The 1004 MC form & driving by the comparables

[George Hatch]

I think a lot of appraisers are coming to the same conclusion. I know I am.

 

[Vetteman]

BTW, Fannie has already acknowledged the limitations of the databases used by appraisers. They already know they won't be getting medians and FSBOs and that some MLS systems will have better data than others.

Can you reference where Fannie has stated this in print? Will any users of the report, intended and otherwise, be aware of these limitations?

 

[Mike Kennedy]

Robert - it's the 1004mc, not the 1004 - there is no sales comparison approach on the 1004mc. In the absence of specific pre-printed, or client. requirements, neither require drivebys of ALL current listings, contracts or sales.

Vetteman - see the LINK below for instructions on how to deal with unavailable data. Question 3.

 

[Mike Kennedy]

Fannie mae has issued a Q&A on the new 1004mc form that goes into the logic of why they want it and what it means. From this link you can also see the 1004mc and the instructions they are giving for it. This goes into effect on April 1,2009 so get up to speed, take a class, study it and get it right https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/appraisalfaqs.pdf

 

[George Hatch]

Well for starters there are the instructions paragraph on the form itself where they make reference to the "extent the information is available and reliable". That right there is an acknowledgement that your data sources are not assumed to be perfect and neither are you. They also make reference to the appraiser filling in the gaps with respect to anomolies in the data, seasonality, etc.

There are a larger than average share of pinheads among the users of these forms and I have little doubt that appraisers will have to train some of these pinheads the hard way, especially during the first couple months this new form comes into circulation. But I highly doubt that most reviewers are going to get torqued about you not finding data that is also unavailable to them.

"Misleading" would come into play if you didn't provide disclosure that the data in the MLS system doesn't cover 100% of the transactions, just the ones that are available for analysis by anyone during the normal course of business. Incomplete is not synonymous with misleading; or inaccurate; or unreasonable.

BTW, half of the references in that grid are about "listings" and there are no references to FSBOs or auctions.

 

[Vetteman]

"Misleading" would come into play if you didn't provide disclosure that the data in the MLS system doesn't cover 100% of the transactions, just the ones that are available for analysis by anyone during the normal course of business. Incomplete is not synonymous with misleading; or inaccurate; or unreasonable.

BTW, half of the references in that grid are about "listings" and there are no references to FSBOs or auctions.

Thanks George. I would think that if the defined neighborhood includes a new development, where a large number of houses are unsold, that would have a bearing on absorption rates for resales of existing homes. Doesn't somebody who listed their property with "For Sale Buy Owner" count? How about the person who just sticks their sign in the front yard, or lists in the newspaper? I mean, there are some neighborhoods here in south Florida, Hialeah is an example, where very little of the residential real estate is sold thru realtors and the MLS. People there would rather keep the 6 percent.

 

[Howard Klahr]

"Misleading" would come into play if you didn't provide disclosure that the data in the MLS system doesn't cover 100% of the transactions, just the ones that are available for analysis by anyone during the normal course of business. Incomplete is not synonymous with misleading; or inaccurate; or unreasonable.

BTW, half of the references in that grid are about "listings" and there are no references to FSBOs or auctions.

George,

I agree completely with the disclaimer about the lack of coverage with regard to information in the market.

However, the form does specifically note "Total #" with regard to sales and listings. there is no reference with regard to only those properties noted on the MLS. As has already been previously noted, at least in many Florida market areas and I suspect many others, the MLS only represents about 80% to 85%of the property transactions. There are several other sources that market properties for sale.

While a disclaimer is one way to approach the issue, it is my opinion that the disclaimer needs to go beyond just stating the data source use but also some information about the market area that is not represented by the quoted data source. Many developers so not market thru the MLS, in the current economic environment, the are significant numbers of properties in various stages of foreclosure that are not listed in the MLS as well as homeowners that choose alternative methods in listing their properties (i.e. - BuyOwner, FSBO, Craigslist,etc).

As I have noted in another thread on the subject, i believe we can all agree that the form is ill conceived and poorly designed. Therefore, it is my opinion that it is not appropriate to complete the fields in the form just to serve the request of those ordering the reports. I also believe that many appraisers were already including market data and commentary in their reports prior to the issuance of the 1004MC form, the better ones were anyway. All that the new form will change is what page the market commentary is placed.

IMO, to force data into the fields is just not proper appraisal practice. Let's get beyond the mind set of filling out forms and work on delivering reports conveying relevant information.

 

[George Hatch]

1 . As I and others have commented before, the appraiser may not consider it helpful to their valuation process in the slightest, but if it's part of the assignment then it's part of the assignment. We don't get to change the rules of engagement after the fact.

2. The purpose of the form is to identify trends. The data is used to identify trends. If the MLS system is only capturing 80% of the total sales, it's also capturing 80% of the available listings. It's the LP/SP ratios, the absorbtion rates, and the medians for pricing and DOMs that are instructive, not whether the appraiser had access to 100% of the data.

3. If a lender takes a property back and has to resell it, they probably will be doing so through the MLS - that's where they'll most likely be competing. Not the FSBOs.

4. If an appraiser has access to the FSBOs there's no reason they can't add that data to their grid. If they're using a spreadsheet solution they might be able to use public records downloads and copy/paste those directly into the worksheets.

5. The Scope of Work Rule identifies two tests for the reasonableness of a SOW decision:
- What the appraiser's peers would do in a similar assignment
- what the expectations are of the power users

Fannie is making apparent what their expectations are - I highly doubt they're going to give a pass to skipping the analysis because the appraiser's local MLS only reports 80% of the total transactions. I also doubt that the majority of residential appraisers in your market area are going to fight the implementation of this form.

As for me, I have no stake in how this turns out. I don't think I'll ever have to do one, and if I do I'm already covered. My primary concern was/is to make it as easy as possible for as many people as possible to do the work without killing themselves.

YMMV.

 

[Vetteman]

Thank you Howard. I am just concerned that too many appraisers, even the good ones, will be filling out the form just to be obedient. When the rest of us take a stand, we will be hearing "What is your problem, everybody else is filling it out."

 

[George Hatch]

We already include information in our appraisal reports that we don't use to develop our valuations. An appraisal is more than just the number on the bottom line.