1004MC & Neighborhood Section page 1

[hastalavista]

I've posted this before. This is a statement that I put into my reports to explain the difference between the analyses and (potentially) the results that can be obtained when analyzing the sub-market (1004mc) vs. the general market (1004, page 1). The bolded part at the bottom are my assignment-specific comments for the report I copied this from.
I've never been questioned (yet) when the two analyses have indicated different trends.

Note: Effective April 1, 2009, the GSEs and FHA have required that all 1-4 unit residential property appraisal assignments (including individual condo, co-op and manufactured housing units) include the Market Conditions Addendum (1004MC) form. This Market Conditions Addendum analyzes the subject’s sub-market (see explanations on 1004MC for definitions of sub-market). At this time, there is a conflict between the 1004MCs verbiage and the intent of the neighborhood market conditions analysis section. The neighborhood market condition analysis section is intended to communicate to the client and the intended user the market conditions of the entire neighborhood/marketing area that affects the subject or, put another way, where the subject competes. The 1004MC form only analyzes the subject’s direct competition (likely substitutes, also known as “comparables”). Not all properties in a neighborhood are comparables; therefore, the neighborhood market analysis is the total set of properties within the marketing neighborhood, and the 1004MC only analyzes the specific sub-set (sub-market) of those properties that are comparable to the subject excluding those that are not.

If the general market and the sub-market are highly correlated (move in value direction and other market indicators uniformly and in tandem) then there is no difference between the two.
If the general market and the sub-market are not well-correlated (do not move in unison to the same degree/scale) or perhaps non-correlated, then there may be differences between the two.

The ambiguity created in the 1004MC verbiage occurs is when it states that the 1004MC analysis should be the basis for the neighborhood analysis as indicated on page 1 of the 1004 form. There may be times when the two analyses are not in support of one another (this makes intuitive sense as the data sets are not identical). The GSEs have yet to reconcile this conflict in the pre-printed instructions of the form.
USPAP requires the appraiser to communicate his or her results in a manner that is not misleading. Further, USPAP requires the appraiser to communicate his or her analysis and rationale in a manner that can be understood so the quality of the work and the credibility of the results can be evaluated.
Therefore, I am including this statement in my report to alert the client and intended user that a discrepancy may exist between the sub-market trends/indications and the general marketing neighborhood’s trends/indications. Where such differences exist, I will discuss the differences and provide my reconciliation of the differences. Where no such differences in trend/direction and overall market indications exist, no additional explanation is considered necessary.
For this assignment, the 1004mc data group is too small to extract any reliable statistical conclusions. However, the data that can be discerned is consistent with the general market and in the course of my research; I saw nothing to indicate a contrary trend is present. Therefore, I have relied heavily upon the general market trends for my overall and sub-market characterization (declining market).

 

[The Argus]

The word COMPARABLE appears on the 1004MC form 8 times.

With a well written narrative, your use of the MC can be easily explained.

In the comments section of the MC, I typically write something like:

"The neighborhood section of the 1004 form is intended to address market trends for the overall neighborhood. The 1004MC form is meant to address market trends for properties which are considered to be COMPARABLE to the Subject property (ie suitable purchase alternatives)....blah..blah..blah...

We recently had a "reviewer" tell us that the MC form MUST match the info in the neighborhood section. I couldn't disagree more. The neighborhood consisted of 800 sq ft condos and 1200 sq ft condos. In the opinion of our appraiser, the 800 sf ones did not compete with the 1200 sf ones. We have gone round and round with this gal. I guess that's why we are busy appraisers and she works for a company, busting real appraisers stones all day long.

 

[residentialguy]

We have gone round and round with this gal

Bottom line is, You're the author of it, not her. Tell her to write her own report.


Denis,

I like your blurb and I may steal some of it if you don't mind.
I do think it's a bit overwhelming and could be leaned out to a more concise statement that might be a bit easier to comprehend. You just need to get the point across that comparables are not the same as the whole neighborhood.

"The neighborhood section on pg one of the appraisal encompasses all one-unit housing types. The form 1004MC deals with the comparable sales within that neighborhood that are similar to the subject. This is a more restrictive analysis and may not support findings of the overall trend in the described Neighborhood section."

If the data is insufficient for a reliable "comparable" analysis, then explain that and explain that you are using the whole neighborhood analysis and that they are not all comparables.

As far as top of pg 2, I always use the comparables in the subject neighborhood. Sometimes there are no actives or sales.

as always....explain what ever you do.

 

[hastalavista]

Denis,

I like your blurb and I may steal some of it if you don't mind.
I do think it's a bit overwhelming and could be leaned out to a more concise statement that might be a bit easier to comprehend.

I agree.

I wrote this when the 1004mc first came out and the comments were designed to walk the uninformed reader through the process (and, if you haven't noticed, I tend to be a little wordy from time to time :laugh.
But I agree it could (and should) be shortened and I'm going to do that.

Feel free to use anything I post (I disclaim any responsibility! ).

 

[bigmack]

The MC is usless in relitively small markets and only asks for mediun stastics which is many times mis-leading. Now we have all these MC "reps" with different levels of understanding ( most are reading a checker and have never completed an appraisal report) trying to keep their jobs. It's all a bad joke and the joke is on us.

 

[Mike Garrett RAA]

Since the inception of the form I have yet to have anyone question the analysis in my report. Of course I primarily do appraisals for the Department of Veterans Affairs and I think they could care less about the 1004mc.

 

[NC Appraising]

No offense, but there have been two posters (DWiley and Rich Heyn) that have been in constant communication with Fannie and has come on this forum many times and shared this with us. This is how Fannie wants it, like it ir not!! So if you use THEIR form, use it the way they want you to use it, it's not that hard. Stop reading the book they way you want it to come out, it is what it is.


Below is some of their threads, maybe you can some more. So unless you actually spoke with Fannie (like these guys have) your "having it your way".





The data in the grid at the top of the 1004MC should reflect ONLY competing homes in the same area. Expanding the search parameters used simply to provide a larger data pool directly contradicts Fannie's instructions.

If the data in the grid is too limited to allow one to draw trend conlclusions, then the grid must be supplemented (not replaced, supplemented) by other data that shows how the appraiser reached his/her conclusions.


I'm not addressing the issue of how effectual the 1004MC might be. It's a matter of how the appraiser is to complete it. If a client says "I need a 1004 with a 1004MC on this property" what they are telling the appraiser it that they need an appraisal developed and reported in a manner that is compliant with Fannie Mae guidelines. And the FAQ that I quoted, "mypotic and simple-simon" or not, becomes part of the assignment conditions. Which means that it's part of the problem identification process from which the appraiser's scope of work is developed.

Appraisers who chose to complete the 1004MC in a manner that's contrary to Fannie Mae's requirements are not compliant with USPAP and risk state board sanctions

Assume you are appraising a condo and that the neighborhood contains several submarkets. The high-end detached waterfront homes are increasing in value, the non-waterfront detached have stabilized but condos are still in free-fall. What's of most interest to the lender?

And how else do you report one-unit housing trends on the form check boxes? Lump everything in the neighborhood into one bucket and average it out? That's OK in a neighborhood with a single submarket or if multiple neighborhood submarkets are moving in lockstep. But otherwise?

I'm not a Fannie Mae apologist, booster or detractor. Whether Fannie Mae is correct, realistic, etc. I'll leave to others. I'm just trying to state the facts as best as I know them in that they might help others deal with the 1004MC.

As I stated elsewhere, I developed a interactive webinar on the 1004MC for ACI clients. As part of the research, I was in touch with Fannie Mae on a number of occasions. As a result of teaching it in an interactive format, the questions and reactions from several thousand clients led me to do more research and have additional contact with Fannie. Along the way, I made a few mistakes that have since been corrected and may still be laboring under a few misconceptions, but overall I'm comfortable with my interpretation of what Fannie wants.

Please understand that I'm not trying to make a statement one way or the other as to the veracity of what they are doing or as to how well they have communicated it

http://appraisersforum.com/showthread.php?t=154287&highlight=1004mc&page=3

 

[NC Appraising]

http://appraisersforum.com/showthread.php?t=160659&highlight=1004&page=2



The intent of the 1004MC is to provide support for the appraiser's conclusions regarding market trends and conditions. Consequently, the checkboxes under "One-Unit Housing Trends" on the URAR are submarket specific, as is the 1004MC. Additionally, the "Market Conditions" comment section of the URAR should contain comments specific to the subject submarket. With one possible exception, the remainder of the Neighborhood Section of the URAR pertains to the entire neighborhood, not just the subject submarket.






Not quite. Rich's post has it 100% correct. Part of page 1 is for the whole area, and part is for the submarket. I have confirmed this directly with Fannie Mae





From Fannies FAQs:

Note the last sentence in the following paragraph.

The Form 1004MC is intended to provide the lender with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. The form provides the appraiser with a structured format to report the data and to more easily identify current market trends and conditions. The appraiser’s conclusions are to be reported in the “Neighborhood” section of the appraisal report.


The following sentence references “housing trends” as in “One-Unit Housing Trends” on the URAR form.

The “Inventory Analysis” section assists the appraiser in analyzing important supply and demand factors in order to reach a conclusion regarding housing trends and market conditions.







Actually, it does make sense if you think about it. Like Danny, I've also had a number of conversations with Fannie Mae on this issue. In reference to submarket specificity, my contact as Fannie essentially said "how else could you do it?"

The side banner on the URAR says "Neighborhood" not "Market Area" or "Entire MLS System." So let's assume Fannie wants information in the Neighborhood Section that's neighborhood specific.

Next, under "One-Unit Housing Trends" how do you respond to the check boxes if you are not submarket specific? Suppose your neighborhood is located on an inland lake. The lakefront homes have continued to increase in value due to continued strong demand for waterfront property. The off-lake homes have been declining in value. Which check box do you check if you subscribe to the "general neighborhood" method? Or suppose you have three submarkets in a neighborhood? One is increasing in value, one stable and one declining.

Assignment results should be reported in a manner that is meaningful to the intended user, given the intended use. In this case, the intended user is a lender and the appraiser's indented use of the appraisal report is for the lender to "evaluate the property that is the subject of this appraisal for a mortgage finance transaction."

So imagine that you are a lender contemplating using a given property as collateral for a loan. The property is a condo in a neighborhood that includes two other submarkets. One of the other submarkets is increasing, one is stable and the condo submarket is still tanking. Which checkbox provides meaningful information to the client

 

[residentialguy]

Of course I primarily do appraisals for the Department of Veterans Affairs and I think they could care less about the 1004mc.

How much less could they care about it?

 

[Mike Garrett RAA]

What do you think about this comment....

"Insufficient number of listings and/or sales for meaningful trend analysis".

I am in total agreement about sub-markets. IN MY MARKET condos or townhouses do not compete favorably with single family detached. All are residential in nature but two distinct markets. There are neighborhoods comprised of upscale single family residences and lower priced condos. The One-Unit housing range on page one would be from, say, $140,000 to $750,000. To use those numbers on the top of page two and on the 1004mc would, in my opinion, be misleading.

The language in the instructions section of the 1004mc states...

"Sales and listings must be properties that compete with the subject property, determined by applying the criteria that would be used by a prospective buyer of the subject property".

That would suggest to me comparing apples to apples and oranges to oranges. How about using the same logic you would use to select comparables for use in the grid on the 1004?