[Editor's Note - David Braun, MAI, SRA has been working on the development of a new Market Conditions Analysis (MCA) form that runs in Excel and will be available from http://www.ScoopGear.com ]
UPDATE ON THE 1004MC TOTAL SOLUTION©
As this project is nearing completion, I want to provide an update and some information on this project. Those of you who have purchased and use the USL Documenter II and the Regression Plus for Real estate Professionals programs know that AVT strives for excellence. The success of these products goes beyond good programming to being timely to the appraiser. The foremost consideration in any project that AVT takes on is the resulting effectiveness, but more importantly it efficiency (simple & quick). These are the same parameters governing the 1004MC Total Solution© (Solution) project.
Can an appraiser meet the following three goals; better, faster, and cheaper? This is hard to do unless the work is highly automated. After all, automation can reduce errors and do the work faster. Faster means cheaper because cheaper is really the dollar per hour ratio that the appraiser is receiving.
Let’s talk about a couple of things that the Solution does to help the appraiser. First, it breaks the analysis into eight equal time periods over two years. Because of automation it takes no longer to trend eight periods than it does to trend the three periods on the 1004MC. See the sample below which depicts a portion of the appraiser’s worksheet.
The trend is reported for both, the first and the second year. Second, the computer automatically sets the trend as either “stable, increasing, or declining”, however, the appraiser can over-ride it. The worksheet information is automatically transferred to the official 1004mc form. However, this form would be omitted from a report where the secondary market is not involved and the worksheet would be included in the appraisal report.
This program will be quick, but being correct is also necessary. Let’s discuss how some appraisers may inadvertently use “bad” data in the analysis. The “Total Number of Comparable Active Listings” is a good example of how things could go wrong. First, many appraisers may state that the data is not available from their MLS system as they cannot search for past “active listings”. However, the MLS lists the number of days on market and the days on market for each listing. Therefore, a computer program can count the number of listings that were active for the time periods in question. It is my belief that many automated systems will go this far, but will still get the wrong answer.
Let’s consider an example. Over a 90 day period there were seven listings. However, two of them were actively listed over the entire 90 days, two were listed for 45 days during the period, and three were listed for 30 days each. On average, there were only four active listings during the period at any one time. Many automated systems will report that there were seven listings during the period, and there were; but this would not be the correct information needed to accurately calculate the “Months of Housing Supply”. The result would be to make the market conditions seem worse than they really are.
With an absorption rate of 3 housed per month, seven listings indicate a supply of 2.33 months. The correct answer is really 1.33 months (4 listings / 3). Just this one issue could cause the appraiser to come to an incorrect conclusion about the market conditions; and I am wrestling with several other issues as well.
I am not sure what scope of work Fannie and Freddie expect appraisers to execute, but I do know we must meet USPAP’s minimum standards. USPAP requires “credibility”, which largely means performing the proper research and analysis. I believe that the Solution program I am working on and some of my competitors programs can meet the needs of the appraiser.
I do not believe that an appraiser who has the information at their fingertips can argue that “It was too difficult to get and analyze” resulting in a conclusion or opinion that is not credible. Those appraisers should not accept work that they are not competent or willing to perform correctly; which includes the 1004MC type of analysis.
Thanks, David Braun
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. All of his products can be found on http://www.ScoopGear.com
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