This is the second in a four-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's looks at appraiser's frustration with the 1004MC and in Part 3, he gives us a "What Goes Where and Why" look at the 1004MC.
I have been talking to a lot of appraisers who are getting a little uptight. Consider that for most residential appraisers their personal financial position has been deteriorating the past couple of years because of a decreased demand for appraisals during the height of the housing crisis. Now, throw in the new requirement to perform a market condition analysis (MCA) on the 1004mc-71 form, while the work load is increasing.
The typical residential appraiser is in no position to turn down work.This scenario has left a good number of appraisers in a state of frustration and panic as they attempt, but fail, to produce a credible MCA in a reasonable time period. Some have reached the point that they say the heck with a credible MCA, I would be happy if I could just get the blanks filled in on the 1004MC-71 form (MCF). What should appraisers do to get over this hump?
My suggestion is to begin to think positively. Most appraisers (90% plus) can meet the challenges of performing a credible MCA on the new MCF. So, most all appraisers are stating a fact when they say, “I can do it!” However, there is a set of skills that has to be developed, each fitting together like the pieces of a puzzle.
Let’s talk about a few of these necessary skills.
- The first and most important skill is being able to recognize what data should be gathered in the analysis.
- The second is how to perform the database searches that are necessary to gather all of the meaningful information.
- The third step is assembling that information on a spreadsheet for analysis.
The appropriate data to gather is any property that was exposed to the market (listing, pending, expired, withdrawn, sold etc.) that potential purchasers of the subject property would deem competitive to the subject property. Appraisers typically think of pertinent data (comps) in the forms of closed sales and active listings. However, would a property that is very similar to the subject that was actively listed on the market at $220,000 for over a year and was recently withdrawn by the owners be meaningful information for the appraiser? Of course it would. A MCA that is based on a lot of types of data has some real potential to aid the appraiser in the valuation process. The data-basing term for these different types of comparable properties is a “Record”.
What search parameters should be used when gathering these comparable property records? This is best answered by considering what the appraiser is going to do with the data. The MCF is basically a trending analysis; but what are we trending? Many appraisers search for comparables by a sales or listing price range; which is an incorrect method. We are not so much interested in how many properties are offered and how long they have been on the market in a specific price range. The appraiser is not trying to trend a price, he/she is trying to trend a specific property type in a specific location by price over time.
An example appropriate search criteria for the 1004mc-71 form might be all two story homes, 1,700-2,400 square feet above grade, with 3-4 bedrooms, 2 or more baths, 5-15 years old, in the Heritage High School district.
When there is little data found in the subject’s sub-market area appraisers are directed to seek answers by working outside of the red zone above. This might be more specific as in a sale and re-sale type of analysis, or by expanding the search for properties to the right of the red zone, stopping the expansion as soon as meaningful data is gathered. Once you have found the data the next step is to get the data onto a spreadsheet for organization and analysis.
A spreadsheet is a specific type of software program that is designed to store data and analyze it. Prices range from free to a few hundred dollars for this type of software. The reality is that there is an “exact” match between what appraisers do and what a spreadsheet is designed to do. I am going to bite my tongue and only say this; you can learn essentially everything you need to know about spreadsheets where the MCF is concerned in a one day seminar. You can find a seminar at your local community college or the beginner spreadsheet seminar that is being offered by the Appraisal Institute.
You must become proficient in gathering the data and getting it on a spreadsheet before you move on to Part 3; What Goes Where and Why.
Summary of Parts 1 & 2
Most appraisers have the ability to search for and download hundreds of property records directly to a spreadsheet. The availability of this data opens the door for the appraiser to perform a quantitative market analysis. A reader of Part One let me know that he pretty well hates the MCF. I explained that my main thrust was not to support the MCF (1004MC-71), but rather to support quantitative market condition analysis in general. I do tend to believe that there are a lot of cheap shots aimed the MCF, that simply are not valid. It is irrational for appraisers to get angry at Fannie Mae for designing a form that appraisers should have designed ourselves a long time ago.
Another reader stated she did not appreciate me using scare tactics to sell my MCA software application. I explained to her that I was not trying to sell my wares, but was guilty of trying to use scare tactics to get appraisers to embrace market condition analysis in general. I did apologize to her and I will to you for using scare tactics at all, as it does show a basic lack of respect on my part. I do have the utmost respect for appraisers in general here is what I say in my scope of work book:
"AVT operates under the belief that there is no substitute for the “Neighborhood Appraiser.” Their knowledge of the local market is unique and cannot be duplicated by remote computer analysis. These local appraisers are hardworking and dependable. Without question, these gritty individuals will carry out their duties as long as they have the knowledge, training and equipment to do so."
Which leads to my next point, “They can...they can...I know they can”. I and many others are doing their best to provide you with the knowledge, training, and equipment to be able to do quantitative market analysis.
Patrick Egger sponsored by al a mode software company traveled around the country providing both knowledge and a spreadsheet application to help appraisers,
Mark Rattermann provided educational programs on the MCF and spreadsheets for the Appraisal Institute, many others (too many to mention) have provided knowledge, training, and software applications.
Often times after I write an article or someone uses my MCA application I get an email with the simple message of “thank you”. Perhaps the best feeling came after an appraiser said that after performing several quantitative MCAs he found that there were a lot of sub-markets in decline that he had been deeming stable based on analysis that were more subjective in nature.
My final advice; expect to be frustrated, that means you are trying to learn.Do not panic, slow down, take a deep breath and spend an average of one hour per day on outside study on market condition analysis for the next month. Learn how to perform the searches you need to get the appropriate data out of your MLS and on to a spreadsheet. Take a spreadsheet class. Consider the big picture instead a series of blanks on a form as a professional appraiser is a problem solver, not a form filler.
More about problem solving versus form filling in Part 4.
Watch for Part Three! David gives us a "What Goes Where and Why?" look at the new 1004MC Form!
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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