URAR, Top Of Page 2

[Terrel L. Shields]

The problem is (a) the GSE form melds part of both together and (b) many appraisers haven't taken the time to update their knowledge on market area analysis since their initial courses.

It is like "above/below grade" which can be interpreted as above or below "ground level" or above or below "quality level" of a referenced item. But the problem remains that to represent what the market is in a rural area or small town, you need a statistically significant number of sales, which may not occur ever, occasionally, commonly, or something in between. It is no reflection upon the actual demand for real estate, rather the velocity of sales in a small market.

I finished a report (lucky, no MC) in a town where the three most similar houses were 3, 9, and 13 months age. No problem. But Zillow will tell you this property has increased value by 24% over the previous 12 months...which is absolutely nonsense. In fact, the oldest sale was the highest, and was a total of 150 SF larger. The subject had been on the market the previous year, withdrawn and re-listed and sold in 20 days at the same price. Is that a "slow" market? Or simply the fact there are very few houses that sell for more than $150,000 in a town with few industries?

Again, divining the "market" in a small or rural "neighborhood" is more voodoo than science. It really is meaningless because the purported purpose is to identify a depressed or slow market when, in fact, the market is fine, there just are not very many properties to be sold nor is there many buyers to buy it. That is hardly evidence the markets are frozen, or everything is for sale but no one is buying.

 

[hastalavista]

The "Trend" determination from the 1004MC is the trend reflected on page 1 (Marion posted the full excerpt). A trend determination must be made. If the method defined in the grid boxes of the 1004MC form do not produce enough data to conclude a credible trend indication, then the analysis is supplemented until such time where the appraiser can make a conclusion and support it.

(I'll quote myself here...)

The above is where some appraisers may be misinterpreting the instructions and process. If there is zero data from within the subject's neighborhood and within 12 months, then the analysis needs to be supplemented in order to conclude a trend. That "supplement" can include going out farther in distance to capture sales from competing neighborhoods or (IMO) can be expanded to include non-competing neighborhoods whereby the argument needs to be made that the rising/falling/steady tide floats all boats in the same manner.
What shouldn't be done is to expand the 1004MC grid-box analysis to capture that data.
It is a supplement to the 1004MC grid-box analysis. Not a substitution of the 1004MC grid-box analysis.

 

[hastalavista]

It is like "above/below grade" which can be interpreted as above or below "ground level" or above or below "quality level" of a referenced item. But the problem remains that to represent what the market is in a rural area or small town, you need a statistically significant number of sales, which may not occur ever, occasionally, commonly, or something in between. It is no reflection upon the actual demand for real estate, rather the velocity of sales in a small market.

I finished a report (lucky, no MC) in a town where the three most similar houses were 3, 9, and 13 months age. No problem. But Zillow will tell you this property has increased value by 24% over the previous 12 months...which is absolutely nonsense. In fact, the oldest sale was the highest, and was a total of 150 SF larger. The subject had been on the market the previous year, withdrawn and re-listed and sold in 20 days at the same price. Is that a "slow" market? Or simply the fact there are very few houses that sell for more than $150,000 in a town with few industries?

Again, divining the "market" in a small or rural "neighborhood" is more voodoo than science. It really is meaningless because the purported purpose is to identify a depressed or slow market when, in fact, the market is fine, there just are not very many properties to be sold nor is there many buyers to buy it. That is hardly evidence the markets are frozen, or everything is for sale but no one is buying.

I don't see the conflict in what you are doing with defining a neighborhood or competitive market.
Those terms/definitions are valid regardless of the geographic area. Those terms/definitions don't change... although specific markets may have a different scale of geographic area based on their location.

I have very well defined neighborhoods in the City of San Francisco. They might be a 15-square block area.
I have a very well defined neighborhood in some of the more rural areas where I appraise. They might consist of the entire town.
I have a very well defined market area for both types of locations; the market area may be larger than the neighborhood (it would never be smaller).
None of this conflicts with what is required in the 1004MC.
What it may require is more comment/explanation in rural areas. But that's why you rural appraisers are paid the big bucks!

 

[Terrel L. Shields]

I don't see the conflict i

OK...but I had 3 comps within 0.3 miles of the subject, and the town iis about 3 miles x 2 mile+ wide. Why were they all concentrated in that one area? Is it due to some geographic feature? Economics? Or the simple fact most of the larger homes were built in the area in recent decades (30 yr) and thus had to be built in the direction of available land?

 

[hastalavista]

OK...but I had 3 comps within 0.3 miles of the subject, and the town iis about 3 miles x 2 mile+ wide. Why were they all concentrated in that one area? Is it due to some geographic feature? Economics? Or the simple fact most of the larger homes were built in the area in recent decades (30 yr) and thus had to be built in the direction of available land?

Maybe all of the above.

But the statement/question implies that if similar land were to become available in other parts of the neighborhood (within the 3 x 2 mile area), then there is no compelling market reason not to build in one of those alternative locations and that homes in the northern part of the neighborhood are relevant substitutes for the same kind of home in the southern part of the neighborhood.
I would expect to see this in a rural market. I might expect to see a certain property-type to be located around (circular) the core-historic part of the neighborhood.
If the client is only comfortable with a rectangular neighborhood of no more than 1-mile in diameter, then (a) they should probably not loan in a rural market or (b) the report would explain why the neighborhood is defined as it is.

But certainly, it can be explained. And, certainly, the 1004MC can work for that market and any market (it "can" work because the instructions effectively say, "Fill this part of the form out this way.... and, if you can't get what you need from the prescribed analysis-method to make a conclusion, then supplement it until you do get what you need.").

 

[Terrel L. Shields]

But certainly, it can be explained. And, certainly, the 1004MC can work for that market and any market (it "can" work because the instructions effectively say, "Fill this part of the form out this way.... and, if you can't get what you need from the prescribed analysis-method to make a conclusion, then supplement it until you do get what you need.").

Seems to me that this is the very definition of not working, or at least not telling you anything that narrative would not. And the various responses from others suggests to me that underwriters in addition to appraisers are trying to use the MC form to actually divine some meaning from the data by expanding their market search area "neighborhood" if you will, so that it has some meaning. Otherwise, it becomes, as I said a "nothing burger" except perhaps force narrative to supplement the form, which begs the question. Why not explain the market forces and get rid of the MC? It brings exactly zero (or 0 - 0 if you prefer) to the analysis....oh, forgot. The computer cannot read narrative comments.

 

[Mr Rex]

I've done it both ways, and have even put 2 1004MC forms in the same report. One from the "neighborhood" and one from the "competing market area". In my area, folks don't shop by subdivision or "neighborhood" necessarily, they shop the entire market area within a reasonable commute to work, schools, shopping etc.as typically there is not enough inventory to be so specific. In any case, I don't think either method is misleading as long as it is well explained.

 

[hastalavista]

...Otherwise, it becomes, as I said a "nothing burger" except perhaps force narrative to supplement the form, which begs the question. Why not explain the market forces and get rid of the MC? It brings exactly zero (or 0 - 0 if you prefer) to the analysis....oh, forgot. The computer cannot read narrative comments.

Terrel-

You forget that prior to the 1004MC form, many (if not the majority) of residential reports for mortgage-finance purposes had little if any market analysis. So, the result of that is the 1004MC form; a forced-process which requires the report to complete a market analysis; and designed to be supplemented in a manner (and with instruction) that, no matter how many sales are within the defined neighborhood in the last year, a trend analysis will be developed to be used in the description of the market and valuation analysis.

The top-line process (1004MC grid-boxes) might work half to most of the time in data-rich markets. In other markets, its reliability (top-line process) diminishes... and I would say diminishes quickly to the point of being meaningless.
But the same form requires a supplement to get the report to where it should be if the top-line process is inadequate.

There are significant flaws in the 1004MC (have you ever analyzed how the sales distribution falls within the three time groups and then observed, as I have posted, how this can likely be a very unreliable indicator of an annual trend-rate?).
But in the form world, whether we like it or not, many appraisers will only complete what the form asks them to complete. Ergo, the form is designed to the lowest common denominator; the appraiser who must be told by the form of what to include in the report.
For those appraisers who don't need that, we may resent it, but at the end of the day, it doesn't change what we would do (except for spending 5-minutes and maybe spending $2/report for an automated process to complete the top-line of the 1004MC).

 

[Carnivore]

So what else is the 1004MC telling you and more importantly the Reader/Intended User? Well it depends. First i never have let the 1004MC(which I complete very rarely) drive how I report on a FNMA series. Most of my work is completed on a FNMA Series Report Format. When I do i always include supplemental Statistics. When I dont use the 1004mc I still have my market statistics in the report. ALWAYS!

I agree with Denis and some others. I use time adjustments in every report. Could be a Plus, Minus or Zero. doesn't matter they are there. I don't give a Rats Patooey about distance or time. In other words i will not jam a SUPPOSED comparable into a report because it falls within 6 months, is real close proximity, or some other ARBITRARY fence a Lender or AMC has demanded.

IMO the 1004mc is nothing more than an attempt to force Mr Brga-do-cious 60 report a month appraiser to at least show he attempted to analysis the market on whether it is increasing/decreasing/stable and by how much. How much is a time time adjustment and may indicate a troubling trend or a healthy trend.

Small numbers can still be analyzed with credible results. this is a good read.

https://measuringu.com/small-n/

This is part of FNMA Risk analysis. FTR, they securitize conv, FHA, VA, and fmha. FNMA has huge amounts of Data. Data is historical, so boots on the ground is the first line in real time defense warning them of a dangerous trend. That's You!

I am not a know it all. I just might be all wrong on this. If you think I am please enlighten me.

 

[Laughing Heir]

I really miss this forum- this thread has gone to some interesting places. And that is a good thing.

Going back to the original point, the cause for my alarm is that this topic was addressed specifically in an article focusing on ... fraud. I am going to follow my gut reaction, which was to input 0 sales with a scale of $0 to $0 and supplement the 1004MC with a broader study.

Hope everyone is doing well. I wish I had more time to spend here with y'all but an infant and toddler keep me pretty busy.