An appraiser is valuing a residential property in a formerly redlined community for a mortgage loan that will be sold to one of the GSEs. The appraiser decides not to use sales in the immediate neighborhood, even though several sales are available. Instead, the appraiser uses sales in a higher-priced neighborhood that is farther away. What is MOST likely to happen in this situation?

• A. The appraisal will be 'flagged' by the GSEs' automated risk management programs
• B. The loan will be approved without review
• C. The property will be foreclosed
• D. The appraiser will receive an award

Answer: (A)

This item focuses on using appropriate, neighborhood-specific sales when valuing a property in an area with a history of redlining and the role of automated risk checks by GSEs. When the appraiser selects comps from a distant, higher-priced neighborhood instead of nearby, market-representative sales, the appraisal becomes detached from the actual local conditions. GSEs employ automated risk-management programs that look for such mismatches and outliers, especially in communities with a redlining history. A flag signals potential bias or misvaluation and prompts a more thorough review or a second appraisal before the loan can proceed. So, the most likely outcome is that the appraisal will be flagged for this reason, rather than leading to immediate loan approval, foreclosure, or any kind of award.