I have different types of housing in the subject neighborhood and one type is increasing, another is stable, and yet another is declining in value. How do I report this on the 1004MC and what do I report under “Property Values” for the Neighborhood One-Unit Housing Trends on the report form?

This is the one of the most confusing issues related to the 1004MC and has been heavily debated among appraisers. When Fannie Mae came out with the 1004MC, they issued a number of FAQs on the topic, but never really hit this one head-on. Here’s an excerpt from the 04/15/2014 Selling Guide, B4-1.3-03 Neighborhood Section of the Appraisal Report, “Trend of Neighborhood Property Values, Demand/Supply, and Marketing Time,” that clearly addresses this issue:

"When completing the One-Unit Housing Trends portion of the Neighborhood section of the appraisal report forms, the trends must be reflective of those properties deemed to be competitive to the property being appraised. If the neighborhood contains properties that are truly competitive (that is, market participants make no distinction between the properties), then all the properties within the neighborhood would be reflected in the One-Unit Housing Trends section. However, when a segmented or bifurcated market is present, the One-Unit Housing Trends portion must reflect those properties from the same segment of the market as the property being appraised. This ensures that the analysis being performed is based on competitive properties. For example, if the neighborhood contains a mix of property types not considered competitive by market participants, then a segmented or bifurcated market is present. Additionally, the conclusions reported in this portion of the appraisal will be supported by the analysis contained in the Market Conditions Addendum to the Appraisal Report (Form 1004MC). The appraiser should also provide commentary on the other segment(s) of the neighborhood when segmentation is present."

Not too far from the headquarters of ACI is a neighborhood that consists of several distinct property types, or as described by Fannie Mae “a segmented or bifurcated market.” At various times in this neighborhood, the homes along the Intracoastal Waterway were increasing in value, the condominiums were declining in value and the non-waterfront, detached single-family dwellings were stable in value. It is a clear illustration of a “segmented” neighborhood (market). Using this illustration, the revised Fannie Mae Selling Guide is telling us that if your subject was a waterfront home in this segmented neighborhood, you would check the “Increasing” box under the One-Unit Housing Trends – Property Values on page 1 of the report forms. Or, under this illustration if your subject was a condominium you would check “Declining”, and if your subject was a detached, non-waterfront home you would check “Stable.” You would then comment on the other market segments outside of your subject segment in the Neighborhood description on page 1 of the report form.

Today, Fannie Mae’s position on how appraisers are to support and report property values has been clarified in the revised Selling Guide. Take a minute and think about what the Selling Guide states because it makes perfect sense. To be clearer, look at it from the stakeholder’s perspectives – the lender and secondary market e.g., Fannie Mae.

QUESTION: If you are the lender providing financing for the subject property (or even a GSE like Fannie Mae purchasing the subject loan from the lender), what market data is most important in your decision-making process – the entire neighborhood or the segmented market that represents and competes with your subject property?

ANSWER: Primarily what’s happening within the segmented subject market, and secondarily what’s happening in the other non-competitive segmented markets within the neighborhood.

The 1004MC will communicate trends of the segmented subject market and provide support for the corresponding “Property Values” reported (Increasing, Stable, or Declining) in the Neighborhood One-Unit Housing Trends.