Appraisal Scoop

The 1004MC-71 Industry Update Part 4; Making Market Condition Adjustments and Determining When Values Are Declining

This is the forth article in a five-part series dealing with the new 1004MC form (MCF) by David Braun, MAI, SRA.  In Part 1 of this series, David began with a discussion of where appraisers are NOW . . .and gave some direction on where we're headed.  In Part 2, David looks at appraiser's frustration with the 1004MC and in Part 3, he gave us a "What Goes Where and Why" look at the 1004MC.

I am enthusiastic about appraisers gathering large amounts of data onto a spreadsheet for analysis. The power gained from the appraiser being enlightened through this process is staggering. I am on record for supporting Fannie Mae in the over-all process, and condemning the appraisal profession for not beating Fannie to the punch. I believe strongly that the form (not the process) is far too limited.

The Total Solution program that I developed is an example of adding to and expanding a standardized form. Performing a market condition analysis is a lot like sky diving in the sense that you either do it or you do not.

Many critics are correct when they say, “Appraisers are providing misleading market condition analysis.”

I agree that many appraisers are limiting their data and scope of work to such a degree that the results and conclusions are just not reliable. Appraisers are much more like the Wright Brothers at Kitty Hawk, than the modern-day jet pilot . . .but we have to start somewhere.

In this part of “The 1004MC-71 INDUSTRY UPDATE” the process of extracting the appropriate market conditions (time) adjustment for the direct comparison grid and determining the value trend’s direction (stable, increasing, declining) will be addressed.

This method is appropriate for vacant land, apartments, and various commercial properties. Microsoft Excel is the canvas used in the following adjustment extraction process.

The examples are taken from AVT’s Market Conditions Adjustment Extractor. You can view it and other automated appraiser tools at http://www.scoopgear.com/automated-valuation-techn.html

Click Here To Continue Reading . . .

Software Review: Automate your 1004MC data research with Total Solution© 1004MC

The following excerpts are reprinted with the permission of Ann O'Rourke, MAI (Appraisal Today) and the author Douglas G. Smith.  - Download Total Solution 1004MC Software Review - Doug Smith

Appraisal Today [April 2009] - Editor's note: Before writing this article, Doug Smith researched the available MC form software. He decided that David Braun's software was the best. This review also includes comments on the two appraisal "camps" on market conditions analysis and other topics. The MC form does not require historical listing data analysis, but Smith reviewed this as it is an option.

"The purpose of this addendum is to provide the lender/client with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. This is a required addendum for all appraisal reports with an effective date on or after April 1, 2009."Fannie Mae 1004MC/Freddie Mac 71 March 2009

Although announced to the appraisal/lender world in November 2008, appraisers are only now scrambling to take steps to fully understand the new 1004 Market Conditions Addendum and devise a strategy to complete the form. Most agree completion of the Addendum will add to the work of preparing reports. Some lenders, in anticipation of the deadline, have asked that appraisers submit the completed form prior to the April 1, 2009 date.

While some lenders have stepped forward assuring appraisers they will be compensated for preparing the new Addendum; others have taken the stance that the Addendum only formalizes data that should already been gathered and analyzed and no increased fee should be expected.

 

That the information on the Market Condition Addendum is segregated into three distinct time periods refutes the contention that appraisers already gather the data required by the form in a similar fashion.

Whether an appraiser gathers and analyzes data on an annual basis or month-by-month, the current separation into one six month period and two three month periods requires re-working of any past methods of reporting trends.

It is clearly evident that preparation of the new MC Addendum will take more time. For appraisers, the challenge is two-fold.

First the appraiser must meet the competency standards of the scope of work necessary to complete the form and secondly the appraiser must consider the preparation time and productivity issues of meeting these requirements. To address both of these challenges,

David Braun MAI,SRA from Automated Valuation Technologies, Inc has developed Total Solutions©, a software program to assist appraisers with the process of preparing the 1004MC form. Total Solution© is both an elegant and practical time-savings means to competently fulfill the entire range of requirements of the new 1004MC Form.

Priced at $149.00, it is available at http://www.scoopgear.com and is available in two versions, one running on Excel 2007 and another geared for Excel 2003.  David's AVT Users Group is located on The Appraiser's Water Cooler social networking site.

Download Total Solution 1004MC Software Review - Doug Smith

Click here to continue reading . . . .

Runt Rants - Highly Honed Powers of Observation and Analysis Make Us Different

I don’t really know where it started. Maybe born into a family of mental giants, where the only option for the runt is to observe and listen.

Maybe it’s a small town environment, lots of experience with outdoor life learning to observe, listen, drawn conclusions.

Maybe it was the years in correspondent banking traveling to those same small towns in six states, chatting with the grocer, the barber, the gas station attendant, picking up clues, signs along the way…so that when I walked into the bank president’s office I knew more about the commerce of the town than he thought I should, and because of that we could do business, help each other.

I do know that when I came late to the appraisal profession I took all the AI courses that were available in a five year span, all they offered really.

When I began those courses I was already trained to observe, to listen, to accumulate random facts and compose a picture…a hypothesis.

The AI courses built on that base and made me better at it. All appraisers taking the good courses in appraisal theory, learned those same skill and applied what they learned in the field to develop and hone those same skills.

It’s part of what sets appraisers apart, what makes them a professional, part of the skill set that brings value to business transactions. It’s part of what we are expected to provide, why we are paid.

I’ll bet you haven’t thought about that in weeks…maybe even months!

But it happens every day, even if you don’t consciously think about it. A typical sample of that in operation occurred with me the last couple of days.

The nation is in turmoil, many markets have been in recession for a couple of years. Houston hasn’t had that problem…not until recently. Houston is an oil town. It’s much less so than in years before, but still an oil town. West Texas Light at $150 last summer created a boom in the oil patch and in the oil service business. That same West Texas Light is now in the $40-50 range, and the oil services businesses are beginning to hurt.

Houston housing markets have been in balance for the last ten years…good solid value growth in the 3-5 percent range each year. But the clouds are building and it is not just what is being reported in the newspaper…that statistic that one in three Houston houses sold in January were distress sales. That’s certainly not good, but heck! It was 24 percent distress in January 2008.

I saw clouds building as I drove to an appointment recently. Established small strip centers one after the other, all with one or two suites vacant. Three closed bank branches…now vacant.

Yet big dirt is being moved…a 50 acre commercial site to the right in vacant land that I thought would stay vacant for another couple of years. To the left a 75-100,000 square foot shopping center with a large anchor…the anchor not yet announced. That’s another one I thought would be delayed another couple of years…but there it is…tilt wall already in place!

A highway overpass gave me bird’s eye views of two large businesses on either side. To the right was an equipment rental business with a yard full of equipment. To the left was an auction house with its yard also full of equipment. Good for the auction company…bad for the companies that could no longer afford that equipment. Bad for the equipment rental business…when the lot is full the equipment is not earning revenue.

Both those yard statuses mean the unemployment rate is going to tip up in a month or two…the yards are leading indicators.

Click here to continue reading . . .

Freeware - 1004MC Form in Excel - Available for download

George Hatch has developed a build of the 1004MC form in Excel that he's making available for download to anyone who wants to use it.  Download 1004MC   He figured, in these tough economic times, there might be a few appraisers that could use a tool like this in lieu of spending money to update or change their appraisal software.

George says, "This is a pretty basic version, but I have built the math functions into the grids. Several people have already downloaded it and worked with it a little and so far everything looks to be functional"

There are a couple appraisers who have already figured out how to export data dumps from their MLS systems and how to use the spreadsheet functions in Excel to automatically sort and analyze the data and populate the grid in the form.

If George can get ahold of one of those setups or otherwise figure how to do it himself, he'll be updating this form at some point in the future. Hopefully a little automation will eventually smooth the way for those people who choose to take advantage of it.

The download is a freebie, and is available at the email address listed at the top of the attached pdf. http://box.net/shared/3nx558czgn or Download 1004MC   Click here for a pdf preview: Download 1004MC

Now for the legal stuff:

Note: Password to unprotect the form portion of this page is "123"

This Excel file was built as a freeware application, but the user assumes all responsibility for content and use. Please check the contents of the form itself and the functionality of this Excel file before you use it.

Fannie/Freddie do not allow modifications to content of the form itself. Users of this Excel file are welcome to otherwise modify it to suit their own needs, but if/when you do, please don't attribute the modified version to me.

Version date is 01/14/2009; if you find errors or suggested modifications, please send them to me at ghatch760@gmail.com

Click on COMMENTS for additional information!

Webcast - Market Conditions Analysis - Part 3: What is a "Market Bubble"?

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. David is also the author of Appraising in the New Millennium - Due Diligence & Scope of Work, 3rd Ed.

David Braun, MAI, SRA has been working with the a la mode, inc.'s Labs Project on the development of a new Market Conditions Analysis (MCA) form that runs in Excel.

This webcast is the third in a three-part series that will be discussing:

• Why do appraiser's need to do a Market Analysis? (Part 1)
• What is a Market? (Part 2)
• What is a Bubble in the housing market? (Part 3)
• What are some methods of performing a market analysis?

In this third webcast David talks about what defines a "Market Bubble" in his down-home Tennessee style.  Here's an excerpt:

"Now the best way that I can describe what happens is by telling you a story about when I was young. We used to have these little balsa wood gliders that we would throw. And, you could set the wings up and back.  And, depending on how you set the wings on those, they could go up . . .or they could go down."

"Occasionally, we'd set the wings so far to one side that when we threw it, it would go up, and then it would stall  . . . and down it would come!  "

"So that's what I think about.   As soon as the activity slows down. . . as soon as that "plane" that's going up slows down, the nose goes up and BOOM!  Right down on its tail!  An that's what a lot of "Investors" have done now." 

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. David is also the author of Appraising in the New Millennium - Due Diligence & Scope of Work, 3rd Ed.

Webcast - Market Conditions Analysis - Part 2: What IS a "Market"?

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. David is also the author of Appraising in the New Millenium - Due Diligence & Scope of Work, 3rd Ed.

David Braun, MAI, SRA has been working with the a la mode, inc.'s Labs Project on the development of a new Market Conditions Analysis (MCA) form that runs in Excel. 

This webcast is the second in a three-part series that will be discussing:

• Why do appraiser's need to do a Market Analysis? (Part 1)
• What is a Market? (Part 2)
• What is a Bubble in the housing market? (Part 3)
• What are some methods of performing a market analysis?

In this second webcast David talks about what defines a "Market" and what components comprise the "Health" of the market.

"What is the health of the market? Well, health has to do with something's ability to function and carry out its job!.  The job of a market, a real estate market, is to bring buyers and sellers together."

"Now, when a doctor talks about your health, a doctor will take "vitals".  They take your pulse, your blood pressure, your temperature.  They may do all kinds of things to you that you don't want to do, but they have some specific vitals that they check." 

"What are the "vitals" that you can check to see if a neighborhood is healthy?"

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. See prior David Braun article: Excel Regression Analysis Add-on Module (Beta)

Webcast - Market Conditions Analysis - Part 1: Why do I NEED to do a "Market Analysis"?

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976. David is also the author of Appraising in the New Millenium - Due Diligence & Scope of Work, 3rd Ed.

David Braun, MAI, SRA has been working with the a la mode, inc.'s Labs Project on the development of a new Market Analysis form that runs in Excel. 

This webcast is the first in a three-part series that will be discussing:

• Why do appraiser's need to do a Market Analysis?
• What is a Market?
• What is a Bubble in the housing market?
• What are some methods of performing a market analysis?

In this first webcast David makes references from his book Appraising in the New Millennium: Due Diligence and Scope of Work- Second Edition and Fannie Mae's 07-11 Announcement: Overstating Property Values in Declining Markets.

David says: "The point of this podcast is to tell you . . .You've got a little work to do!" 

"You can't just go to our form, open it up and go through a process. You must become competent to do a market analysis through studying books like the Scope of Work book  . . . Where you think about due diligence and you think about conclusions . . .and you need to go through your basic principals."

  Click here for part 2

Webcast Author: David A. Braun, MAI, SRA (President, Braun & Associates, Inc.) has been actively engaged in real estate appraisal, review, and consulting since 1976.

See prior David Braun article: Excel Regression Analysis Add-on Module (Beta)

What Drives Housing Cycles?

"It's no secret that the United States housing market is cyclical and in the midst of yet another painful correction. The causes and characteristics of these cycles vary, at least in some respects, but the implications for home buyers, home sellers and homeowners remain remarkably reliable as the cycles roll by."

"Housing cycles aren't all alike, yet over long periods of time a basic pattern can be discerned", says Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.

"A cycle doesn't really have a start or a stop, but to pick a point at random, we might say that a housing cycle "starts" when economic activity heats up and interest rates rise. Higher interest rates make housing less affordable, so demand decreases and home prices fall. "

"Then, as economic activity slows and interest rates decline, housing again becomes more affordable and, consequently, demand and prices go up. Then the cycle repeats. Housing tends to lead the economy and thus can be an indicator of future economic activity."

Read the full article: What Drives Housing Cycles? by Marcie Geffner of BankRate.com

Shameless Self-Promotion: Grand Opening! ScoopGear.com!

Some of you have already noticed the ScoopGear.com display ad on this blog and were curious enough to click on it.  For those of you that haven't . . .this post is for YOU!

Over the years, I've noticed that a lot of appraisers come up with some pretty neat ideas but they never seem to gain any traction because there was no place to advertise them economically or they weren't able to demonstrate or explain their value.   That's all about to change!

AppraisalScoop has been phenomenally successful thanks to all of you!  Along with that success comes an opportunity to create a sister-site, that's geared towards marketing a variety of niche-market appraisal tools, that would otherwise not of had exposure to a large targeted market.

ScoopGear.com has been open for a few days now but today is its official GRAND OPENING! 

One of the key features of ScoopGear.com is its blog interface.   This is NOT just another storefront site.  For the first time ever, ScoopGear.com's blog style allows merchants and appraisers to interact real-time on a variety of levels.  Sure, you can buy stuff from the individual merchants, but that's not the great part of this site. 

Each merchant essentially becomes a blog author!  Just like on AppraisalScoop.com, each author can post articles, videos, and photos about their product or service.  In turn, appraisers can comment and interact with the merchant. 

Many will recognize Anthony Young's fantastic Nuts & Bolts of Spreadsheets and Graphs DVD as one of our premier merchant offerings.  "Soup to Nuts" might be a better description for Anthony's DVD.  Beginner or seasoned Excel grapher, there's plenty in this video training DVD for everyone.

Anthony Young is already working on a series of training videos to illustrate some of the things that you'll learn with his product.  Your questions and comments to Anthony will also be featured there.

The LaserReel is also being featured on ScoopGear.com!

LaserReel is a heavy-duty retractable "Quick Draw" reel designed to replace the bulky holster that comes with laser measuring devices.  The LaserReel works with any laser measuring device, camera, or light that has a standard 1/4-20" mounting thread, up to 1 lb.

I had tried another brand and really, really liked the concept but the design was not durable enough for the way appraisers would use it.   I went looking for an alternative.  The LaserReel's superior 0.04" (O.D.) steel wire with a protective vinyl plastic outer layer has a 34" long reach which is ample for when you want to use the telescopic viewer on Disto measuring devices.

In the coming weeks I hope to finalize some talks with additional merchants and see if together we can build a community sharing tips, tricks, gadgets, and software.   I hope you'll visit and support the merchants.  Watch for upcoming videos!!!

Declining Market Issues: Analyzing Future Values for Clients

AUTHOR: Steven R. Smith, MSREA, MAI, SRA, Smith Realty Advisors, 936 San Jacinto St., Redlands, CA 92373, Real Estate Appraisals, Consulting, Expert Testimony, Forensic Reviews, Fraud Research and Analysis, Litigation Support, Fraud Training.

In most of the formerly hot market areas, housing prices have been declining for well over a year. Many appraisers have struggled with how best to provide their clients with an in-depth market analysis, as well as which reference sources should be consulted to provide that analysis.

In the spring of 2006, my office began to measure market declines by Zip Codes or Market Segments and started illustrating the declining trends with graphs in our reports.  By the winter of 2006, in some local markets, my office measured double digit price declines.

Now, in the spring of 2008, some areas have declined over 50% in value from the peak.  Now we have begun to measure the bottom of the market and to project future value trends, such as when values may begin to stabilize.

The following is an example of how we estimated future values for the city of Corona, which is on the western edge of the Inland Empire, our primary region.  Corona borders the city of Orange, where home prices are higher, and the cities of Riverside and Lake Elsinore, where the prices are lower.

From http://www.realtor.com/ - Corona is a city in Riverside County, California, United States. As of the 2000 census, the city had a total population of 124,966; a 2004 special census put the fast-growing city's population at 144,274. The city of Norco lies to the northeast, Chino Hills and Yorba Linda to the west, and the Cleveland National Forest to the southwest; unincorporated areas of Riverside County line all of its . . .

As shown on the map, there is a wide range in pricing in the City with some neighborhoods in the $300,000 range and some over $1,000,000. Not all that different from many cities in terms of the breadth of the range. Higher prices than some, lower than others.

How can appraisers use this type of information to analyze and estimate where the bottom of the market might be?