Recently, when Paul Dodds, Founder and Managing Director of Urban Frontier LLC in Little Rock, Arkansas tried to refinance the mortgage on a National Historic Registered duplex, he was met with an unpleasant surprise from Fannie Mae.
In 2008, after an extensive renovation to comply with Arkansas’ historic preservation guidelines, the 1,500 square foot duplex was appraised by Fannie Mae for $120,000. The building, in nearly mint condition, has two one-bedroom apartments renting for $600 and $650 a month.
As the duplex’s transitional neighborhood continued to improve, Paul anticipated the properties appraisal to increased, helping him to lower the interest rate and use the equity to invest in other National Register properties in nearby neighborhoods. After three appraisers declined, Paul learned that he would only be able to appraise the duplex for its tax appraisal price of $60,000.
After checking with the state appraisal board, Paul learned that new Fannie Mae requirements only accept appraisals on comparable sales of other duplexes, within the neighborhood. Additionally, appraisers are now forbidden to consider either cost or rent based appraisal methods used in the past.
“The duplex market in Little Rock tends to have many run down properties, few sales, and frequent foreclosures. If I were to knock out some sheetrock, take out a kitchen and return the house to its original single family use, I would lose hundreds of dollars a month rent, and remove much needed, moderately priced housing stock for one and two person households,” Paul stated in a recent interview. “It is almost as though I, and developers like me, are being punished by Fannie Mae for doing quality renovations and providing great apartments that meet the demographic demands of reviving neighborhoods.”
Do you have a similar experience?
LOCUS is calling on developers across the county to be apart of this discussion to share their experience with the Fannie Mae’s secondary market appraisal guidelines for small multi-family properties. With enough responses, LOCUS will convene a working group charged to develop a list of recommendations to improve Fannie Mae’s appraisal guidelines. Share your experience here >>
LOCUS is the national coalition of real estate developers and investors who advocate for sustainable, walkable urban development in our metropolitan areas.