Continental Real Estate Services, Inc. ACTIVE TO SOLD ADJUSTMENT File No. Case No. Borrower Property Address City County State Zip Code

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1 ACTIVE TO SOLD ADJUSTMENT Property Generally, when an appraiser appraises a unit in a cooperative project, he or she should use sales of cooperative units as comparables. However, the appraiser may use sales of condominium units as comparables if cooperative unit sales are not available, as long as he or she explains why those types of comparables were used. When there is a preference for condominium ownership in the subject market area, the appraiser must adjust the condominium comparables to reflect the reaction of the market to the cooperative unit. If the subject property is a unit in a new or recently converted cooperative project, the appraiser should select as comparables one closed or settled sale from the subject project (if one is available) and two closed or settled sales from outside of the project. If closed or settled sales are not available in the subject project, the appraiser should use comparable sales from competing projects. When the subject property is a unit in an established cooperative project--one that has resale activity-- the appraiser should use as comparables two closed or settled sales from within the subject project (if available) and one closed or settled sale from a competing project. 1 of 24

2 AS-IS AND AS REPAIRED VALUES Property ***4 COMPS***AS-REPAIRED Comparables Nos. * and * are in *average/good condition and if the condition adjustments were not considered, their adjusted prices would be in the $***,*** range resulting in an AS-REPAIRED VALUE of $***,***. The value "as repaired" ($***,***) is greater than the sum of the "as-is" value and the "cost-to-cure" ($***,*** + $**,*** = $***,***) because a purchaser speculating in a property in need of repairs will demand some entrepreneurial incentive to take the risk of purchasing a dwelling in the subject's condition and hiring contractors to make the repairs. Accordingly, properties in average condition are selling for approximately **% (rounded **.**% exactly) above the sum of the cost-to-cure estimate and the as-is value which accounts for entrepreneurial incentive. ***6 COMPS***AS-IS VALUE ESTIMATE Based on the similarly distressed sales above, the AS-IS VALUE is $***,***. The value "as repaired" ($***,***) is greater than the sum of the "as-is" value and the "cost-to-cure" ($***,*** + $**,*** = $***,***) because a purchaser speculating in a property in need of repairs will demand some entrepreneurial incentive to take the risk of purchasing a dwelling in the subject's condition and hiring contractors to make the repairs. Accordingly, properties in average condition are selling for approximately **% (rounded **.**% exactly) above the sum of the cost-to-cure estimate and the as-is value which accounts for entrepreneurial incentive. ***AS-IS VALUE ESTIMATE While there are other sales of distressed, no two properties have the same degree of distress such that they are a suitable units of comparison. It is more appropriate to subtract the cost-to-cure plus entrepreneurial profit from the as-repaired value. A purchaser speculating in a property in need of repairs will demand some entrepreneurial incentive to take the risk of purchasing a dwelling in distressed condition and hiring contractors to make the repairs. Hence, entrepreneurial profit must also be considered. In the present case, the as repaired value is $***,***, the repairs are $***,*** and entrepreneurial profit is estimated at **% or $**,***. Consequently, the as-is value is $***,***. 2 of 24

3 ASSESSOR'S PARCEL NUMBER Property This page serves as an addendum to the original report on the aforementioned property. Underwriting requested that we make the APN number match the title. the subject state does not legally recognize the term Assessor's Parcel Number. Furthermore, only a metes and bounds description is considered legal. Assessors depending upon the locale refer to property by the District, Section, Block, Lot, Qualifier and/or Singularity. The APN sequence that title companies and tax data reporting services provide is an artificial number built from District, Section, Block, Lot, Qualifier and/or Singularity and is not recognized by assessors' offices as a description for real estate. Furthermore, the figures that appraisers get from the tax data reporting services will never match the title work exactly because the title work relates to old maps that were created when farm lands were subdivided into today's parcel's. Over the years, maps were updated by assessors but the deeds relate to much older maps. Our data is correct as provided. The title work is incorrect. Derek P. Eisenberg **/**/200* N.J. SCGREA LICENSE NO. RG01245 N.Y. SCGREA LICENSE NO of 24

4 BUILT UP AND VACANT LAND Property BUILT UP AND VACANT LAND Per Fannie Mae and , built up refers to the percentage of land that has been improved and vacant refers to the percentage of land that has been developed. There is a difference between improved and developed. Improved refers to subdivided lots with roads, sewers, curbs and/or sidewalks. Developed refers to a lack of constructed improvements on vacant built up land. Consequently, it is possible to have and area where 25% of the land is not built up but only 10% is vacant per Fannie Mae's definitions 4 of 24

5 EXISTING CONSTRUCTION COMPS Property SALES COMPARISON COMMENTS EXISTING CONSTRUCTION CONVENTIONAL Selection of Comparable Sales The appraiser is responsible for determining which comparables are the best and most appropriate for the assignment. Fannie Mae expects the appraiser to account for all factors that affect value when completing the analysis. Comparable sales should have similar physical and legal characteristics when compared to the subject property. These characteristics include, but are not limited to, site, room count, gross living area, style, and condition. This does not mean that the comparable must be identical to the subject property, but it should be competitive and appeal to the same market participants that would also consider purchasing the subject property. Comparables that are significantly different from the subject property may be acceptable; however, the appraiser must describe the differences, consider these factors in the market value, and provide an explanation justifying the use of the comparable(s). Comparable sales from within the same neighborhood (including subdivision or project) as the subject property should be used when possible. Sale activity from within the neighborhood is the best indicator of value for properties in that neighborhood as sales prices of comparable properties from the same location should reflect the same positive and negative location characteristics. Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best comparables available and the most appropriate for the appraiser s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. The appraiser must also provide an explanation as to why he or she used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject neighborhood. If a property is located in an area in which there is a shortage of truly comparable sales, either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use as comparable sales, properties that are not truly comparable to the subject property. In some situations, sales of properties that are not truly comparable may simply be the best available and the most appropriate for the appraiser s analysis. The use of such sales is acceptable as long as the appraiser adequately documents his or her analysis and explains why these sales were used. (For additional information, see B , Neighborhood Section of the Appraisal Report. 5 of 24

6 CONDO COMPS Property FNMA states: Section Sales Comparison Approach A. Selecting the comparables. For properties that are in established subdivisions or for units in established condominium or PUD projects (those that have resale activity), the appraiser should use comparable sales from within the same subdivision or project as the subject property if there are any available. Resale activity from within the subdivision or project should be the best indicator of value for properties in that subdivision or project. If the appraiser uses sales of comparable properties that are located outside of the subject neighborhood, he or she must include an explanation with the analysis. EXISTING OR NEW CONSTRUCTION FHA On the use of comparables the FHA handbook states: (9-1) B. APPROACH TO VALUE 1. Sales Comparison Approach The appraiser should obtain sales data from any other units in the project and from other competitive condominium projects, including adjustments because of location factors. SYNOPSIS NOTE: If you cannot adhere to the rule say why. FHA wants units both in and out as they state "in the project and from other competitive condominium projects" FNMA on existing construction wants only resales in the complex or out with explanation if the appraiser must use sales out of the complex. The old "two-in-one-out-rule" was abolished years ago by FNMA and FHLMC. FNMA on new construction wants one in, one out and 3rd anywhere. 6 of 24

7 COOP COMPS Property FNMA Section Units in Cooperative Projects The appraiser must use reliable sources to obtain data on the cooperative project, the individual subject unit, and the comparable properties, and indicate the name of each source on Form 1075 (or on an addendum to it). The appraiser must address any factors that could result in an increase to the monthly debt service for the subject unit. For comparison purposes, the appraiser should indicate in the "sales comparison analysis" In many areas, there is limited experience with the cooperative form of ownership. Appraisers always must comment on the acceptance of housing cooperatives in the market area. The degree of acceptance is generally reflected in the availability of similar comparable sales data for cooperative units. If there is limited market acceptance of the cooperative form of ownership, or if it is a relatively new form of ownership in the market area, the appraiser must address any effect that has on the marketability and value of the unit that is being appraised. Because Fannie Mae is concerned about the marketability of the subject property, the appraiser must compare the subject unit to the general market area as well as to other units in the subject cooperative project. This comparison should help demonstrate market acceptance of cooperative units in the area. If the appraiser believes that the submission of more than the three required comparable sales is appropriate to support the estimate of market value, he or she should submit other comparable sales--including contracts for sale--as additional supporting data. Comparables must be from similar types of projects --townhouses, mid-rise, high-rise, etc.--that have similar common amenities and recreational facilities. 7 of 24

8 MANUFACTURED HOUSING Property FNMA B , Factory-Built Housing: Manufactured Housing (04/15/2014) Manufactured Housing Appraisal Comparable Selection Requirements Manufactured Housing Appraisal Comparable Selection Requirements The comparable selection requirements for manufactured housing appraisals are as follows: The appraiser must select comparable sales of similar manufactured homes to address the marketability and comparability of a manufactured home, for example, multi-width homes to multi-width homes. The appraiser must use a minimum of two comparable sales of similar manufactured homes. The appraiser may use either site-built housing or a different type of factory-built housing as the third comparable sale. The appraiser must explain why sitebuilt housing or a different type of factory-built housing is being used for the third comparable sale, and make and support appropriate adjustments in the appraisal report. An appraiser that is unable to locate sales of manufactured homes that are truly comparable to the subject property may decide it is appropriate to use either older sales of similar manufactured homes or sales of similar manufactured homes that are located in a competing neighborhood to establish a baseline for the sales comparison analysis and determine sound adjustments to reflect the differences between comparable sales that are available and the subject property. The appraiser must not create comparable sales by combining vacant land sales with the contract purchase price of the home. This type of information may be used as additional supporting documentation. For specific information concerning the selection of comparable sales for manufactured home appraisals, see B , Factory-Built Housing: Manufactured Housing.) 8 of 24

9 NEW CONSTRUCTION FNMA ALL PROPERTY TYPES Property NEW CONSTRUCTION CONVENTIONAL Section B Sales Comparison Approach Section of theappraisal Report (04/15/2014) page 624 Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS A. Selecting the comparables. If the subject property is located in a new (or recently converted) condo, subdivision, or PUD, then it must be compared to other properties in the neighborhood as well as to properties withinthe subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, provided it is a good indicator of value for the subject property. Two of the sales must be verifiable from reliable data sources, other than the builder. Sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project provided the developer or builder of the subject property is not involved in the transactions. VERIFICATION OF COMPARABLES (note: to appraiser--> DO NOT COPY WHAT'S IN THESE PARENTHESES INTO THE APPRAISAL The following comments are used if the sale is not in tax records. Also if a cash sale and no HUD1 a non-hud closing statement will suffice). page 624 & 625 To meet the requirement that the appraiser utilize one comparable sale from inside the subject subdivision or project, the appraiser may need to rely solely on the builder of the property he or she is appraising, as this data may not yet be available through typical data sources (for example, public records or multiple listing services). In this scenario, it is acceptable for the appraiser to verify the transaction of the comparable sale by viewing a copy of the HUD-1 Settlement Statement from the builder s file. When providing builder sales from competing projects that are not presently available through traditional data sources, the appraiser must verify the sale from the applicable HUD-1 and indicate on the appraisal report that the HUD-1 was the document utilized for verification. Additionally, the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale. (For special appraisal considerations regarding condo projects, see B , Condo Appraisal Requirements, and B4-2, Project Standards.) 9 of 24

10 COPYRIGHTED DATA Property This page serves as an addendum to the original report on the aforementioned property. The MLS copywrites its data. MLS rules state specifically that a Realtor may show only a customer copy (not a full copy) to a prospective buyer or seller for determining value. MLS members may not provide lenders, moving companies, insurance companies, etc with a copy of the listing. Furthermore, the 1004 (single family), 1073 (condo), 1075 (coop) and 1025 (2-4 family) forms are typically summary appraisals. A summary appraisal report performed under Uniform Standards of Professional Appraisal Practice is not expected to have detailed exhibits like a self contained appraisal has. It is contains a summarization of the facts. For example, the appraiser reports the general condition but does not go into every detail that the appraiser put in the listing, citing those details chapter and verse and providing exhibits like the MLS listing that displays those details. Similarly, the appraiser summarizes the zoning but does not provide a copy of the ordinance with all of the setbacks and requirements. If the lender wants a copy of the listing, the only legal way to get it is for the lender to buy or sell a house in that neighborhood that would permit a Realtor to give the lender a copy for informational purposes. However, that copy would only be the customer copy. Alternatively, the lender could obtain a copy from each broker that listed the properties. The lender could also order a desk or field review and request that the appraiser performing the desk or field review describe the data contained in the listing with greater detail and specificity. Lastly, the lender could request an upgrade to the existing appraisal to a self contained appraisal and request that our office report every field in the MLS in full, however it would have to be in our words; not verbatim to avoid plagurism that would violate the copywrite. No appraiser can provide the lender with a copy or verbatim text from the listing without violating copywrite laws. As proof that the listings are copywrited, I have attached a copy of my own listing where I was the Realtor (I was also the seller of the property but the copywrite applies to sellers too). Since it is my listing, the MLS does have an exception for a Realtor giving out a copy of his own listing. You will see in the red box near the top that I have highlighted the Copywrite. We are sorry but we cannot comply with your request for copies of the comparables. Derek P. Eisenberg **/**/0* NJ SCGREA LICENSE NO. RG01245 NY SCGREA LICENSE NO of 24

11 COPYRIGHTED LISTINGS Property 11 of 24

12 ENCROACHMENTS Property This page serves as an addendum to the original report on the aforementioned property. Underwriting requested the appraiser note that the 6" encroachment of the subject garage onto the adjacent property is legally permitted. A variance or other legally permitted remedies are granted when a person wants to build beyond zoning guidelines; not to permit an encroachment on a neighbor's land. Encroachments are settled with either an easement or a court action for adverse possession; specifically one party either agrees to permit the other party to cover his/her land or one party sues the other party claiming he/she has openly and notoriously covered his/her neighbor's land for 20 years and now owns it because the neighbor never objected. It should be noted that the time elapsed on the 20 year period is passed from one seller to a subsequent buyer. If there is an easement in place or a court ruling for adverse possession, that proof should be presented to the underwriter by the owner. This is not something that the appraiser researches in the normal course of an appraisal. However, a variance is the legal remedy for an encroachment. Either the garage was made legal by some easement or court ruling in which case our appraisal is correct as it stands or there is no such easement or ruling and our appraisal should be amended to give no value to the garage. In either case, the burden of proof is upon the applicant as only the applicant would have access to those documents; not the appraiser. Derek P. Eisenberg **/**/200* N.J. SCGREA LICENSE NO. RG01245 N.Y. SCGREA LICENSE NO of 24

13 ESTIMATION OF TAXES Property ESTIMATION OF TAXES The subject property is new construction and was not yet assessed at the time of the appraisal. The taxes have been estimated based on the sale price. While the estimated market value is gathered in a similar fashion to the way the assessor develops an assessment for the subject property, the assessors typically stay close to the sales price for new assessments of new construction. Additionally, the assessors are often unaware of builder's upgrades. The estimated taxes based on the municipality's tax rate and the state equalization ratio are as follows: ( Sale Price x Equalization Ratio ) x ( Tax Rate $100 ) = Estimated Taxes ( $X x X% ) x ( $X $100 ) = $X 13 of 24

14 LEGAL DESCRIPTION Property There are different ways and different situations to adjusting active listings to estimated sale price. One school of thought is to take the list to sale ratio of Comps 1-3 and apply those to actives 4 & 5. Another is to use the MC form figures. The next question is how do you apply either Comps 1-3 or the MC form? Do you average the list to sale ratio of Comps 1-3? Do you focus on the most relevant Comp? Same with the MC form. Do you average 1-3 months, 4-6 months and 7-12 months? Do you look for a trend? e.g. if 7-12 is 0.90 and 4-6 is 0.92 and 1-3 is 0.96 we know sellers are getting closer to asking prices and the market is improving but what if it is fluctuating? What if 7-12 is 0.95 and 4-6 is 0.90 and 1-3 is 0.95? Also how many sales are their in each period? Also the first period of the three just mentioned is twice as long (7-12 is 6 months vs 4-6 and 1-3 only being 3 months) So if taking the average, you must weight it for it's double length by adding it in twice and dividing by 4 periods not 3.. Comparables Nos. * & * are active listings. Based on the list to sale ratio of Comparable Sales Nos. 1-3, a *% adjustment was applied for market negotiations. The 1004MC form was considered as well but the ratio for the comparables used in the report which are most similar was deemed to be the most relevant indicator. Comparables Nos. * & * are active listings. Based on the 1004MC, a *% adjustment was applied for market negotiations. The *% is the result of a weighted average of the three different length sampling periods in the MC form; none of which appear to indicate a trend. Comparables Nos. * & * are active listings. Based on the most recent 3 months detailed in the 1004MC, a *% adjustment was applied for market negotiations. FOR ALL 3 ABOVE: Any additional percentage adjustments are now derived from the projected sales prices and not the original list prices in order to be consistent with the closed sales where all percentage adjustments are applied to the sales price. 14 of 24

15 Property This page serves as an addendum to the original report on the aforementioned property. Underwriting requested that we make the APN number match the title.this is a chronic issue with reports underwritten in other states where the underwriters are not familiar with local practice.the subject state does not legally recognize the term Assessor's Parcel Number. Furthermore, only a metes and bounds description is considered legal. Assessors depending upon the locale refer to property by the District, Section, Block, Lot, Qualifier and/or Singularity. The APN sequence that title companies and tax data reporting services provide is an artificial number built from District, Section, Block, Lot, Qualifier and/or Singularity and is not recognized by assessors' offices as a description for real estate. Furthermore, the figures that appraisers get from the tax data reporting services will never match the title work exactly because the title work relates to old maps that were created when farm lands were subdivided into today's parcel's. Over the years, maps were updated by assessors but the deeds relate to much older maps.our data is correct as provided. The title work is incorrect. 15 of 24

16 MODULAR VS. MANUFACTURED HOUSING Property Modular housing is also know as pre-constructed housing. It is a stick built house that is partially assembled elsewhere. Once it is attached it is indiscernable from built-on-premises construction. Also, a HUD seal is not required. Manufactured housing is built on a steel underframe and does require a HUD seal. Even once affixed to the foundation, it could always be moved and is discernable from built-on-premises construction. 16 of 24

17 NEW CONSTRUCTION Property For properties in new subdivisions or for units in new (or recently converted)condominium or PUD projects, the appraiser must compare the subject property to other properties in its general market area as well as to properties within the subject subdivision or project. This comparison should help demonstrate market acceptance of new developments and the properties within them. Generally, the appraiser should select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. The third comparable sale can be from inside or outside of the subject subdivision or project, as long as the appraiser considers it to be a good indicator of value for the subject property. In selecting the comparables, the appraiser should keep in mind that sales or resales from within the subject subdivision or project are preferable to sales from outside the subdivision or project as long as the developer or builder of the subject property is not involved in the transactions. 17 of 24

18 POSTAL AREA VS. MUNICIPALITY Property The subject's Municipality is ************* Township/Town/Village/Borough/City or The subject is Municipality is the Township/Town/Village/Borough/City of *************. It is served by the ************* Post Office. The Comparables are located in the following Municipalities and Post Offices respectively. or Comparable Nos. *, *, * and * are located in the following Municipalities and Post Offices respectively. or Comparable No. * is located in the following Municipality and Post Office. Comp 1 ********************* Comp 2 ********************* Comp 3 ********************* Comp 4 ********************* Comp 5 ********************* However, they are located in the same postal area/municipality/neighborhood/subdivision, are considered good indicators of value and were used for a lack of comparable sales within the subject's postal area/municipality/neighborhood/subdivision. However, it is located in the same postal area/municipality/neighborhood/subdivision, is considered a good indicator of value and was used for a lack of comparable sales within the subject's postal area/municipality/neighborhood/subdivision. 18 of 24

19 PREDOMINATE VALUE Property SHORT PREDOMINATE VALUE There are three statistical samples that are commonly measured; MEAN, MEDIAN AND MODE. The mean is the average. The median is the value in the middle of the distribution. The mode is the single value that appears the most. The predominate value appears most; hence it is the arithmetic mode. If there were hypothetically five sales; $225,000, $225,000, $250,000, $275,000 and $300,000, the mean would be $255,000, the median would $250,000 (because it's the 3rd sale of the 5 sales with 2 sales above and 2 sales below) and the mode would be $225,000 (because $225,000 occurred most and was predominate). While the form uses predominate value, from this example, one can see that the predominate value could fall anywhere in the range. There are often sales above and/or below the predominate value and unless a huge majority of sales are grouped at the predominate value which is not the case with comparables in the subject's neighborhood, lying above or below the predominate value should not be a reflection of the subject's marketability. LONG PREDOMINATE VALUE There are three statistical figures that are commonly used in analyzing properties The arithmetic mean which is the average of the property values The arithmetic median which is the middle of the range--the number around which half the distribution is above and half is below The arithmetic mode which is the single value that appears most. The term predominate is defined as "To be of or have greater quantity". Specifically the predominate value is the arithmetic mode; the number which appears the most. If the range of values is as follows: $300,000 $325,000 $325,000 $350,000 $375,000 $375,000 $375,000 $380,000 $385,000 $395,000 $400,000 $425,000 $450,000 $475,000 $475, $5,810,000 Sum $387,333 Mean-Average $380,000 Median $375,000 Mode The mode is $375,000 because $375,000 appears more times (is predominate) in the distribution than any other price. However, the mode is never significant in making any reference to the value of the subject. It is more for descriptive purposes about the neighborhood. 19 of 24

20 QUASI RURAL/RESIDENTIAL AREA Property The subject is located in a quasi rural/residential area. While the area immediately surrounding the subject is residential in nature, there are large tracts of ****(choose one or more as needed) undeveloped/wooded/farm**** land between neighborhoods. The in-between area is rural and the immediate area is residential. Consequently, proximity to comparables is further than generally accepted guidelines in this market. 20 of 24

21 UAD BASEMENT COMMENT Property UAD BASEMENT COMMENT The Uniform Appraisal Data (UAD) set breaks down basement square footage into total and finished area. Few if any Assessors or MLSs publish this data. Consequently, for the comparables, the basement square footage is extrapolated from the first floor square footage which in term is extrapolated from total square footage. Fully finished would be presumed to be 100% and partially finished would be presumed to be 50%. UAD BASEMENT COMMENT (Long) The Uniform Appraisal Data (UAD) set breaks down basement square footage into total and finished area. Few if any Assessors or MLSs publish this data. Consequently, for the comparables, the basement square footage is extrapolated from the first floor square footage which in term is extrapolated from total square footage. If a two story house is 2,000 square feet, the first floor would be presumed to be 1,000 square feet assuming no readily visible additions. A side porch would be readily visible but a rear family room would not be unless noted in the mls listing. Similarly if the first floor had a built in two car garage, 400+/- square feet would be subtracted and in this example the first floor and the basement would be estimated at 600 square feet. If a basement is noted as fully finished in mls, 100% finishing is presumed and in the example just mentioned, 600 square feet would be presumed to be finished. Similarly if the basement is noted as partially finished, 50% or 300 square feet would be presumed to be finished. UAD BASEMENT COMMENT (Long 2) The subject is a ***STYLE*** dwelling. FNMA/FHLMC/FHA guidelines state that only above grade finished living space is to be included in the GLA. Bi-levels will typically have a lower level that is partially below grade. In order to comply with the guidelines, this finished area cannot be included in the GLA, but will be considered as finished basement area. However, assessors are not compelled to follow these guidelines. As a result, they will often include the ground level finished area in the total square footage as is the case of the ***MUNICIPALITY*** assessor. The lower level which is partially below grade has a finished area of XXX Sq Ft. The Lower Level Finished Area (Lower Level Finished Area + Upper Level(s) Finished Area) is as follows: LLL (LLL+UUU) = PP%. Consequently, in order to be consistent, PP% will be applied to the assessors square footage for any other ***STYLE*** dwellings used as comparables. UAD BASEMENT COMMENT (Long 3) The subject is a ***STYLE*** dwelling. FNMA/FHLMC/FHA guidelines state that only above grade finished living space is to be included in the GLA. Bi-levels will typically have a lower level that is partially below grade. In order to comply with the guidelines, this finished area cannot be included in the GLA, but will be considered as finished basement area. However, assessors are not compelled to follow these guidelines. As a result, they will often include the ground level finished area in the total square footage as is the case of the ***MUNICIPALITY*** assessor. The lower level which is partially below grade has a finished area that encompasses approximately 1/4 1/2 3/4 (depending on whether a bi-level or a split and a 1 car garage or a 2 garage--a bilevel with one car would be 3/4 a bilevel with 2 cars would be 1/2 and a split level with one car would be 1/4 for the den/family room next to the garage) of the first floor. Consequently, in order to be consistent, any other ***STYLE*** dwellings with X car garages leaving approximately 1/4 1/2 3/4 of the first floor will be divided by 1-1/4 1-1/2 1-3/4 to be consistent with the subject. 21 of 24

22 FNMA SECTIONS ON ROOMS & SQ. FT. Property Section Unit/Room List The Uniform Residential Appraisal Report (Form 1004), and the Individual Condominium Unit Appraisal Report (Form 1073) contain a "room list" section to describe the subject property and provide a column for the square footage per level, as well as space for a summary of the above-grade room count(s) and the above-grade gross living area for the finished area. The Small Residential Income Property Appraisal Report (Form 1025) contains a "unit/room" list section to describe the subject property and requires the appraiser to indicate the square feet per each unit. The unit/room list section gives the appraiser the flexibility to report the units individually or to report them as a single line entry if they are all equal in size. The total square footage reported in the unit/room list section of Form 1025 should reflect the net rentable area of the property (and, as such, will not necessarily equal the gross building area). The Individual Cooperative Interest Appraisal Report (Form 1075) does not contain a "room list" section; however, it provides space for the appraiser to indicate a summary of both the finished area "above grade" and the finished area "below grade"--breaking it down by total rooms, bedrooms, baths, and square feet of gross living area. Section Gross Living Area The most common comparison for single-family properties (including units in PUD, condominium, or cooperative projects) is above-grade gross living area. The appraiser must be consistent when he or she calculates and reports the finished above-grade room count and the square feet of gross living area that is above-grade. For units in condominium or cooperative projects, the appraiser should use interior perimeter unit dimensions to calculate the gross living area. In all other instances, the appraiser should use the exterior building dimensions per floor to calculate the above-grade gross living area of a property. Only finished above-grade areas should be used-- garages and basements (including those that are partially above-grade) should not be included. We consider a level to be below-grade if any portion of it is below-grade--regardless of the quality of its "finish" or the window area of any room. Therefore, a walk-out basement with finished rooms would not be included in the above-grade room count. Rooms that are not included in the above-grade room count may add substantially to the value of a property--particularly when the quality of the "finish" is high. For that reason, the appraiser should report the basement or other partially below-grade areas separately and make appropriate adjustments for them on the "basement and finished areas below grade" line in the "sales comparison analysis" grid. To assure consistency in the sales comparison analysis, the appraiser generally should compare above-grade areas to above grade areas and below- grade areas to below-grade areas. The appraiser may deviate from this approach if the style of the subject property or of any of the comparables does not lend itself to such comparisons. However, in such instances, he or she must explain the reason for the deviation and clearly describe the comparisons that were made. Section Gross Building Area Gross building area, which is the total finished area (including any interior common areas, such as stairways and hallways) of the improvements based on exterior measurements, is the most common comparison for two- to four-family properties. The gross building area must be consistently developed for the subject property and all comparables that the appraiser uses. It should include all finished above- and below grade living areas, counting all interior common areas (such as stairways, hallways, storage rooms, etc.) but not counting exterior common areas (such as open stairways). We will accept the use of other comparisons for two- to four-family properties (such as the total above-grade and below-grade areas as discussed above in Section ), as long as the appraiser explains the reasons he or she did not use a gross building area comparison and clearly describes the comparisons that were made. 22 of 24

23 PRINCIPLE OF SUBSTITUTION Property SALES COMPARISON APPROACH The sales comparison approach is based primarily on the principle of substitution. This approach assumes a prudent (or rational) individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors. GLA/GBA ADJUSTMENTS TO NEW CONSTRUCTION The sales comparison approach is based primarily on the principle of substitution. This approach assumes a prudent (or rational) individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors. That same concept can be applied to a builder. If labor and materials cost say $XXX per Sq. Ft. (typical for the northeast), the builder at least in a sustained development where units are selling and there is no duress, is not going to spend that if he won't get it back in return. However, GLA reflects a marginal square foot. A marginal square foot is the value of one extra foot. This should be less than the value of the first foot but should still be at or close to the cost of one marginal square foot for reasons stated above with respect to the principle of substitution. Consequently, a GLA adjustment for one marginal square foot of new construction of $XXX is higher than existing construction because there is no depreciation and the builder would not have added it if he could not sell it for what it cost. However, it is still less than the first square foot of improvements. 23 of 24

24 24 of MC VS. NEIGHBORHOOD Property FNMA states that the One-Unit Housing Trends are Submarket specific. Specifically they apply only to neighborhood properties that are comparable to the subject. Consquently they want the trends in the neighborhood section of the appraisal to match with those on the 1004MC form. The neighborhood characteristics cover Location, Built-up and Growth, none of which are on the MC. The MC says nothing about Urban, Suburban and Rural. It does not deal with land coverage/built-up characteristics and makes no distinction on growth vis a vis new vs. existing construction. The MC uses the median value which would shift if just a single high or low sale occurred because the median is the value that is in the middle of the distribution not the average value. In contrast the neighborhood section asks if property values are increasing or decreasing. To answer that question requires a calculation of the mean or average price not the median price. Consequently there is no correlation between changes in median price and prices rising. Demand and supply in the neighborhood would relate to the absorption rate. If the number of actives and solds are close, demand and supply are in balance and Shortage or Over-supply is easy to ascertain for the neighborhood section. If the solds exceed actives, demand is high and supply low. If actives exceed solds, demand is low and supply is high. However to ascertain Increasing, Stable or Decreasing on the MC, the ratio of actives to solds must be compared for the 3 periods analyzed (13, 4-6 & 7-12 months) to see if the figures are rising or falling for each period. Also if demand and supply are in balance or demand exceeds supply for the most recent 3 months, marketing time should be "under 3 months" but if supply exceeds demand, it should be either 3-6 months or over 6 months depending on how much. With respect to sales prices, the MC uses median value and the neighborhood uses predominate value which is indicative of the arithmetic mode (the price that most often occurs regardless of whether it's in the middle of the range (median) or the average (mean). As such there is no correlation between the two. Finally the price range atop the grid page should match the price range in the neighborhood section and the totla number of sales should match the total number of sales for the 3 periods on the MC which in the illustration below is 94. Also the number of actives for the current 3 months should match the number of actives on the top of the grid page.