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AppraiserLoft Blog I Appraisal Industry News |
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Recent PostsBlogroll« FHA Appraisers in the Spotlight on Capitol Hill | Home | First price return increase in three years according to new housing report » How Appraisers are Using the 1004MCBy AppraiserLoft Team | June 24, 2009 After almost three months of working with the 1004MC market conditions addendum, how are appraisers adjusting their workflow? Valuation Review spoke to several appraisers in the trenches to see what effect the form has had on turnaround times and fees, and what problems they have encountered when using the 1004MC. On April 1, the 1004MC market conditions form was introduced by Fannie Mae. The form is required for all mortgage loans delivered to the GSE with appraisals of one- to four-unit properties. Valuation Review spoke to several appraisers across the country to get their perspective on the form, and how they have incorporated it into their workflow. Frank Gregoire, owner of Gregoire and Gregoire Inc. and writer of the Appraiser Active blog (www.appraiseractive.blogspot.com), doesn’t think the form is a big deal. “I had discussions with a number of appraisers about this. Those of us who have been doing high quality work for years couldn’t understand why Fannie Mae even bothered with the form,” he said. For Gregoire, the form is just duplicating the work that he was already doing. “We were including an explanation of the market in narrative comments and supporting our adjustments with a neighborhood analysis,” he added. He called the form a “poor substitute” for a well-done analysis, but conceded it is at least a step in the right direction for some appraisers. According to Gregoire, the form’s problem is that it adds another layer of bureaucracy. “Fannie and Freddie have a habit of reducing everything to a form and a checkbox. It seems to me they prefer to have people look at checkboxes and find square pegs for the square holes, making their decision on that basis, rather than reading more analysis and more descriptions,” he said. Mark Ryan is the branch manager for the Las Vegas office of Forsythe Appraisals. He believes the form is effective in helping the appraiser organize data to properly analyze market trends. He said, however, that these markets need to have sufficient sales activity. Like Gregoire, he doesn’t see the form adding much to his workload. “We have been providing this type of information to our clients for a long time. Properly analyzing market conditions is critical, especially in the Las Vegas market where market conditions can change rapidly,” he said, “The new form asks the same basic questions that we have always provided answers to.” A lack of data One of the main criticisms of the form, though, is that it is one-size-fits-all. Describing market trends and conditions in a suburban setting is one thing; in a rural market, it can be frustrating. As Gregoire said, “I’m the most spoiled appraiser because I work in the most densely populated county in Florida. We’ve got a lot of sales, a lot of property, a lot of data. I don’t understand how they do it in rural markets. My hat is off to any appraisers working in rural areas who don’t have the data.” Brent Martin, owner of On Call Appraisal Co., in Sidney, Maine, appraises in urban, suburban and rural markets and said the form is not useful. “You can’t standardize the information in the form when you have too many parts of the country that have rural and suburban markets,” he said. “The information is unreliable. I’ve had to cater my disclosures because my markets are very diverse.” Martin gives an example of one town that had just six sales in the past year, ranging from $32,000 to $280,000. On the other side of the country is Dave Towne, owner of Towne Appraisals in the northwest of Washington. As sales in his area can also be extremely limited, he agrees that the form doesn’t provide much use. “The few sales (zero to five in any three-month period) reported and used on the 1004MC form really don’t help loan underwriters understand the market,” he said. Despite appraising in more densely populated area, Gregoire agrees that a lack of data can be troublesome when completing a 1004MC. “An analysis of the market may show a clear trend with a crisis in value decreasing at a rate of a percent or two percent a month but because of the inadequate number of sales that meet your search criteria, the form doesn’t appear to produce the same results,” he said. This point is echoed by Ryan. “The lack of data can result in misleading value trends. The form defines the market in a very specific way. The answers do not always paint an accurate picture if the sample size is too small,” he said. Neighborhoods versus markets Another criticism of the form concerns the Neighborhood section and the difference between neighborhood and competitive market area. Bradford Charnas, owner of Charnas Appraisal in Rocky River, Ohio, doesn’t think the form is clear in this regard. “They’ve blurred the two,” he said, “It just adds to the confusion.” Towne points out that not all neighborhoods contain comparable properties, and warns against appraisers confusing neighborhood with comparable properties. He calls it an “apples to oranges” problem. “[Fannie Mae] believes that a heterogeneous neighborhood will automatically reveal trend data for a specific homogeneous property within that neighborhood. But in many cases the overall neighborhood of different properties has no real connection to the appraised property,” he added. Guidelines from Fannie Mae caution against expanding your neighborhood to encompass your comparable sales. But in some markets, especially rural ones, this can be unavoidable, and especially if the subject property is unique. Charnas gives an example. “Let’s say the buyer wants to buy a horse property with 20 acres, a barn, and a couple of pastures,” he said. “In that case, the location isn’t going to be the primary concern of the buyers, it’s going to be the features of the property. The competitive market area for that particular type of property could be across several counties.” Knowing your prospective buyers At the top of the 1004MC, the instructions include the following: 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. The question of who the “prospective buyer” is, though, can be problematic. Martin gives an example of a subject property that was a three-car garage with living space over the top. The prospective buyer could be someone who wants to use the garages for storage, and ignore the living space. Or it could be someone in the lower end of the market looking for a home. Or it could be someone who is planning on building a much larger house that encompasses the garages. “So my prospective buyers are either going to be able to afford a $400,000 home with a three-car garage and living space or a $150,00 house,” said Martin. “How do you pick which prospective buyer to go with to define the range?” The problems of price range Charnas believes that the 1004MC’s price range section can be counter-productive. “When you limit your research to a particular price range, you’re predetermining the results,” he said. Even if the market prices drop 10 percent, if your research is limited to the price range, you’d just swap one set of comparables for another, he argued, but the median price would stay the same. Ryan agreed that the number of comparables can have a detrimental effect on market reporting. “If the property being appraised has a limited number of reasonable comparables in a year the median price trend may not accurately describe the market,” he said. Charnas uses school districts to get a better idea of a price range. “I search for all properties in the school district and compare one year’s worth to the next, looking at the average price per square foot and median price per square foot. Otherwise, you’re dealing with numbers that are so small, they can be misleading.” Reagan Trano, branch manager for Forsythe Appraisals in Dallas, suggests writing a separate analysis. “Some market segments have less activity and may require a different type of analysis to determine market trends,” he said. “In these instances, it may be necessary to complete the 1004MC with the limited data available and perform a separate analysis to determine the actual trends.” Fees and Times Completing the 1004MC has added extra time to an appraisal. Of the appraisers interviewed for this article, all of them said filling out the form added approximately an extra half-hour to their appraisal reports. This extra half-hour has had an impact on the fee the appraisers are charging for using the form. In the Feb. 2 print edition of Valuation Review, Tracy Martin, McKissock USPAP instructor, mentioned the concern that appraisers had about charging fees for the 1004MC. “The first question [I hear] is, without fail, ‘Can I charge a higher fee?’” Some appraisers have negotiated a higher fee. The upcharge in fees can range from $25 to $75, with the average fee being around $50. However, all the appraisers who were increasing their fee said the difference depended on who the client was. Some appraisers, though, have said that they have kept their fees “essentially the same.” As Gregoire said, “An extra half hour for the amount of time I put in to a typical report, I don’t need to [increase my fee]. I’ve been doing the work all along.” Technology tools So what are some of the tools that appraisers are using in completing the 1004MC? There has been a spate of spreadsheets and excel programs designed to help corral the data needed for completing the form, mostly by appraisers working with the form themselves, such as Towne. “I designed an Excel spreadsheet upon which an appraiser can enter the sales and listing data for the three columns,” he said “It then self-calculates the necessary median numbers for the form.” Some of these programs, such as Towne’s, are being offered free to other appraisers and can be found online. However, for some appraisers, the tools are still too new to be relied on. Ryan remains wary. “We feel the accuracy of these tools need to be validated before we can rely on them. When we run our own statistics along side of the results provided by the software the variance often exceeds my comfort level,” he said. Despite the problems that the 1004MC has, appraisers still welcome the introduction of the form. Gregoire said the form would help those appraisers who weren’t already including detailed analyses. “There are probably a few appraisers who might be producing a better documented and better supported value opinion by using the form,” he said. Charnas believes it is a step in the right direction. “I applaud Fannie Mae for providing a vehicle that requires appraisers to show the economic analysis that they’re doing. It’s an essential part of our job, especially in this market,” he said. However, he added, “It’s just not the form I would have designed.” Indeed, Charnas says that although he fills out the form as required, he still attaches his own research that compares the same time period with the previous year. Other appraisers also mentioned that, especially when confronted with a lack of data, they have added additional analysis to the form in order to properly determine market trends. Ryan said the form adds value to the appraisal process, but advised appraisers to think outside the box. “The key is for appraisers to recognize the form’s limitations and provide additional commentary when necessary,” he said. “The appraiser needs to be able to go beyond the questions in the form to ensure the client has the appropriate information.” Trano agreed with Ryan, saying ultimately the introduction of the 1004MC will help provide some consistency in the way that markets are analyzed. “While it will take some getting used to, I think that this will result in appraisers that are more cognizant of market trends,” he said. refer link: http://tinyurl.com/naub4o Topics: Appraisal Regulations, Appraiser's Voice | No Comments » CommentsYou must be logged in to post a comment. |
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