The 1004MC form has been a hot topic this late winter and early spring, as I travel around teaching. I even ended up talking about it at the RSPS (Resorts and Second Properties Specialist) Symposium in Naples, FL.
Of course, the elements on the form have been ‘hot topics’ all over the place–supply and demand, absorption rate, etc. Most MLS services seem to have quickly gotten on board with revising their search functions so that appraisers can find the data easily. My local REALTOR(R) Association has had their MLS system revised, and earlier this week, I gave a presentation, with some other appraisers and tech experts, on using MLS and filling out the form.
We are a small association (240 members) in a rural county–Lycoming County has about 130,000 residents, and is the largest sized county in Pennsylvania. We invited affiliate members, including lenders and our local chief assessor. He came, as did several lenders.
One of the things on the form appraisers find confusing is the apparent disconnect between the inventory in the neighborhood (as listed on the top of the second page of the 1004) and the ‘pool of properties’ which goes into the 1004MC. Fannie Mae’s instructions are fairly clear: the appraiser is to consider the pool of properties that the borrower ‘would consider’ as well as the subject property. In our rural area, this can mean a lot of territory. If we restrict our search, in some cases, to only a township, we come up with incredibly low numbers–2 sales for a twelve month period, in one notable case.
We asked the chief assessor, Jim Carpenter, what he considered to be a reasonable number of properties to have in a universe before, statistically speaking, the numbers would make sense. His reply was “Fifty”. We have many instances where we simply will not have that much data. In one market in which I do appraisals, the ‘market that borrowers would consider’ includes three townships. Research for a twelve month period will reveal sales, literally from $65,000 to $650,000+! That is a special part of the county (lots of second homes, cabins and camps), but it illustrates how ‘one size does not fit all’ with any form—including this one. One lender indicated that he thought that the form was ‘a waste of time’ and he doesn’t anticipate asking appraisers to complete it—his bank does almost exclusively in-house loans.
Some take-aways I have from conversations with students, and my own research:
Use a disclaimer about your MLS data. You are relying on it, because (per USPAP) you consider it to be a reliable source, but you are unable to confirm all of the data in the MLS. CYA.
Remember if your data is expressed as an average, you can use it but you must explain it.
Don’t use ‘N/A’—explain your efforts to obtain the information.
If you throw out the outliers in your statistical analysis because they don’t make sense, and furthermore, they skew the data, comment on it and explain it.
If your pool of comparables encompasses more than the neighborhood, explain.
As usual, more words are usually better than fewer words—providing the user of the report is literate and will actually read them.
I’m doing a webinar on the 17th about the use of this form. If you are interested, click on this link and join me.