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• Upon completion of this chapter, the participant will be able to:
– Select the appropriate reporting avenue appropriate in an assignment of a two- to four-unit or multi-family property
– Recognize Fannie Mae guidelines and integral obligations applying to the use of the Fannie
Mae/Freddie Mac Reporting Form 1025/72 for small residential income properties
– Prepare the Fannie Mae/Freddie Mac Reporting Form
1025/72 and develop effective commentary
– Compile required data and correctly complete analysis necessary for completion of the Fannie Mae/Freddie
Mac Operating Income Statement Form 216/998
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Gross Building Area (GBA)
Gross Living Area (GLA)
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• When permitted, they may be favored by many appraisers because:
– The free format allows for the report to be structured and flow in the manner that can best be understood
– The free format is most beneficial to clients and intended users
– Properties with more than four units generally are reported using a narrative reporting format
• Fannie Mae Form 1025/Freddie Mac Form 72
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• Most common reporting form used for reporting the appraisal of a 2- to 4-family property for use by a lender client
• 7-page report and provides an orderly and systematic flow of information and commentary
• Developed for use by Fannie Mae and
Freddie Mac
– Has been adopted for use by other lending entities such as the FHA and VA and other lenders
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• This statement satisfies the USPAP requirement to state report’s intended use(s)
• The existence of this statement, integral with the form, makes using this form for other nonfinancing uses (e.g., marketing, estates, litigation) unacceptable
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• Satisfying USPAP requirements to state the intended user, the intended user in this case is predetermined to be the lender/client.
• Again, this specification eliminates the use of this form for other non-financing uses and users
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• Illustrates the most commonly used and described method
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• Assists the appraiser in establishing the limitations of responsibility on the part of the appraiser
• Some elements also further emphasize the scope of work performed in the assignment, such as providing:
– A sketch of the improvements
– Research of flood information
– Other notes regarding any unfavorable conditions found, or not found, within the subject property
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• Examples of statements include:
– Specific methodology used in the assignment and, unless otherwise indicated, the cost approach was not developed
– Analysis and reporting of offerings and any current sales agreement of the subject property
– Research, verification, analysis, and reporting of prior sales of the comparable data
– Process of selecting and analyzing comparable sales data
– Techniques for adjusting comparable sales
– Competency in the assignment
• The certification cannot be modified
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• Applicable only when subject is in connection with financing for a purchase transaction
• Fannie Mae specifically indicates the lender is responsible for providing the appraiser with a copy of the sales contract and any additional pertinent information (which the lender is aware of) not included in the sales contract
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• See image on page 77
• This section may seem somewhat similar to that found in the URAR reporting form for single-family properties
– However, there are some distinctive differences that should be quite apparent
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• Identical to that on the URAR reporting form for single-family properties, using the GRM method
• Fannie Mae does not accept appraisals that rely singularly on the income approach as an indicator of market value
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Fannie Mae defines a PUD as a project or subdivision consisting of common property and improvements owned and maintained by a homeowner’s association for the benefit and use of the individual PUD units*
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4/16/2020 * Fannie Mae 2010 Selling Guide – B4-2.3-01, PUD: Lender Full Review Requirements (04/01/2009), page 585 25

• Required exhibit to accompany the
1025/72 Small Residential Income
Property Appraisal Report for a 2- to 4unit income property
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• Completion of the form is a joint effort of the loan applicant, appraiser, and lender’s underwriter
• Rental is based on an unfurnished unit
• Rent schedule states:
– Which units are currently rented
– Expiration date of any lease agreement
– Contract and market rent
– Party responsible for payment of specified utility expenses
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• Very similar to the Reconstructed
Operating Income Statement presented in
Chapter 3
• Some expenses are not included in this projection (e.g., real estate taxes and hazard insurance)
– These are later included in the owner’s monthly housing expense
• Income and expenses for owner-occupied units are not included
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• Replacement reserves must be calculated regardless of whether actual reserves are provided for on the owner’s operating statements or are customary in the local market
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• First analysis addresses the monthly operating income of the property, based on the annual income and expense projection from Page 1 of the form
• Second analysis concludes on a net monthly cash flow for the property by subtracting monthly housing expense from monthly operating income
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• In most cases, especially for appraisals reported on the Fannie Mae Form 1025/72, the following exhibits are required:
– Exterior building sketch indicating dimensions
– Calculations demonstrating how the estimate for
GBA and GLA are derived
– Street map showing location of subject and all comparables used
– Clear, descriptive, original photos showing front, back, and a street scene of the subject and the front of each comparable sale*
4/16/2020 *Fannie Mae 2010 Selling Guide – B4-1.2-06, Appraisal Forms and Report Exhibits (10/30/2009), page 486 31

1. If a neighborhood is fully developed, which box should be checked in the
Neighborhood Characteristics section for the category of Growth?
a. Not Applicable b. Rapid c. Slow d. Stable
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2. When a subject property is something other than “legal” for zoning compliance, when reporting, the appraiser should a. modify the scope of work.
b. provide additional commentary.
c. state that the improvement should be razed.
d. withdraw from the assignment.
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3.
A mother-in-law unit created by converting the detached garage of a primary dwelling a. could not be reported on the 1025/72 reporting form.
b. is an example of an accessory unit.
c. is never permitted by Fannie Mae.
d. is not considered a separate living unit.
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4.
Which is a TRUE statement if physical deficiencies that could affect the property’s soundness are noted in the subject structure by an appraiser?
a. The appraiser must cease the appraisal.
b. The property cannot be appraised subject to satisfactory inspections.
c.
The report must be based on an “as is” scenario.
d. They must be described in the report.
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5. Which is NOT a component of the
Subject Rent Schedule integral with form 1025/72?
a. actual (contract) rent b. fixed expenses c. other monthly income d. utilities included in estimated rents
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6. The Prior Sale History section of Form
1025/72 requires an appraiser to research and comment on whether the subject property a. has been listed for sale in past 36 months.
b. has ever sold in the past.
c. is currently, or in the past 12 months prior to the effective date, been listed for sale.
d. is listed for sale currently; however, there is no requirement for prior listings.
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7. Regarding the selection of comparable sales, which is NOT a guideline of
Fannie Mae?
a. Comparable sales older than six months cannot be used.
b. Current listings may be used as supporting data.
c. A minimum of three comparable sales must be reported.
d. The prior sale of the subject property can be used as a fourth comparable.
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8. Per Fannie Mae requirements, the cost approach a. does not need to be reported, except for manufactured housing.
b. is a primary indicator of market value.
c. must be developed and reported for all two- to four-family properties.
d. should be developed if the improvements are less than five years old.
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9. According to Fannie Mae, the final reconciliation must never a. be based on an averaging technique.
b. elaborate on the relevance of data used in each approach.
c. give most weight to the sales comparison approach.
d. reconcile the reasonableness of available data.
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10. Regarding two- to four-family properties in which one of the units is owneroccupied, which statement is TRUE?
a. Income and expenses for owner-occupied units are not included.
b. Operating expenses for the unit are included but income is not.
c. The Operating Income Statement is not included in such case with the 1025/72 report.
d. Potential income from the unit is estimated and used in determining effective gross income.
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11. In a three-unit apartment building which has no owner-occupied units, if dishwashers in all units are expected to be replaced in four years, what is the total annual replacement reserve for the property? Dishwashers cost
$400 per unit and should last 15 years from date of purchase.
a. $25 b. $100 c. $300 d. $400
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12. If the subject property has an annual effective gross income of $26,040 and annual expenses of $10,416, what is the monthly cash flow reported on the
Operating Income Statement 216/998 if monthly housing expense is $937?
a. $234 b. $365 c. $401 d. $552
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