ Contract analysis ■ Neighborhood description and analysis Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-3 (a) Identifying the subject property address, legal description, occupancy status, property rights, listing information and lender/client (i) Subject property address and owner of record The “Subject” section of the appraisal report must identify the subject property by providing a complete property address and legal description and by identifying the owner of public record for the property. For appraisal reports that are required to be completed using the Uniform Appraisal Dataset (UAD), the format of the property address must conform to the United States Postal Service (USPS) Address Standards in Publication 28. (Refer to Section 5606.1.) (ii) Legal description For each Mortgage delivered to Freddie Mac with an appraisal report, the appraisal report must include the legal description of the subject property. If the legal description is lengthy, the appraiser may attach it as an addendum to the appraisal report. The legal description used in the Security Instrument, title insurance policy or other evidence of title must be in one of the forms listed below. (A) Metes and bounds If the appraisal report contains a metes and bounds legal description, it should comply with the following standards: ■ The beginning point should be established by a monument located at the beginning point or by reference to a nearby monument ■ Each boundary of the Mortgaged Premises must be described by its distances and bearings. Note: In place of bearings, the interior angle method is acceptable if the beginning point is on a dedicated public street line or a fixed line on other property or if the course of the first side can be otherwise properly fixed. ■ The distances, bearings and angles should be taken from a recent instrument survey or a recently recertified instrument survey by a licensed civil engineer or registered surveyor ■ Curved courses should be described by data including the length of arc, the radius of circle for the arc and the chord distance and bearing. Note: When a survey course is part of a dedicated public street or road line, the course may be described by indicating the distance and direction the course takes Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-4 along the street line from the end of the previous course, if commonly accepted by private institutional Mortgage investors in the Market Area where the Mortgaged Premises is located. ■ The legal description should be a single perimeter description of the entire plot ■ The subject property must not be divided into parcels unless serving a special purpose of the Mortgage; however: ❑ The subject property must be divided if the parcel is located on two sides of a public way ❑ It is customary in many areas to describe an easement appurtenant to a fee simple parcel by using a separate parcel description (B) Lot and block A description composed of lots and/or blocks, including a reference to a recorded map or plat that shows the lots or blocks, is usually adequate. When all lots or blocks in the description do not appear on the same recorded map or plat, a reference to the location of the apparently identical sides of lots or blocks in different recorded maps or plats, fixed in both maps or both plats by the same monuments (a rare situation), is usually adequate. (C) Additional acceptable forms If a parcel is bounded on all sides by dedicated streets or alleys, it is acceptable for the legal description to refer only to the bounding lines of the streets or alleys. A description of registered property is acceptable if it is in the form required by the local Torrens Act. (D) Consistency of legal description The Mortgage, title insurance policy (or substitute evidence of title), survey, lease, mortgage insurance policy, property insurance policies and all other documents pertaining to the Mortgage or the Mortgaged Premises must each have a legal description consistent with that in the other documents. (iii) Occupancy status, property rights and listing information The occupancy status of the property must be identified as either owner, tenant or vacant as of the effective date of the appraisal report. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-5 The property rights appraised must be reported as either fee simple or leasehold, and the appraisal report must indicate whether the property is currently offered for sale or was offered for sale within the 12 months prior to the effective date of the appraisal report. The appraisal report must state the data source(s) used, offering price(s), date(s) and days on market for the subject property. (iv) Lender/client identification The appraisal report must include the name of the lender on the lender/client line. Any applicable appraisal management company must be reported in the appraiser’s certification section of the appraisal report form. (b) Contract analysis The contract for sale for the subject property must include: ■ Sale or contract price ■ Date of contract ■ Any loan charges to be paid by the property seller, and ■ Any financing or sales concessions to be paid by the property seller or any other interested party to the transaction The Seller must ensure the complete contract for sale for the subject property is provided to the appraiser with the appraisal request, regardless of whether the appraisal is ordered by the Seller or another lender. The “Contract” section of the appraisal report must include: ■ The results of the appraiser’s analysis of the contract for sale ■ Contract price ■ Date of contract, and ■ Acknowledgement as to whether the property seller is the owner of public record, and the data source(s) used The appraiser must have the necessary and appropriate data sources for the Market Area in which the subject property is located. The appraisal report must include the total dollar amount and a description of any financial assistance (e.g., loan charges, sales concessions, gift or Down Payment assistance) to be paid by any party on behalf of the Borrower. Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-6 For appraisal reports that are required to be completed using the UAD, the “Contract” section of the appraisal report must indicate the type of sale for the underlying transaction. Valid UAD sale types include REO sale, short sale, court-ordered sale, estate sale, relocation sale, non-arm’s length sale and arm’s length sale. (Refer to Section 5606.1.) (c) Neighborhood description and analysis The “Neighborhood” section of the appraisal report requires the appraiser to: ■ Identify the Neighborhood boundaries and describe the Neighborhood characteristics as either “Urban,” “Suburban” or “Rural” ■ Describe the percent built-up as either “Over 75%,” “25-75%” or “Under 25%” ■ Describe the growth rate as either “Rapid,” “Stable” or “Slow” ■ Report on market conditions, one-unit housing trends, price and age ranges and present land uses for the properties in the Neighborhood (i) Market Area analysis Mortgages secured by residential properties in urban, suburban or rural Market Areas are eligible for delivery to Freddie Mac if the Mortgaged Premises is adequate collateral for the transaction, based on the value, condition and marketability of the property. Market conditions and Neighborhood or Market Area characteristics vary based on property location. The appraisal report must include the appraiser’s explanation of their conclusions. (ii) Neighborhood or Market Area characteristics Neighborhood or Market Area characteristics that are typical in certain locations may not exist in other locations; therefore, Neighborhood or Market Area characteristics must be viewed in the context of the location of the subject property. Example: Urban locations often consist of a variety of different property types that have different uses. It is not unusual in urban Neighborhoods to find properties with mixed uses, such as residential properties that also have a commercial use. Rural locations may have agricultural zoning and/or consist of a variety of different property types and land uses, such as large sites with outbuildings, farms, ranches and undeveloped land. When performing the Neighborhood or Market Area analysis, the appraiser must consider the existence of any of the following in the Neighborhood or Market Area: ■ Mixed-use property Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-7 ■ Non-residential property ■ Non-residential land uses, such as agricultural property, undeveloped land or land under development The existence of mixed-use properties, non-residential properties or non-residential land uses in the Neighborhood or Market Area does not make the residential properties in those locations ineligible as security for Mortgages delivered to Freddie Mac. Example: A subject property in a rural area where agricultural activities are prevalent may be eligible as security for a Mortgage delivered to Freddie Mac if the appraiser determines the subject property is residential, based on the subject property’s characteristics and land use. 5605.3: Subject property (Future effective date 11/02/26) This section contains requirements related to: ■ Subject property ■ Legal description ■ Ownership rights (a) Subject property The “Subject Property” section of the appraisal report must identify the subject property by providing a complete physical property address and legal description. The format of the property address must conform to the United States Postal Service (USPS) Address Standards in Publication 28. This section also requires the identification of certain property characteristics (e.g., Planned Unit Development (PUD), Condominium, Cooperative, new construction), number of dwellings, attachment type, existence of an ADU, ownership rights and special assessments. (b) Legal description For each Mortgage delivered to Freddie Mac with an appraisal report, the appraisal report must include the legal description of the subject property. If the legal description is lengthy, Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-8 the appraiser may upload an image file of the legal description in the “Subject Property Exhibits” of the appraisal report. The legal description used in the Security Instrument, title insurance policy or other evidence of title, survey, lease, mortgage insurance policy, property insurance policies and all other documents pertaining to the Mortgage or the Mortgaged Premises must describe the subject property. Although encountered in only a few cases, a description of a parcel bounded on all sides by dedicated streets or alleys can acceptably refer only to the bounding lines of the streets or alleys. A description of registered property is acceptable if it is in the form required by the local Torrens Act. (i) Metes and bounds If the appraisal report contains a metes and bounds legal description, it should comply with the following standards: ■ The beginning point should be established by a monument located at the beginning point or by reference to a nearby monument ■ Each boundary of the Mortgaged Premises must be described by its distances and bearings. Note: In place of bearings, the interior angle method is acceptable if the beginning point is on a dedicated public street line or a fixed line on other property or if the course of the first side can be otherwise properly fixed. ■ The distances, bearings and angles should be taken from a recent instrument survey or a recently recertified instrument survey by a licensed civil engineer or registered surveyor ■ Curved courses should be described by data including the length of arc, the radius of circle for the arc and the chord distance and bearing. Note: When a survey course is part of a dedicated public street or road line, the course may be described by indicating the distance and direction the course takes along the street line from the end of the previous course, if commonly accepted by private institutional Mortgage investors in the Market Area where the Mortgaged Premises is located. ■ The legal description should be a single perimeter description of the entire plot Freddie Mac Single-Family Seller/Servicer Guide Chapter 5605 As of 02/04/26 Page 5605-9 ■ The subject property must not be divided into parcels unless serving a special purpose of the Mortgage; however: ❑ The subject property must be divided if the parcel is located on two sides of a public way ❑ It is customary in many areas to describe an easement appurtenant to a fee simple parcel by using a separate parcel description (ii) Lot and block A description composed of lots and/or blocks, including a reference to a recorded map or plat that shows the lots or blocks, is usually adequate. When all lots or blocks in the description do not appear on the same recorded map or plat, a reference to the location of the apparently identical sides of lots or blocks in different recorded maps or plats, fixed in both maps or both plats by the same monuments (a rare situation), is usually adequate. (c) Ownership rights The “Ownership Rights” section of the appraisal report describes the ownership and property rights appraised for the subject property and must be reported as either fee simple or leasehold. The appraisal report must identify any property rights excluded from the valuation of the subject property (e.g., mineral rights, water rights).

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