Properties used to Complete Form 1004MC

[AndrewBiz]

Without seeing your exhibits my comments can only be of a limited nature.

The time adjustment does not have to be based solely on the data on the 1004MC form. The appraiser has the authority to include other relevant data to support their opinion of the effect of time. If the other data is reasonable that would be a proper methodology.

Given the way you wrote your letter I am assuming you have a strong background in statistics. That is a pure science. Appraising is a combination of art and science. An appraiser's results are measured in terms of "is it credible", not "is it exact."

Thanks for your feedback.

The appraiser did use "pure science" (math) to come up with their opinion of the effect of time. All the appraiser did is take the average sale price from the prior 7-12 month period ($396,068) and compare it to the current-3 month time period ($300,000). The difference in the averages for the two time periods is $96,068 which is 24% less than the $396,068 from the 7-12 month period. The appraiser then used this 24% as the declining market value to adjust two comps on the URAR that sold 7 and 8 months ago. The problem is the data was bad to begin with, all the averages tell us is that a few more expensive properties that do not compete with the subject property sold within the 7-12 month time frame.

 

[AndrewBiz]

How did you do that? I want to know because I can't even figure it out on reviews when I have the appraisal in front of me. How did you figure out what the outliers were? I have something to learn here and it looks like you can teach me.

In order to find the dataset used on the MC addendum I searched MLS using the same time frames required to complete the form. I then sorted the data and I came up with the same number of properties and average sale prices for each grid the appraiser had on the MC form. When all these figures matched up exactly I knew I had the same data used by the appraiser. As for identifying the outliers there were three properties that jumped of the page because they sold for much higher than any of the others in the dataset. I then looked at the details of those 3 properties and came to find out 2 of them had full equestrian facilities (barns, stables, riding rings, indoor riding arenas, etc...), the 3rd property was 79% larger than the subject property.

Any other thoughts you have would be appreciated.

Thanks

 

[AndrewBiz]

It always amazes me how many are experts at doing appraisals, more so than those who are licensed to do so. With that way of thinking, since I am not a licensed physician, I must be an expert when it comes to brain or open heart surgery.

Who is claiming to be an expert?

 

[AndrewBiz]

I really don't see how the 1004 MC form affects the value estimate in the appraisal. The 1004 MC is an addendum to the report. If I were you I would look at the comparable sales used in the appraisal report as well as checking the accuracy of the subject property information.

In any event a 1% difference is within the acceptable margin of error. If I were you I would have the appraisal report reviewed or obtain a new appraisal report and request PMI elimination. I should add that you were free to contact a different lender if you were not satisfied with your current lenders terms.

My original post outlines how form 1004MC impacted the value estimate in the appraisal. If after re-reading it still is not clear I can try and further elaborate for you.

As for the 1%, that is not what the appraisal is incorrect by, I would not be questioning a 1% error, that would be a pretty high standard to expect of anyone in any industry. The appraiser has calculated the declining market to be 24%, when it should have been 12%, that is a 100% margin of error, which is not even close to within acceptable margins. Again, my original post explains how the appraiser used this 24% declining market from the MC to come up with the value estimate.

 

[AndrewBiz]

I don't even know what to say, get in line with your complaint, most lenders, mortgage broker, realtors and appraisers, either don't understand, don't like or think the 1004MC is useless. However you are either a lawyer or an appraiser as you seem to have a complete grasp of it, if you want an appraiser to put a narrative section on every part of the appraisal that should be about a $900 to $1,500 appraisal.

The appraiser may have done a good job on your appraisal and he may not have, if he/she didn't all I can tell the general public is get used to it. First the 1004mc was crammed down our throat, the the HVCC, appraisers are going to leaving the industry in droves over the next year or two. The thing I love is the whole "my appraisal came in low" have you ever thought that the appraiser actually just did an appraisal, I know that may sound crazy, but maybe he/she just did their job and wasn't concerned about your LTV or that you now have to have PMI, call me crazy but that may have happened.

The Ask an Appraiser part of this forum should just be changed to "My appraisal came in low" or "My appraisal is bad and full of errors" the funny thing is I have yet to see someone come on here and make a complaint about their appraisal if their "number" came in, just if they think it's low! The whole HVCC was suppose to be because all us bad appraisers were appraising properties way high, now everyone is moaning and complaining because they think they are to low, waiting tables or finding another part time job is looking better ever minute at this point.

I hear you about all the low appraisal complaints, nobody says anything when the numbers tell them what they want to hear. At any rate, do you think the errors I have pointed out justify a correction and/or me reporting the appraiser to the licensing board in my state?

 

[CANative]

Wait a minute. I must have taken my dumb vitamin last night. I posted the wrong passage from hvcc.


Here is the correct passage.

C. Nothing in this section shall be construed as prohibiting the lender (or any third party acting on behalf of the lender) from requesting that an appraiser (i) provide additional information or explanation about the basis for a valuation, or (ii) correct objective factual errors in an appraisal report.

 

[AndrewBiz]

I would like to point out that comparing a six month average to a three month average to ascertain a rate of decline is not reasonable.

Are you sure this is where the appraiser came up with the rate of decline statistic?

Because I live in an area where virtually all of the housing inventory is unique, my definition of comparable is sometimes expanded.

However, I do not rely on the 1004MC for my statistical analysis, I run different data sets which can include annual, six month, or quarterly statistics depending upon the volume of sales in the area.

Did you review the entire report, especially the Neighborhood Market Characteristics section and the Comments on Sales Comparison? These two sections are where I typically summarize the market activity, with details regarding stable/increase/decline and the market condition adjustment.

Thank you for your feedback.

Yes I am certain this is where the rate of decline came from. The appraiser states on the MC form that the average sale price has declined 24% over the past year. Which from a pure math point of view it is the case but it does not translate to the market direction being down 24%. All that the 24% statistic indicates is that some more expensive houses sold in the prior 7-12 months than in the current-3 months. I am sure if the three properties that do not compete with the subject property had sold in the current-3 month time frame the appraiser would not have concluded that the market has increase 24% over the past year. It just seems like the appraiser is not using the information correctly and is unwilling to admit a mistake or misunderstanding of the data. At this point I feel like my only course of action is to file a complaint with the state license board?

 

[AndrewBiz]

Attachments of Exhibits from my Original Post #1

I had an issue with...you guessed it a low appraisal value for a re-finance which will now result in paying mortgage insurance (81% loan to value to add salt to the wound). At any rate I reviewed the appraisal in detail and noticed what appears to be a major error in calculating the time value adjustment on the report. This discovery resulted in me sending the below letter to the appraisal company and lender (I hope to attached the refernced exhibits to this post). Long story short the appraiser is sticking to their valuation. My next step is to report them to the state license board but would like any feedback on the merits of my positions before proceeding. If anyone has other thoughts on my best course of action that would be appreciated as well.

To Whom It May Concern:

I am writing in concern to an appraisal (File No. XYZ) prepared by your firm in connection with the refinance of my residence at 123 Main Street in Anytown, USA. The nature of my inquiry is in regards to the property data used to develop the Market Conditions Addendum (MCA) to the Appraisal Report (Fannie Mae Form 1004MC).

On June 10, 2009 at approximately 3:00 pm I placed a phone call to your office and spoke with the woman that answered the phone. During this call I requested that the property data used to complete form 1004MC be provided to me so I can validate the information contained on the form; this request was denied. Upon being denied the information I then questioned if I was supposed to simply “assume the data is correct”. The answer I received was that I should assume the data is accurate because it was compiled by a professional appraiser.

Subsequent to my request being denied I was able to ascertain the dataset used to complete form 1004MC. Upon review of said dataset I was able to confirm my suspicion that the dataset used to complete form 1004MC contained flawed data. The instructions for form 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.” It is clear by reviewing the sales data that at least three (3) of the properties contained in the prior 7-12 Months time frame do not compete with the subject property and should not have been included in the dataset. Refer to Exhibit A for information on these properties and a narrative explaining why the properties do not compete with the subject property. The inclusion of the Exhibit A properties in the MCA dataset created “outlier” sales (sales which are far above or below the neighborhood norms). The use of medians (as recommended on form 1004MC) rather than average sales data would have minimized the impact of the outliers (refer to Exhibit B, column B). The decision of the Appraiser to use average sale prices rather than median prices made it extremely important to filter the dataset to include only properties that compete with the subject property; this important step was not done. The inclusion of the these “outlier” properties artificially inflated the average sale prices during the 7-12 month time frame thus creating a perceived 24% decline in average sale prices over the past year (a classic example of “garbage in, garbage out”). This erroneous 24% decline was then applied to Comparable Sale No. 2 and 3 respectively on the URAR. This error devalued the comparable sales.

When the aforementioned “outlier” properties are not included in the dataset the resulting declining sale price over the past year based on average sale prices is 17% (refer to Exhibit B, column C) rather that the 24% decline applied to the comparable properties in the Sales Comparison Approach section of the URAR. To complete Form 1004MC per the explicit instructions (removing non-competing properties and using the median sale prices) the decline over the past year is 12% (refer to Exhibit B, column D) versus the 24% decline applied to comparable properties in the URAR. The net result of using an erroneous 24% declining market adjustment in the URAR is illustrated in Exhibit C.

As I highlighted in the opening of this correspondence I was unable to have a meaningful dialog with anyone to express my concerns with the appraisal. Therefore, I am providing this information in confidence that the information I bring forth will warrant a correction and modification of the appraisal. I am requesting that the Date of Sale/Time adjustment line item be corrected based on the corrected market decline rate and the subject property appraisal be revised based on the corrected information.

In closing please be advised that this is not a request to change a subjective opinion but merely to correct an error in the data collected which in turn was used to develop an erroneous appraisal. It should be noted that failure to address the issues contained in this correspondence may constitute an intentional, negligent misrepresentation in the appraisal report which can result in civil liability and/or criminal penalties under the provisions of Title 18, United States Code, Section 1001 or similar state laws.

As you are aware real estate transactions are a time sensitive matter and your prompt response is greatly appreciated. Should you have any questions concerning the data contained in this correspondence please contact me at your earliest convenience.

Sincerely,

Joe Homeowner

Attached to this message are the exhibits referenced in my letter. I hope this well help paint as clear a picture as possible and will enable constructive feedback on my situation.

Thanks in advance.

 

[Cob]

I hear you about all the low appraisal complaints, nobody says anything when the numbers tell them what they want to hear. At any rate, do you think the errors I have pointed out justify a correction and/or me reporting the appraiser to the licensing board in my state?

Knock yourself out if that's what you want to do, however I highly doubt that any state board would take a look at something like this for a while, as most are backed up with way more serious complaints to look at.

I agree with the person that made the comment about everyone else being an "expert" at our job, except of course the appraiser. The thing you need to know about appraising is that EVERYONE does it different, the information that one appraiser puts in for their 1004MC may not be the same as everyone else, 10 different appraisers may have 10 different criteria.

Like I said before, had your appraisal "come in" at value and you didn't have to pay PMI, I'm sure you wouldn't have even taken the time to register on this forum and "ask" for advice. When dealing with these types of situations myself, I always wish I could just hand someone or email someone a blank 1004 and 1004mc appraisal report and have them fill it out themselves, I am just curious as to how long and how they would fill it out. Then after they were done, I could look it over and question things in the report and ask them how they came to their conclusions.

While appraising isn't an exact science by any means, most people that perform then have at least a slight clue as to what they are doing, although when someone doesn't like the results, that is about the only time that you are questions about your competence. So if you feel that this warrants taking the time to file a complaint with the state board, by all means go ahead. But be ready if the appraiser shows up with a lawyer.

It may go something like,

Lawyer, You do not agree with the way Joe Appraiser filled out the 1004mc Mr. AnrewBiz?

You, Yes that is correct sir.

Lawyer, And what is your profession Mr. AndewBiz?

You, I'm the general manager for the local (fill in profession)

Lawyer, And that makes you qualified on what basis.

Well you get the picture of how it may go.

The one thing I have learned in this industry, is EVERYONE knows more than you (or at least they think they do) ESPECIALLY when they think their value is low. Then not only do they (or their Realtor buddy) know more than you, but you're considered an idiot.

 

[AndrewBiz]

Knock yourself out if that's what you want to do, however I highly doubt that any state board would take a look at something like this for a while, as most are backed up with way more serious complaints to look at.

I agree with the person that made the comment about everyone else being an "expert" at our job, except of course the appraiser. The thing you need to know about appraising is that EVERYONE does it different, the information that one appraiser puts in for their 1004MC may not be the same as everyone else, 10 different appraisers may have 10 different criteria.

Like I said before, had your appraisal "come in" at value and you didn't have to pay PMI, I'm sure you wouldn't have even taken the time to register on this forum and "ask" for advice. When dealing with these types of situations myself, I always wish I could just hand someone or email someone a blank 1004 and 1004mc appraisal report and have them fill it out themselves, I am just curious as to how long and how they would fill it out. Then after they were done, I could look it over and question things in the report and ask them how they came to their conclusions.

While appraising isn't an exact science by any means, most people that perform then have at least a slight clue as to what they are doing, although when someone doesn't like the results, that is about the only time that you are questions about your competence. So if you feel that this warrants taking the time to file a complaint with the state board, by all means go ahead. But be ready if the appraiser shows up with a lawyer.

It may go something like,

Lawyer, You do not agree with the way Joe Appraiser filled out the 1004mc Mr. AnrewBiz?

You, Yes that is correct sir.

Lawyer, And what is your profession Mr. AndewBiz?

You, I'm the general manager for the local (fill in profession)

Lawyer, And that makes you qualified on what basis.

Well you get the picture of how it may go.

The one thing I have learned in this industry, is EVERYONE knows more than you (or at least they think they do) ESPECIALLY when they think their value is low. Then not only do they (or their Realtor buddy) know more than you, but you're considered an idiot.

I can understand where you are coming from as it relates to people constantly questioning your work and challenging you, that gets pretty tired in hurry, I face the same thing in my profession. I'm sure the challenges have been fast and furious since the HVCC hence the defensive nature of the response. Perhaps I should have asked a different question...rather than ask if I should file a complaint with the licensing board the real question is would YOU have included the three properties I am questioning in the MC addendum dataset and do YOU think the appraiser correctly calculated the declining market percentage?

I anxiously await your response.