Do You Know the Codes in the Appraisal Report?

Written By: Glenn Michaels, Op-Ed Writer

All underwriters must review the appraisal report for each and every transaction that is being underwritten. The underwriter’s must take notice of the rating codes found in the Marketing Approach of each appraisal report. Failure to make notice of the code could result in a mortgage loan file not being purchases.

Appraisers will rate the condition of a property being appraised from C1 to C6. Most institutional investors will not purchase a mortgage where the condition code is C5 or C^ without a strong written defense by the underwriter for taking a mortgage application with a C5 or C6 rating. 

Recently I did a deal with a C5 rating where the conditions were numerous repairs to bring the property to a better code. My institutional investor purchased the loan with a C5 rating only after showing that all of the required repairs were done and completed as required.

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Below are the 6 conditions by code:
C1: The improvements have been very recently constructed and have not been previously occupied. The entire structure and all components are new and the dwelling features no physical depreciation.

C2: The improvements feature no deferred maintenance, little or no depreciation. Property requires no repairs. Virtually all components of the improvements are new or recently been repaired, refinished, or refinished , or rehabilitated. All outdated components have been updated or replaced with components that meet current standards. Dwellings in this category either are are almost new or or have been recently completely normal wear and tear. Some components renovated and are similar  in condition to new construction.

C3: The improvements are well maintained and feature limited physical depreciation due to normal wear and tear. Some components, but not every major building component may be updated or recently rehabilitated. The structure has been well maintained.

C4: The improvements feature some minor deferred maintenance and physical deterioration due to normal wear and tear. The dwelling has been adequately maintained  and requires only minimal repairs to building components /mechanical systems and cosmetic repairs. All major building components have been adequately maintained and and are functionally adequate.

C5: The improvements feature obvious deferred maintenance and are  in need of significant repairs. Some building components need repairs, rehabilitation or updating. The functional utility  and overall liver ability is somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.

C6: The improvements have substantial damage or deferred maintenance  with deficiencies or defects that are severe enough to affect the safety, soundness for structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation  including many or most major components.

Make sure you know the condition codes since your institutional investors generally will not purchase a mortgage where the subject property is rated C% or C%. 

About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.