How should you choose the right scope of work for yourdue diligence assessment if you haven't yet decided on alender?

I often field calls from clients who have recently gone undercontract on a multi-family housing asset asking me to prepare aPhase I Environmental Site Assessment (ESA) and Property Condition Report (PCR) as part oftheir due diligence. My first question is always: “Haveyou selected a lender?” A typical responseis: “It'll likely be a Fannie Mae or a Freddie Mac loan,but I'm not sure yet which way it'll end up.” It seems that most in the industry lump Fannie and Freddietogether, and not surprisingly so: they are both governmentsponsored enterprises, you hear about them on the nightly news, andthe names even sound similar. However, for all of theirsimilarities, there are enough differences that if you select thewrong lender's scope of work for your due diligence assessments,you could find yourself in trouble. Same Same butDifferent Fannie Mae and Freddie Mac each have specificguidelines for third-party inspections and reports, most notablyfor Phase I ESA and Property Condition Reports(which Fannie calls a Physical Needs Assessment) in order to qualifyfor their loan programs. Here are some of the major differences between Fannie Mae andFreddie Mac scopes of work. On the Phase I ESA, beyond the typical ASTM requirements, Freddie Mac requires radon assessments and asbestos containing material (ACM) testing atalmost all properties, whereas Fannie Mae's requirements for theseitems are much more asset specific. On the PCR (or PNA when using Fannie terminology), Freddie Machas much more stringent unit inspection requirements than FannieMae and requires the preparation of the 1105 Form, which is a“Multifamily Property Condition Form” specific only to Freddie Mac. For both the Phase I ESA and PCR Freddie Mac also has a morespecific qualification requirement for the field observers,including specific educational, experience and third party trainingrequirements. Beyond these major differences there is alitany of more nuanced items for which you'll need to rely on yourconsultant to know and interpret. (To learn more about the differences between Freddie Mac andFannie Mae's requirements, read my colleague Summer Gell's excellent article titled"Going Through a Phase: Knowledge of Fannie Mae's and FreddieMac's environmental guidelines is key to multi-family dealcompletion" here) So Which Report Should You Pick?If you're not sure who your lending agency will be, choosingan assessment conducted to the more stringent requirements ofFreddie Mac is likely to be your best bet. Starting out with Fannie Mae compliant reports and making lastminute changes to make it compliant with Freddie Mac guidelines mayrequire an assessor to go back in to the field to take additionalsamples and re-inspect the asset. However, starting out witha Freddie Mac compliant report and making a switch to Fannie Maewill allow required changes to the report to be addressed fromsomeone's desk, which will save time and money. In general, preparing reports to Freddie Mac standards willalso meet Fannie Mae's requirements. So what is the drawbackof preparing Freddie Mac compliant reports initially? Cost andpotentially timing. Because of the more stringentrequirements, the price of Freddie Mac compliant reports willlikely be slightly higher than that of Fannie Mae compliantreports, but you'll likely save time, money (in the long run)and heartburn by starting out with the more conservative FreddieMac approach.