When Fannie Mae introduced the 1004MC form in 2008, there was a fair amount of uncertainty as to how to complete the form and how the data relates to pages 1 and 2 of the URAR (Uniform Residential Appraisal Report). Judging from the calls and emails we receive, the confusion lives on.
In response, we’ll go through the most common questions and provide resources for your reference. We’ve created a series of 1004MC blogs and today, we are going to start with the key question to getting the 1004MC right!
What if I do NOT have enough neighborhood data for a meaningful trend analysis in order to answer the “One-Unit Housing Trends” section on page 1 of the form?
This issue was addressed early on in a series of FAQs (Question #41) issued by Fannie Mae in September 2014. The answer to the question is:
"In those situations, the appraiser must complete the form with the information he or she has for the defined neighborhood/area—the lack of data may speak to what is occurring in that area. Additional analysis can be addressed in the summary/conclusion section of the form on data in nearby areas for competitive properties. In any event, the appraiser must provide support for his or her conclusions regarding housing trends as noted in the Neighborhood section of the appraisal report."
First, report the actual results found in the subject neighborhood for competing properties – no matter how limited or non-existent this data is. In other words, do NOT expand your neighborhood boundaries in order to include more data.
Perhaps you are thinking: “If I cannot expand my grid results in the 1004MC how can I develop a meaningful trend analysis to complete the One-Unit Housing Trends section?”
Answer: Develop a supporting analysis using competitive data from outside the subject neighborhood and report this in the summary/conclusion section of the 1004MC form (or addenda). The Neighborhood One-Unit Housing Trends on page 1 do NOT have to be based solely on the specific neighborhood inventory, sales and listing information provided in the 1004MC grid. Rather, the instructions to the 1004MC state the entire form is to be used to support and explain the One-Unit Housing Trends, including the summary/conclusion section and any addenda.
The key to answering the above question accurately is the word “competitive.” The 1004MC is focused on properties that directly compete with the subject. In other words, you are NOT using all the data in a neighborhood or competing neighborhoods. You are using the data that competes with the subject in the subject neighborhood, or in a competing neighborhood. If you need to use comparable properties in a competing neighborhood your supporting analysis should be referenced in the summary/conclusion or addendum.
The biggest mistake appraisers make when completing the 1004MC is believing the checkboxes in the “Overall Trend” column must correspond to the 1004MC grid results. Again, the entire 1004MC is to be used to support and explain the One-Unit Housing Trends. This is especially important when there is limited or non-existent competitive data in the subject neighborhood therefore, requiring the expansion of competitive data analysis outside the subject neighborhood.
Note: It’s important to recognize that the Neighborhood section links directly to the selection of comparable data in the Sales Comparison section. The importance of being clear in completing the 1004MC will result in the intended user understanding what data is competitive to the subject inside and outside of the subject neighborhood. Early in the report this allows the client to understand the qualtity and quality of data available when developing your opinion of value. If necessary, it also explains why you will have to leave the subject neighborhood, what other competing neighborhoods exist, and in some cases why you may have to travel some distance to find competitive properties to develop a credible opinion of value.