Responding to “Will New Appraisal Rules Help or Harm”

Kathleen Dolar for Investor’s Business Daily, in her article “Will New Appraisal Rules Help or Harm” discussed the new market trend reports, known as the 1004MC or Form 71. These forms were set in place to help lending institutions understand the market trends in the area that the subject property and comparables are located. While the added forms may help the lenders in certain areas and locations in the country, they can also deceive and mislead the lender in other areas, unless the forms are fully explained. The form requires the appraiser to analysis median prices of the comparables. In areas of higher end properties and other areas that have a mixed value in a close proximity these “median” values can be wrong. Guidelines set by Fannie and Freddie require that the comps used be with in 10% of the GLA, close in lot size, within 1 mile of the subject, and prefer all sales within the last 6 months and at least 1 of the 3 comparables sales within 3 months. Finding median values in a mixed value area becomes impossible. A perfect example is in The Hamptons, Long Island NY. To start off many of the appraisers use MLS to get these median prices, unfortunately MLS is not used throughout the Hamptons by all Realtors, therefore not all transaction are listed, and your median values are off before you even start. (In an area like the Hamptons much more work needs to be done then to clicking and print, An Appraiser should know the area and confirm all sales data to ensure arms length transactions possible foreclosure or short sales listings etc..) Another issue is lack of sales due to the poor Real Estate Market. In order to choose a number of properties too get a valid median value, one must first eliminate sales within the 1 mile that does not meet the above guidelines, and only choose the real comparable sales. In an area of mixed properties once you stick to those guidelines you will find yourself with not enough sales to allow you to get a true median value. Areas like this must be explained not filled out on a cookie cutter form, distance guidelines need to be expanded to exceed 1 mile as long as the areas are similar in most ways such as school district, number of properties available for sale, foreclosures etc..