market analysis conflicts within report

[HF Mudd]

One specific question I have is what is the time frame applicable to answering whether neighborhood values are increasing, stable or declining, on page 1 housing trend section of the report. The FNMA/fhlmc guidelines are vague on this topic, apparently intending to leave it open to interpretation. Reading appraisal blogs and guidebooks, I am getting answers ranging from it refers to the value trend over an extended period such as over a 3-6 year neighborhood cycle, others interprete it to mean over the past year, or even past month. I have always filled out the page 1 neighborhood trend boxes to reflect what is currently occurring in the market as of the date of appraisal, based on most current sales, current listings, current pendings, lp/sp ratios, days on market, supply vs demand, bidding wars, over asking price offers, etc. It is focused on what is happening right now.

IMNSHO, the minimum time frame that should be utilized for market trend analysis is for a year over year period (i.e.: current 12 month period vs. prior 12 month period) in order to compare apples to apples and account for seasonality in the data. Comparing the current 1 or 3 month period to the prior period (unless you adjust for seasonality, which can skew the numbers if the current trends are not in line with historical trends) can be very misleading in most if not all of the markets I cover.

For example, DOM tends to be shorter in the summer than in the winter; inventory tends to be higher in the spring when many place their homes on the market for the anticipated summer selling season, etc.

 

[George Hatch]

The question isn't whether appraisers are capable of analyzing the wider dataset and trends. It's whether the users would actually find that information meaningful enough to them to pay for the additional time and effort involved. So far it looks like the users basically ignore the 5-minute MC analysis that most appraisers include in their reports.

It's become apparent that if you just guessed at the numbers based off of your analysis of the direct comparables most reviewers wouldn't catch that. All they care about is if your checkboxes correspond to what your direct comparables are doing.

Does anyone here think the bankers are ready to actually read the more comprehensive market analysis or to pay the extra $50/report it would take to cover the additional time involved?

 

[Lee Lansford]

IMNSHO, the minimum time frame that should be utilized for market trend analysis is for a year over year period (i.e.: current 12 month period vs. prior 12 month period) in order to compare apples to apples and account for seasonality in the data. Comparing the current 1 or 3 month period to the prior period (unless you adjust for seasonality, which can skew the numbers if the current trends are not in line with historical trends) can be very misleading in most if not all of the markets I cover.

For example, DOM tends to be shorter in the summer than in the winter; inventory tends to be higher in the spring when many place their homes on the market for the anticipated summer selling season, etc.

Two things:

1st, I agree.

2nd, I doubt whether there is more than a minority of the appraisers who regularly appraise for residential lending who would have a clue regarding understanding--much less applying--the essence of your message.

 

[George Hatch]

There are few people on this forum who are as verbose as I am. With that said, I don't believe in the 40-pg URAR report. I don't think the users want that much report for their SFRs and I especially don't think the readers want to go on the Easter Egg hunt in the long narratives to find the answers to questions they aren't asking.

If Fannie wants a 1-pg description of the neighborhood and its prevailing trends then they should expand the URAR to incorporate that into the main body of the report. If they just want the 10-line recap then appraisers shouldn't kill themselves to go far beyond that for most assignments.

One thing I think Fannie should do with their next revision of the URAR is to incorporate the MC analysis, extra comps and whatever USPAP housekeeping trivia pages into the main body of the report so that readers don't have to constantly flip pages in order to read an appraisal report. It makes the page count in the URAR go up but it doesn't increase the length of the report because it reduces the addenda pages. It also increases the efficiency of those pages as well as making them easier and faster to write. And read.

If you're already doing (for example) 12 pages of report not counting exhibits then maybe that should be the default for how many pages belong in the main body of the report.

 

[J Grant]

Really? It takes aprox 35-40 pages to turn out a report these days, and tht included non complex ones, and may not even mean verbose narration, just the narration necessary to the task).

If the "users" didn't want that much report, then why are they constantly expanding the SOW, with requests for listings to be added to every report, additional comps in many cases, overhead plats, interior photos of every room and every view and outdoor feature... if a report is sent in"lean", it is sent back asking for more narration and exhibits.

I get the impression from some of your posts that you favor a very fast, cheap, cookie cutter type report and seem to think such is sufficient for lowly, unimportant res loans.

Not sure why that is. Perhaps an "average" residential loan is a mortgage of $100,000-$300,000. That is still a lot of money to people , and they may put their bulk of their savings into the equity down payment. Multiply that amount by the of millions of loans made each year, and those "average" mortgage amounts swell to hundreds of billions of either profit, or losses to the banks.

With so much at stake, I don't understand the push for cheaper and faster and shorter reports (they often go hand in hand).

I am not talking about verbose writing to pad out a report or impress a client, I personally don't do that and can spot it in a review. However, a credible report takes a certain amount of time and research and pages...if they want to consolidate it, that is one thing, but hard to picture the result unless they want to stop asking for more....more photos, more support, more comps...the trend I see in res lending from the users' side is asking for more, not less.

 

[Terrel L. Shields]

Comparing the current 1 or 3 month period to the prior period (unless you adjust for seasonality, which can skew the numbers if the current trends are not in line with historical trends) can be very misleading in most if not all of the markets I cover.

The issue is whether the UW equates your market analysis with the MC's analysis of the year long trends. The two are not always in sync. UWs have a real problem with that. They don't understand the forms and the computer is telling them that the data are different.

DOM tends to be shorter in the summer than in the winter; inventory tends to be higher in the spring when many place their homes on the market for the anticipated summer selling season

Mortgage interest rates tend to hit bottom in Feb too...
While generalities are useful knowledge. Goverment programs and gimmicks tend to pull sales forward and the market lags immediately after they expire. We haven't had a "normal" market now for 3 plus years. Our current situation may impact the sales this spring. If sales have pulled forward to avoid the fiscal cliff and take profits on those houses before Dec. 31, we may see a drop in houses available to sell in the coming months, particularly true of high end homes.

I don't understand the push for cheaper and faster and shorter reports

If a 40 page report makes a value estimate more accurate then back 20 years ago we must have missed the MV by a mile.

You are among those who complain about fluff in narratives then argue for a 40 page residential report? Not that I don't agree the old 12 page report cannot be replicated anymore, but the addition of listings, MLS printouts, etc. are items that would never have been added 20 years ago, and in some cases didn't even exist. We were still going thru quarterly books with 6 sales to a page.

 

[J Grant]

Terrel, I don't care if a report is 12 or 40 pages ( and I don't like "fluff" in narrative but it doesn't bother me all that much, just think most times it is there to impress a client and pad the bill).

I do think reports should contain the information necessary to let the user understand the analysis, and more important, the appraiser should be allowed the time , not saying weeks or months, but a resonable time to complete the report.

I am not the one making a report 40 pages, the users are, asking for interior photos and additional photos of nearly everything, exhibits, extra comps etc.

The main problem in res lending appraising is not necessarily the length or brevity of the report, it is the ordering of them, the implicit pressure stil present in many an assignment, the reconsideration of value process is a disaster, and the way apprasials are assigned in many cases. Nobody in an important position wants to touch that, they instead come out with minor tweaks of USPAP every cycle .

 

[George Hatch]

Really? It takes aprox 35-40 pages to turn out a report these days, and tht included non complex ones, and may not even mean verbose narration, just the narration necessary to the task).

If the "users" didn't want that much report, then why are they constantly expanding the SOW, with requests for listings to be added to every report, additional comps in many cases, overhead plats, interior photos of every room and every view and outdoor feature... if a report is sent in"lean", it is sent back asking for more narration and exhibits.

I get the impression from some of your posts that you favor a very fast, cheap, cookie cutter type report and seem to think such is sufficient for lowly, unimportant res loans.

Not sure why that is. Perhaps an "average" residential loan is a mortgage of $100,000-$300,000. That is still a lot of money to people , and they may put their bulk of their savings into the equity down payment. Multiply that amount by the of millions of loans made each year, and those "average" mortgage amounts swell to hundreds of billions of either profit, or losses to the banks.

With so much at stake, I don't understand the push for cheaper and faster and shorter reports (they often go hand in hand).

I am not talking about verbose writing to pad out a report or impress a client, I personally don't do that and can spot it in a review. However, a credible report takes a certain amount of time and research and pages...if they want to consolidate it, that is one thing, but hard to picture the result unless they want to stop asking for more....more photos, more support, more comps...the trend I see in res lending from the users' side is asking for more, not less.

This is an accusation you keep levying at me and it's really starting to get annoying. I write to the expectations of my intended users, which is what we're supposed to do. Some of those users are more demanding that others so that means that some of my reports have more content than others. I seldom use less than 6 comparables in my SFR reports and I usually include all the pics and maps you include. What I don't include are pages of boilperplate designed to cover every contingency from every lender I deal with. I only include what I understand to be meaningful to the one set of intended users, my familiarity with those expectations being based on first knowing who they are.

I'm not saving any time by sticking to what I need and it's not particularly production friendly to do as much original writing as I do. And trust me, I include a lot more original writing in the fewer pages I write than most of you guys.

If you're doing the same report for all your clients then by definition some of that content is aimed at some of those clients and the rest isn't. I consider that to be a deficiency from the reader's perspective. I understand it's faster and easier for you to approach it that way but it also arguably makes it harder for your readers to sift through them to find what they're looking for.

And like I've said many times on this forum, I do very few Fannie reports so that one change makes things a lot easier to get to the point. When the form doesn't say stupid stuff to begin with you don't have to devote pages to cover those holes.

P.S. the advent of the 45pg URAR is hardly new. Appraisers were doing this 20 years ago during the prior RE bust because they thought that's what the paranoid lenders demanded back when they were under the gun. I was still doing some conventional SFR work back then and I never had any problems doing fewer pages then, either.

 

[J Grant]

GH, it was not meant to be an accusation, it's an observation. Your posts are terrific and I often comment that they are. However they often include, when it comes to res lending , comments such as that only the bare minimum is needed, and why should a user pay for a steak when all they need is a quick burger and the like. Perhaps I am reading these comments too literally.

I personally would love to drop the myriad photos and exhbits and the reqs from my reports, the essence is in the research. But the users have been asking for more and more content, not less, on the res lending side. They barely want to pay enough for it and object to allowing enough time for it, but demand it anyway.

 

[Terrel L. Shields]

seldom use less than 6 comparables in my SFR reports

If I have a client that wants more than 3 as a matter of course, then I get a new client. If I decide that 6 are relevant then I put in 6 without prompting. I never forget the time I got zinged by an FSA reviewer from Oklahoma because I added a fourth poultry farm. The subject was a relatively rare "Grandparent Stock" breeder hen farm (they raise the birds that produce the eggs that go to farms where the hens produce the eggs that actually produce the chix that you eat.) However, I had 3 such farm comps in Oklahoma and an identical one in Arkansas, so I used all 4 comps. (they were all in about a 30 mile radius of the actual hatchery they supported.) These are nigh million dollar farms, and the two houses are built to identical specs - 40' x 520', etc. etc. The reviewer claimed I was trying to "fluff up" the value of the farm by using the Arkansas sale until her own appraiser pointed out that, in fact, it was the lowest indicator of value. I never understood that review and kept the letter for a long time.