Considering filing complaint for lack of market conditions adjustment on stale comps

[Salty]

This is simple. There should be an explanation as to why there is no market condition adjustment. That is good appraisal practice. I would consider my report incomplete if I did not explain why I did not provide a market condition adjustment in the current market in my area. Prove that it is stable, increasing or decreasing. Don't just say it, prove it. That is appraising - not form filling.

 

[Carnivore]

Comps were a good starting point IMO due to their neighborhood / condition / product / model / bed / bath / GLA matches. However, to use your perfect comp definition, I'd argue the stale comps are not an accurate reflection of the subject's economic characteristics due to the sales timing differences. In that sense, I misspoke in calling the non-market conditions adjusted comps "good".

It depends on how one defines a Comparable Sale/Listing. Stale, I assume you mean dated. The starting point is selecting comparable that have the same Identical Economic Characteristics of the Subject. Ideally is sold one to two days before the Inspection/effective date of the Subject. After that, it all goes downhill. The Market is imperfect. Here on the mainland, we have lots of Cookie Cutter subdivisions. There are usually three to four different models and they are repeated. Work in those areas is actually boring.

Again, You have a good point about the elapsed time between the comparable sale date and the effective date of your property appraisal. In my practice, after I have identified the the Subject and its Market Segment, I always develop the Market Conditions next. When I take on a Review Assignment(reviewing another appraiser's work product). I do the same thing before getting into the nitty-gritty of the report under Review. Page one of a typical FNMA 1004 sets the stage. In the Appraisal for the property you purchased, I would look at the Neighhood section in the housing Trends. There are three questions and three choices for each question. These questions and answers are important.

My best guess about page one of this specific assignment the One unit Housing trends are probably(but not necessarily): Prop Value Checked Stable(I will get back to that below) Next is Demand/Supply; answer: Shortage; In Balance; Over Supply. Next is Marketing Time: under 3 months; 3-6 Months; Over six months.

In my general market area it is not unexpected to see Prop Values Increasing; Demand/supply; Shortage and Marketing time under three months. (absorption rate which is a little different) Especially in Mecklenburg County NC this holds true. I live in a Neighboring County. We are the last to see an increasing market and the first to see a declining market. Gaston County is the Proverbial Canary in a Coal Mine.

So here is what Fannie Mae Says about One unit Housing trends

B4-1.3-03, Neighborhood Section of the Appraisal Report (06/03/2020)

selling-guide.fanniemae.com

Let us get to your Valid Point. This is what the FNMA Selling Guide says:

"

Date of Sale and Time Adjustments​

The date of sale and the time adjustment (market conditions) are critical elements in determining an accurate value because the appraisal is based on a specific date in time (effective date of appraisal). The comparable sales being considered must be analyzed by the appraiser to determine if there have been any changes in market conditions from the time the comparable went under contract to the effective date of the appraisal. This analysis will determine whether a time adjustment is warranted. Adjustments may be either positive or negative depending on the market changes over the time period analyzed. Time adjustments should be supported by other comparables (such as sales, contracts) whenever possible; however, in all instances the appraiser must provide an explanation for the time adjustment in the appraisal report. (I would add an explanation may/or should be needed for a Lack of Time Adjustments

When completing Fannie Mae’s appraisal report forms, the appraiser should provide the date of the sales contract and the settlement or closing date. Only the month and year need to be reported. For example, appraisers may use “s04/10” or “c02/10” where “s” reflects the settlement or closing date and “c” reflects the contract date. If the exact date is necessary to understand the adjustments, it must be explained elsewhere in the report or in an addendum. If the contract date is unavailable to the appraiser in the normal course of business, the appraiser must enter the abbreviation “Unk” for unknown, in place of the contract date.


I apologize for the long-winded reply. I felt like you deserved a comprehensive answer and you got many excellent responses above me. Right or Wrong this is the way I and others see it. FTR; This is my second Professional License that I Have earned. My first Professional License was so complex that even minor errors could result in loss of life or severe destruction of property. I take this license just as seriously as the other. That is hard to do.

 

[sputnam]

Did you get the loan you were trying to get? If yes, let it go. You have better things to do.

 

[TMG]

Stale comps ruined appraising.

 

[ATP]

Greetings AF!

I am considering filing a formal complaint against the appraiser my lender hired and the lender’s in-house appraiser (who conducted the desk review of the appraisal). Before you all attack me for my biased perspective (I am the buyer in this situation) and write this off as another person whining about a low appraisal, I will do my best to lay out the facts of the case in an objective manner. Trust me when I say writing up a complaint is the last thing I’d like to be doing, so before I do so, I thought I’d turn to AF’s wisdom / expertise to make sure I’m not way off base here.

Subject property is a 3 bed, 2.5 bath, ~1,300 SF attached home (i.e., half of a duplex on its own separate lot) in a newer master planned community (built in 2018). The appraiser defined the market as strictly homes sold within the master planned community. The comps selected were three 3 bed, 2.5 bath attached homes in the same master planned community that range from 1,200-1,300 SF (one model match, two slightly smaller). All the comps have sold for ~700K around 8-10 months ago. I agree with the appraiser up until this point.

Where we disagree is that the appraiser believes a market conditions adjustment (between now and 8-10 months ago) is not needed, while I believe it is. The appraiser’s 1004MC says that “while prices for similar dwellings have increased in the neighborhood, the small data sample and variety of product sold in any one period has lead the appraiser to conclude that the market is stable and an adjustment for time is not necessary”. What?! In my opinion, a small data sample is not enough to conclude anything about the market and further analysis of the available market data is required. Nothing other than the 1004MC was included as support for market conditions.

To support my questioning, I provided some analyses and a handful of data sets pulled from MLS (I work in CRE so I have access) to the lender to be forwarded to the appraiser (summarized below):

• County median SFR prices have increased 13-19%, inventory is down, and DOM are down over the past 8-10 months
• Market area (includes subject’s neighborhood and a bunch of others nearby) median SFR prices have increased 8-11%, inventory is down, and DOM are down over the past 8-10 months
• Scatter charts of 3 bed 2.5 bath and 3 bed 2 bath closed sales in the master planned community show an upward price trend and downward DOM trend since 2018 and over the past 8-10 months

Obviously like many other places in the US, the market here is hot. Our offer on the subject property was one of 37 after 8 DOM, and we weren’t even the highest bidder (I’d like to think we wrote a charming cover letter). The seller's agent even met the appraiser at the subject to provide copies of all 37 offers. But sure, maybe the data above are an artifact of medians and coincidentally higher priced homes are being sold more and more recently. So I zoomed in further on the specific neighborhood:

• Pending sale of another attached home with a 770K SC price (I verified by calling the selling agent). This showed up in the appraisal at list price (735K), but was given no weight as it wasn’t a closed sale. I won’t argue assigning it no weight, but this is an informative data point (IMO) showing SC price well above list and both well above 700K
• 3 bracketed paired sales (2 model matches, 1 sale-resale of the same SFR) of 3 bed, 2.5 bath 1,100-1,500 SF detached SFRs and condos (I would argue substitutable competitive products based on beds, baths, SF & price point) that occurred at points across the past 8-10 months, each showing a CAGR of 10-30% (point to point it's 8-17% growth over 6-9 month periods)

Despite my best attempts over the past week to ask for any data supporting a stable market (via email routed through the lender), the appraiser refuses to change their FMV (700K) or provide support for their lack of a market conditions adjustment. Fine, I’m not their client, the lender is. When I asked my lender for a desk review, they said they already did one and agree with the appraiser’s conclusion and aren’t willing to order a second appraisal as they’re “not supposed to value shop”. I feel like I’m taking crazy pills in believing, based on the data, that market conditions are fundamentally different than 8-10 months ago and that a non-zero time adjustment is required. After feeling backed into a corner, the seller and I have agreed to split the difference to salvage the deal.

I am having a difficult time believing that using non-time adjusted prices, while the neighborhood data shows near double digit growth, can be classified as USPAP 1-3 compliant. Give it to me straight AF, am I (the armchair appraiser) off-base here or do I have a legitimate complaint? Does failure to support a lack of an adjustment (in light of all the market data) qualify as worthy of a complaint

throwaway12345

It sounds like you have been or are an appraiser, you speak as if you have been through all the classes and have passed the national exam and for that I commend you. If you have not, then I commend you on your research of the appraisal profession. Having said that, I would tell you that obtaining an appraisal license is not a easy task and furthermore appraising in this very unusual environment is even more difficult due to how supply vs. demand are effecting prices in such a short amount of time. You must keep in mind that opinion of value and prices are two separate things, an appraiser will and can only provide an opinion and conclusion that can be supported and defended. At the same time, I understand your issue and would suggest that if you feel that the appraisal and appraisal review is not to your liking, for you to hire your own appraiser as a 3rd party as this may assist you in your quest. I will end with the following; as long as the appraiser complied with USPAP, and all local laws in performing services as an appraiser, filing a complaint will change nothing. The state appraisal board's responsibility is to make sure that appraisers provide services in compliance with USPAP and their local guidelines. USPAP Standard Rules do not speak of the value and conclusion, it only speaks to the process of how to arrive at the point that an appraiser can reconciliate the data and provide an opinion and conclusion based on that reconciliation as they see fit. The fact that the opinion of value is not what you were expecting is not a reason to submit a complaint to the appraisal board. If the appraiser (and in this case) the review appraiser did not follow USPAP guide lines, then you have every reason to submit your complaint. So often, people want file a complaint because the appraisal did not meet the value desired, the irony of this is that the appraiser did actually do what is expected of him/her and that is to perform the service competently and in a manner that is independent, impartial, and objective. While I have not seen the appraisal or review and do not know what market you are in, I doubt very seriously that the appraiser violated USPAP 1.3. I wish you luck with your endeavor.

 

[RCA]

Greetings AF!

I am considering filing a formal complaint against the appraiser my lender hired and the lender’s in-house appraiser (who conducted the desk review of the appraisal). Before you all attack me for my biased perspective (I am the buyer in this situation) and write this off as another person whining about a low appraisal, I will do my best to lay out the facts of the case in an objective manner. Trust me when I say writing up a complaint is the last thing I’d like to be doing, so before I do so, I thought I’d turn to AF’s wisdom / expertise to make sure I’m not way off base here.

Subject property is a 3 bed, 2.5 bath, ~1,300 SF attached home (i.e., half of a duplex on its own separate lot) in a newer master planned community (built in 2018). The appraiser defined the market as strictly homes sold within the master planned community. The comps selected were three 3 bed, 2.5 bath attached homes in the same master planned community that range from 1,200-1,300 SF (one model match, two slightly smaller). All the comps have sold for ~700K around 8-10 months ago. I agree with the appraiser up until this point.

Where we disagree is that the appraiser believes a market conditions adjustment (between now and 8-10 months ago) is not needed, while I believe it is. The appraiser’s 1004MC says that “while prices for similar dwellings have increased in the neighborhood, the small data sample and variety of product sold in any one period has lead the appraiser to conclude that the market is stable and an adjustment for time is not necessary”. What?! In my opinion, a small data sample is not enough to conclude anything about the market and further analysis of the available market data is required. Nothing other than the 1004MC was included as support for market conditions.

To support my questioning, I provided some analyses and a handful of data sets pulled from MLS (I work in CRE so I have access) to the lender to be forwarded to the appraiser (summarized below):

• County median SFR prices have increased 13-19%, inventory is down, and DOM are down over the past 8-10 months
• Market area (includes subject’s neighborhood and a bunch of others nearby) median SFR prices have increased 8-11%, inventory is down, and DOM are down over the past 8-10 months
• Scatter charts of 3 bed 2.5 bath and 3 bed 2 bath closed sales in the master planned community show an upward price trend and downward DOM trend since 2018 and over the past 8-10 months

Obviously like many other places in the US, the market here is hot. Our offer on the subject property was one of 37 after 8 DOM, and we weren’t even the highest bidder (I’d like to think we wrote a charming cover letter). The seller's agent even met the appraiser at the subject to provide copies of all 37 offers. But sure, maybe the data above are an artifact of medians and coincidentally higher priced homes are being sold more and more recently. So I zoomed in further on the specific neighborhood:

• Pending sale of another attached home with a 770K SC price (I verified by calling the selling agent). This showed up in the appraisal at list price (735K), but was given no weight as it wasn’t a closed sale. I won’t argue assigning it no weight, but this is an informative data point (IMO) showing SC price well above list and both well above 700K
• 3 bracketed paired sales (2 model matches, 1 sale-resale of the same SFR) of 3 bed, 2.5 bath 1,100-1,500 SF detached SFRs and condos (I would argue substitutable competitive products based on beds, baths, SF & price point) that occurred at points across the past 8-10 months, each showing a CAGR of 10-30% (point to point it's 8-17% growth over 6-9 month periods)

Despite my best attempts over the past week to ask for any data supporting a stable market (via email routed through the lender), the appraiser refuses to change their FMV (700K) or provide support for their lack of a market conditions adjustment. Fine, I’m not their client, the lender is. When I asked my lender for a desk review, they said they already did one and agree with the appraiser’s conclusion and aren’t willing to order a second appraisal as they’re “not supposed to value shop”. I feel like I’m taking crazy pills in believing, based on the data, that market conditions are fundamentally different than 8-10 months ago and that a non-zero time adjustment is required. After feeling backed into a corner, the seller and I have agreed to split the difference to salvage the deal.

I am having a difficult time believing that using non-time adjusted prices, while the neighborhood data shows near double digit growth, can be classified as USPAP 1-3 compliant. Give it to me straight AF, am I (the armchair appraiser) off-base here or do I have a legitimate complaint? Does failure to support a lack of an adjustment (in light of all the market data) qualify as worthy of a complaint?

throwaway12345

Look, just because median prices are decreasing or increasing does not by itself indicate any kind of price trend, especially when sales are lacking.

Let's consider an extreme case. In my neighborhood, I have only two sales/month over the last 12 months:

Month	Lot Size	GLA	SalePrice
1​	5,000​	1,300​	180,000​
1​	4,500​	1,000​	145,000​
2​	5,000​	950​	145,000​
2​	4,800​	1,100​	158,000​
3​	5,200​	1,050​	157,000​
3​	6,000​	1,200​	180,000​
4​	4,000​	1,150​	155,000​
4​	7,000​	1,300​	200,000​
5​	5,000​	1,250​	175,000​
5​	6,500​	1,400​	205,000​
6​	4,500​	1,350​	180,000​
6​	5,000​	1,500​	200,000​
7​	5,600​	1,450​	201,000​
7​	6,800​	1,600​	228,000​
8​	6,300​	1,300​	193,000​
8​	8,000​	1,700​	250,000​
9​	5,600​	1,650​	221,000​
9​	5,200​	1,800​	232,000​
10​	6,500​	1,750​	240,000​
10​	6,300​	1,900​	253,000​
11​	4,500​	1,850​	230,000​
11​	4,000​	1,300​	170,000​
12​	4,500​	1,950​	240,000​
12​	4,500​	1,400​	185,000​

1st Quarter Median: $157,500
2nd Quarter Median: $190,000
3rd Quarter Median $224,500
4th Quarter Median: $235,000

Are sale prices "increasing" over time? Yea, sure.
Is a market conditions adjustment indicated? Absolutely not.

Prices increased simply because on the average the GLA+Lot Size increased and the model is:

SalePrice = $100*GLA + $10* LotSize. [ Somethings MARS would discover very easily. ]

That's all. Time of Sale plays no role.

With the pandemic (or any market where sales are lacking) you should be placing a Bold Red Warning in about every 1004MC, that they are not reliable when there is not enough data per period to balance out the other factors involved in pricing. So, if your average GLA, average Lot Size, average Bedroom Count, average Bath Count, etc., are the same in each period, and your prices are still increasing - then the reason is may very well be market conditions.

 

[Fernando]

Look, just because median prices are decreasing or increasing does not by itself indicate any kind of price trend, especially when sales are lacking.

Let's consider an extreme case. In my neighborhood, I have only two sales/month over the last 12 months:

Month	Lot Size	GLA	SalePrice
1​	5,000​	1,300​	180,000​
1​	4,500​	1,000​	145,000​
2​	5,000​	950​	145,000​
2​	4,800​	1,100​	158,000​
3​	5,200​	1,050​	157,000​
3​	6,000​	1,200​	180,000​
4​	4,000​	1,150​	155,000​
4​	7,000​	1,300​	200,000​
5​	5,000​	1,250​	175,000​
5​	6,500​	1,400​	205,000​
6​	4,500​	1,350​	180,000​
6​	5,000​	1,500​	200,000​
7​	5,600​	1,450​	201,000​
7​	6,800​	1,600​	228,000​
8​	6,300​	1,300​	193,000​
8​	8,000​	1,700​	250,000​
9​	5,600​	1,650​	221,000​
9​	5,200​	1,800​	232,000​
10​	6,500​	1,750​	240,000​
10​	6,300​	1,900​	253,000​
11​	4,500​	1,850​	230,000​
11​	4,000​	1,300​	170,000​
12​	4,500​	1,950​	240,000​
12​	4,500​	1,400​	185,000​

1st Quarter Median: $157,500
2nd Quarter Median: $190,000
3rd Quarter Median $224,500
4th Quarter Median: $235,000

Are sale prices "increasing" over time? Yea, sure.
Is a market conditions adjustment indicated? Absolutely not.

Prices increased simply because on the average the GLA+Lot Size increased and the model is:

SalePrice = $100*GLA + $10* LotSize. [ Somethings MARS would discover very easily. ]

That's all. Time of Sale plays no role.

With the pandemic (or any market where sales are lacking) you should be placing a Bold Red Warning in about every 1004MC, that they are not reliable when there is not enough data per period to balance out the other factors involved in pricing. So, if your average GLA, average Lot Size, average Bedroom Count, average Bath Count, etc., are the same in each period, and your prices are still increasing - then the reason is may very well be market conditions.

I use a software to calculate the price trend and last quarter had only 2 sales and the software indicated increasing market automatically into my 1004MC.
I went back and looked at the data manually and the 2 sales were larger gross area thus higher sales price which made the median price increased for that quarter.
Because of lack of data, I had to get larger general area and the result showed a stable.
Appraisers can not rely on software when data sample not sufficient.

 

[RCA]

I use a software to calculate the price trend and last quarter had only 2 sales and the software indicated increasing market automatically into my 1004MC.
I went back and looked at the data manually and the 2 sales were larger gross area thus higher sales price which made the median price increased for that quarter.
Because of lack of data, I had to get larger general area and the result showed a stable.
Appraisers can not rely on software when data sample not sufficient.

Yep, and the use of "median" makes the whole situation worse. [$26,000, $29,000, $30,000, $40,000, $1,000,000] has a median value of $30,000. So, does [$1.000, $2.000, $30,000, $31,000, $32,000]. But the first array has an average value of $225,000 and the second array an average value of $19,200.

So, in appraisal, it is REALLY absolutely necessary for appraisers to have some fundamental ability in math. Much of the math is really kind of low-level, but with its own complexities, twists and turns. --- And MAGIC.

Most current run-of-the-mill appraisal math is simple, but a kind of shell game. A game of cards. A game of deception. A game in any case.

There is this appraiser I know since many years who told me he scored in the upper 1% on the GRE verbal test I think last year. He is about 80. Now, that is very smart. You know what he likes to use for price trends (last time I saw him working on reports about 15+ years ago) - just simple graphs of monthly averages or medians. To be honest, I don't know his requirements for the underlying data.

But you know as well as I do, that in most cases, when you are collecting data on neighborhoods, there is not that much to go on for the past year.

So, here we go again.

We know FNMA has Ph.D.'s in math and physics working on their end. Yet, they give appraisers brain dead tools they insist they work with, such as the 1004MC. The lenders and AMCs insist to this day they be used, when they are in fact no longer required. So, yea, FNMA has finally dropped their requirements on using 1004MCs, but the lenders and AMCs are not that smart, so the appraiser gets these forms pushed on them with a "hint" that they may be misleading and a "hint" that he/she should be aware of this.

So, appraiser, be wary; you are on notice.

 

[Mejappz]

Yep, and the use of "median" makes the whole situation worse. [$26,000, $29,000, $30,000, $40,000, $1,000,000] has a median value of $30,000. So, does [$1.000, $2.000, $30,000, $31,000, $32,000]. But the first array has an average value of $225,000 and the second array an average value of $19,200.

So, in appraisal, it is REALLY absolutely necessary for appraisers to have some fundamental ability in math. Much of the math is really kind of low-level, but with its own complexities, twists and turns. --- And MAGIC.

Most current run-of-the-mill appraisal math is simple, but a kind of shell game. A game of cards. A game of deception. A game in any case.

There is this appraiser I know since many years who told me he scored in the upper 1% on the GRE verbal test I think last year. He is about 80. Now, that is very smart. You know what he likes to use for price trends (last time I saw him working on reports about 15+ years ago) - just simple graphs of monthly averages or medians. To be honest, I don't know his requirements for the underlying data.

But you know as well as I do, that in most cases, when you are collecting data on neighborhoods, there is not that much to go on for the past year.

So, here we go again.

We know FNMA has Ph.D.'s in math and physics working on their end. Yet, they give appraisers brain dead tools they insist they work with, such as the 1004MC. The lenders and AMCs insist to this day they be used, when they are in fact no longer required. So, yea, FNMA has finally dropped their requirements on using 1004MCs, but the lenders and AMCs are not that smart, so the appraiser gets these forms pushed on them with a "hint" that they may be misleading and a "hint" that he/she should be aware of this.

So, appraiser, be wary; you are on notice.

It is scary that GSEs and Lenders went with such a flawed model, and it took them ten years to figure out it was garbage. And yet, you still have forum members defending the form and blaming appraisers for not filling it out correctly.

 

[Mejappz]

HUD is even more clueless as they continue to insist on the use of the 1004MC. So, in FHAs, world market conditions are not essential but sticking your head in a scuttle is.