1004MC & Neighborhood Section page 1

[hastalavista]

This brings me to another question. Should we, as appraisers, toss out the outliers?

Yes. The reason to remove outliers is because they really do not fit the data-set parameters (like the example you gave) and removing them improves the quality of the analysis and makes it meaningful. Leaving in the outliers lessens the quality and distorts the analysis.

Obviously they have to be outliers and not relevant data! :new_smile-l:

 

[james stephens]

This brings me to another question. Should we, as appraisers, toss out the outliers?

Yes

From Fannie Mae, Selling Part VII - Property and Appraisal Analysis (Section 402.06 - Price Range and Predominant Price)

The appraiser must indicate the price range and predominant price of properties in the subject neighborhood. The price range must reflect high and low prevailing prices for residential properties that are comparable to the property being appraised (one-family properties, two- to four-family properties, condominium units, or cooperative units) and, in some cases, for competing properties (one-family properties when the property being appraised is a two- to four-family property or a condominium unit and condominium units when the property being appraised is a cooperative unit). Isolated high and low extremes should be excluded from the range, which means that the predominant price will be that which is the most common or most frequently found in the neighborhood. The appraiser may state the predominant price as a single figure or as a range (if that is more appropriate).

 

[residentialguy]

Should we, as appraisers, toss out the outliers?

I try to. Sometimes their are only 2 comparables in the neighborhood, so obviously you can't have any type of reliable analysis with that. If that's the case, I will explain the situation and run the analysis on the whole market, sometimes eliminating the REOs if they are vastly separate.

 

[Tres Kirkland]

The form is confusing. First they say to use properties that compete with the subject, but then they call them comparables and say that the numbers on the MC form should match on page 2. But competing properties may not be comparable properties. I may be appraising a two story, but a ranch or split level could be a competing property but not a comparable property. Most buyers start their search by 1. location and 2. price. After that they may say I prefer a ranch, but look at a 2 story and decide they like it. They may start out saying I have to have new house but end up liking a resale. My point is that competitive properties will include homes that are not necessarily comparable properties. And by using competing properties it will likely give you a sample large enough to show a trend. I usually make a statement explaining the difference between competing and comparable properties and that the number may not match up with page 2.

And the trend shown on the MC could be different than the trend shown for the entire neighborhood on page 1. If your appraising a high end home it may still be declining but the moderate priced homes may be stable or increasing.

 

[Wolverinefan]

The form is confusing. First they say to use properties that compete with the subject, but then they call them comparables and say that the numbers on the MC form should match on page 2. But competing properties may not be comparable properties. I may be appraising a two story, but a ranch or split level could be a competing property but not a comparable property. Most buyers start their search by 1. location and 2. price. After that they may say I prefer a ranch, but look at a 2 story and decide they like it. They may start out saying I have to have new house but end up liking a resale. My point is that competitive properties will include homes that are not necessarily comparable properties. And by using competing properties it will likely give you a sample large enough to show a trend. I usually make a statement explaining the difference between competing and comparable properties and that the number may not match up with page 2.

And the trend shown on the MC could be different than the trend shown for the entire neighborhood on page 1. If your appraising a high end home it may still be declining but the moderate priced homes may be stable or increasing.

And they wonder why our reports vary so much from appraiser to appraiser! I wish these forms would spell things out in Black and White and not be so contradicting at times.

AS for the MC Addendum, the data in this must match the data at the top of page 2 (x amount of comparable sales ranging from x to x). The neighborhood section on page 1 is of the market as a whole. This includes ALL sales from the subjects defined neighborhood. The neighborhood is defined within this section as well (remember N,E,W,S boudaries!).

The data on page 1 and the data in the MC addendum often do vary. The market as a whole may be stable, but the comparable market may be declining. Say the subject is a high end house and they are tanking in comparison to the average home in the same market.

When I do reviews I see all different ways that appraisers interpret each section. Many will count sales data outside the defined neighborhood market and report it in the MC addendum or on page 1. I really wish we could all get on the same page and be educated the same way. I think it would really benefit our industry.

 

[Wolverinefan]

The form is confusing. First they say to use properties that compete with the subject, but then they call them comparables and say that the numbers on the MC form should match on page 2. But competing properties may not be comparable properties. I may be appraising a two story, but a ranch or split level could be a competing property but not a comparable property. Most buyers start their search by 1. location and 2. price. After that they may say I prefer a ranch, but look at a 2 story and decide they like it. They may start out saying I have to have new house but end up liking a resale. My point is that competitive properties will include homes that are not necessarily comparable properties. And by using competing properties it will likely give you a sample large enough to show a trend. I usually make a statement explaining the difference between competing and comparable properties and that the number may not match up with page 2.

And the trend shown on the MC could be different than the trend shown for the entire neighborhood on page 1. If your appraising a high end home it may still be declining but the moderate priced homes may be stable or increasing.

I would consider competing properties as comparable? IMO

 

[nicholz12]

... no wonder this profession is nose diving rapidly... far too much conflicting and confusing information by govenment entities, the appraisal foundation, the government and other appraisal information organizations.

 

[residentialguy]

AS for the MC Addendum, the data in this must match the data at the top of page 2 (x amount of comparable sales ranging from x to x).

You have to be careful about stating absolutes when you don't have an absolute rule. Sometimes you only have 2 comparables sold and 1 active...hardly anything you should put on an abalysis like the MC to prove market therds. In that case, I would broaden the analysis to until it becomes somewhat reliable and useful. On page 2, I may show just the 2 comps sold and 1 active, since I want to show the availablilty of those.

 

[Lobo Fan]

I have been going rounds with one AMC over this subject. They keep coming back saying the neighborhood section and the 1004MC form must match. I keep asking for documentation for that and of course they have nothing. I finally got a supervisor to admist that there was no such rule. In every report I perform a study of the two year trend for the properties within my neighborhood boundaries and certain search criteria, usually GLA and lot size. I creat a graph that shows the trend lines as well as coming up with a per day adjustment for time if required.

Often, the two year study indicates something different than the MC form. I trust my research more than the MC form anyway. A recent upturn in sales prices does not indicate a trend.

 

[Doug DeMars]

Don't let the form dictate proper appraisal technique. I've yet to hear anyone state the MC form is well desgined and I'm guessing most would agree the neighborhood and market condtion section(s) need a serious overhaul.

IMO, the MC form and page 1 should basically line-up because the MC form is basically an extension...but not necessarily a reflection of page 1. There are plenty of reasons why they may not correlate. If conflicting information is found, then just explain why there are irregularities in the market. So yes...page 1 and the 1004MC can often be different. However, I would suggest to an appraiser who is finding more variability beteen the MC and page 1 are not providing a large enough data sample to make the MC form useful (if you could dare give the MC form a 'useful' definition). The instructions on the MC form give the appraiser plenty of freedom to use their best judgement to provide a credible analysis.

What do I do?
Definitions of Neighborhoods and Markets are subjective. However, in general, neighborhoods are often very small and market areas typically encompass multiple neighborhoods and multiple sub-markets. The best analysis typically focus on sub-markets. (e.g. High-end homes found in 3 or 4 selected competing cities/communities, all TH/Condos found in a medium sized city, 1200-1500 SF homes built between 1960 and 1980 in a 2 mile radius from the Subject, etc...) Each assignment will carry with it 1 or 2 proper approaches to discover the trend, which is the whole point of the exercise.