Appraisal Scoop

1004MC – The Real “April Fools” – Part Two

How appropriate is it that the 1004MC addendum to the URAR will be required for all valuation assignments for Fannie Mae, Freddie Mac, VA and FHA, that became effective on April 1 2009 – "April Fools Day"?

Picking up where we left off in part-one, here are a few more FAQ's from my workshop on the 1004MC.

FAQ #4 – "At the effective date (mid-month or near month end) there were zero closings in the current to 3-month period however, there are 10 pending sales. Should I use zero in the grid?

This is a judgment call, but then most of what we do is based on "judgment and communication". There are reasonable arguments for both sides. Many pending sales never close. At the same time, if a high number of them do close, you'll post a "goose egg" on the effective date (along with a declining trend) and several days later (when the sales close) it may shift to "stable".

The primary objective of any valuation assignment is to inform the reader so they can make an effective business decision. I would suggest that you verify the pending sales (call the agents to see if they expect them to close), record the details and place a number with an asterisk (and footnote) that these are pending and expected to close.

The key here is not to mislead. You must verify the pending status and document the same. Wishful thinking is not going to help the client. If you ignore the pending closings (and they close) you'll look like an idiot a week or two after your report.

FAQ #5 – "Many markets are seasonal or have anomalies how do I explain this"?

Seasonality generally exists in most market due to families with school-age children and or severe weather conditions. There seems to be a tendency to have higher sales volumes between March and August as opposed to September through February.

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1004MC – The Real “April Fools” – Part One

How appropriate is it that the 1004MC addendum to the URAR was required for all valuation assignments for Fannie Mae, Freddie Mac, VA and FHA, on 1 2009 – "April Fools Day"?

The looming question on the 1004MC, who will be "the fools", those filling it out (without consideration to or analysis of the "four forces that influence value trends in the neighborhoods"), or those using the conclusions on the 1004MC that are absent (by design of the form itself) of the impact of those same forces during the time-periods specified and therefore have rendered the 1004MC Market Conditions form useless and misleading?

Introduced by Fannie Mae and Freddie Mac in November 2008 and now adopted by FHA and VA, the 1004MC has generated far more questions than answers.

Instructors have prepared courses, various individuals have offered free or low cost solutions using Excel, online programs and the MLSs are scrambling to provide 1004MC statistics via their systems, yet despite the efforts there still are disconnects and conflicting opinions vs. cut in stone answers and there is a reason for that. The instructions on the 1004MC are vague and pose a problem with respect to USPAP and Generally Accepted Appraisal Practice.

With that in mind, I'll try to cover some of the many of the issues raised in my 1004MC Workshop and provide you with my observations. At the very least, you get the idea of the tasks ahead and some suggestions on what you may have to do to meet the challenges posed by the 1004MC.

FAQ #1 – "Should we transfer the conclusions and trends on the 1004MC into the neighborhood section of the URAR"?

The instructions on the 1004MC state: "The appraiser must use the information required on this form as the basis for his/her conclusions and must provide support for those conclusions, regarding housing trends and overall market conditions as reported in the Neighborhood section of the appraisal report form".

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