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Appraisal · Fannie Mae Selling GuideEnvironmental hazards and the appraisal: what happens when radon, asbestos or a bad well turns up

Fannie Mae buys loans on properties affected by environmental hazards as long as the effect can be measured with comparable market data and the appraiser reflects any adverse effect on value and marketability – or shows the market has no buyer resistance to it (Selling Guide B4-1.4-08). When the appraiser knows of a hazardous condition in or on the property or nearby – hazardous wastes, toxic substances, asbestos-containing materials, urea-formaldehyde insulation or radon gas, among others – the appraiser must note it in the report, comment on its influence on value and marketability, adjust the analysis and make the appraisal 'subject to' inspection by a qualified professional. Appraisers aren't environmental experts, but must report what they observe or learn in normal research. If the real estate agent, seller, buyer or any other party tells the lender about a hazard in, on or near the property, the lender must disclose it to the appraiser, note the file, disclose it to the borrower and follow state and local disclosure laws. The lender makes the final call on inspections; when private well water may be contaminated by nearby hazardous waste sites, getting a well certification is described as sound judgment. In rare cases a hazard is so serious or so new that no market data exists to support a reliable value, and the loan isn't eligible for delivery to Fannie Mae.

When the appraiser knows of a hazard (B4-1.4-08)

  1. 1. Note it

    Hazardous wastes, toxic substances, asbestos, urea-formaldehyde insulation, radon – on the property or nearby.

  2. 2. Comment on value

    Its effect on value and marketability, or that comparable sales show no buyer resistance.

  3. 3. Adjust

    Make appropriate adjustments in the value analysis.

  4. 4. Subject to inspection

    Make the appraisal 'subject to' inspection by a qualified professional.

The lender's part

  • If any party tells the lender about a hazard, it is disclosed to the appraiser and the borrower and noted in the file.
  • The lender follows state and local environmental disclosure laws.
  • The lender decides on inspections – a well certification is sound judgment when a well may be contaminated.
  • No market data for a reliable value = not eligible for Fannie Mae.

What the TC can do

  • When a disclosure or inspection mentions radon, asbestos or well problems, make sure the lender hears about it early.
  • If the appraisal comes back 'subject to' an inspection, schedule it right away and track the report.
  • Keep the required state disclosures signed in the deal file.

Questions buyers ask

Can radon affect my mortgage appraisal?

If the appraiser knows of radon, it is noted, its effect on value is analyzed and the appraisal is made subject to inspection by a qualified professional (Fannie Mae Selling Guide B4-1.4-08).

Does the lender have to tell the appraiser about a known hazard?

Yes. If the agent, seller, buyer or another party tells the lender about a hazard, the lender must disclose it to the appraiser and to the borrower.

Will the lender require a well water test?

The lender decides; Fannie Mae calls a well certification sound judgment when private well water might be contaminated by nearby hazardous waste sites.

Related guides

When the appraisal is "subject to" an inspection, add it as a task with an owner and due date on the deal in ClosingCode and track the report there.

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Source: Fannie Mae Selling Guide B4-1.4-08, Environmental Hazards Appraisal Requirements (June 4, 2025), read at selling-guide.fanniemae.com on October 26, 2026.

General information, not legal or financial advice. The lender and appraiser decide. ClosingCode is software; it is not a lender, appraiser or law firm. This guide is not a substitute for the advice or services of an attorney.