The appraiser is asked to report the One-Unit Housing Trends in the NEIGHBORHOOD section of the 1004.
In any neighborhood there may be a variety of property types that appeal to different market segments. It is possible for each market segment to experience different market trends. For example, condominium prices within a neighborhood might be trending in a way that differs greatly from detached homes in the same neighborhood. Or, the trends for waterfront properties may be very different from trends for non-waterfront properties.
In such cases, should the appraiser report the trends for the neighborhood as a whole, or should the appraiser report the trends for the properties that specifically compete with the subject property?
This question can be answered by examining the instructions printed on the 1004MC:
Note that these instructions state that the appraiser must use the information in the 1004MC as the basis for the trends reported in the NEIGHBORHOOD section. Because the data in the 1004MC is focused on those properties that compete directly with the subject, the trends reported in the NEIGHBORHOOD section should be the trends for properties that compete with the subject (i.e. the subject’s sub-market), and not the trends for the neighborhood as a whole.
While this is contrary to the way that many appraisers have been trained, it is logical. The mortgage loan is being placed with a specific home used as collateral – not the entire neighborhood. Hence, it is logical to focus on the trends for the subject property and other properties that compete with the subject property.
Some clients require additional commentary if the subject’s value is above or below the predominant price for the neighborhood. As a result, some appraisers opt to simply report the subject’s appraised value as the predominant price for the neighborhood in order to avoid having to comment on a variance between the subject’s appraised value and the predominant price. This is an unacceptable practice that undermines credibility. The predominant price in the neighborhood should be reported accurately, regardless of whether it is higher or lower than the subject’s reported value.
If the NEIGHBORHOOD section indicates that prices are either increasing or decreasing, then the expectation is that the comparison approach adjustment grid will contain corresponding adjustments for the increase or decrease. Conversely, if the NEIGHBORHOOD section indicates stable prices, then market condition adjustments would not be expected in the comparison approach.
If the NEIGHBORHOOD section indicates over supply or under supply, this should be supported by the analysis of the months of housing inventory on the 1004MC.
The marketing time reported in the NEIGHBORHOOD section should be supported by the days-on-market data that is provided for each comparable and by the data reported in the 1004MC.