Crystal Ball & PFA Techniques

Crystal Balls Don’t Work When Reporting Market Trends! Nor does the MC Form!

PFA figures & opaque crystal balls don’t work when reporting market trends! Nor does the MC Form!

Appraisers, by now you’ve heard that FNMA finally has decided that their 1004MC form is basically worthless. That form is no longer required in appraisal reports for properties sold to FNMA, as of August 7, 2018.

poorly designed form which never has reported accurate trends…However, sidekicks in mortgage lending have not come to the same conclusion… yet. Hopefully, in short time, they will also remove the MC ‘inclusion’ requirement in reports of this awful, poorly designed form which never has reported accurate trends – despite the FNMA propaganda saying otherwise.

What does this really mean for doing credible appraisal work when reporting market trends?

Many appraisers are wondering “what do we do now” if we don’t have the MC Form to rely on?

It means polishing your crystal ball and using Pull From Air (PFA) techniques is not enough!

Ever since FNMA (and FrMAC) took over residential report forms design (originating in 1986), they have had a requirement that appraisers do more than just check a box to report trends or other info. Most appraisers never did anything more than that (I’m also guilty as charged until 2008), which lead to the mandated MC Form in 2008. Some still don’t do anything extra.

The part of the residential appraisal form that requests specific (comparable) market data is this, outlined in red:

Neighborhood Trend

I put (comparable) into the sentence above on purpose!

For years, the propaganda of FNMA, and others, has taught us wrong. For decades they said, or appraisers have interpreted, this info should reflect “all” the properties in a named or defined neighborhood. The implication was inclusion of incompatible and non-comparable properties was important.

In 2014, after the MC form had been in place for 6 years, and their UAD and CU review & data capture process had been implemented, FNMA issued a FAQ saying that the ‘red lined’ data above should reflect COMPARABLE info corresponding with the MC Form. Many appraisers didn’t see that FAQ, and to this day continue to report ‘all’ properties. Many appraisers also incorrectly report a too broad price range in the One-Unit fields.

Before hurling broken clipboards and spears in my direction, ask yourself: “What do incompatible, non-competitive properties have to do with the trends of a particular subject property? The answer is NOTHING of importance. Including those can make your report be inaccurate and non-credible.

Now that we have established this factoid, let’s see if we can turn the opaque crystal ball more clear. What follows are some ideas about how to find and report the trends by checking boxes or filling in numbers on the form.

Property Values – this actually means SALES PRICES, not ‘values.’

  1. Using a downloaded (or exported) list (chart) of Comparable sales over a time period, such as from your MLS, ideally more than 12 months to show a long term trend, you can plot those sales on a spreadsheet graph, ask the software to include a linear trend line, and you will see what the actual sales price trend has been up to a recent date. Adding a polynomial trend line will indicate price trend ‘turns’ more precisely than the linear trend line.
  2. You can possibly do this graph within the MLS data software, but beware that their included sales data may not define specific comp CHARACTERISTICS of the subject as precisely as you would.
  3. Some MLS systems have a secondary ‘Statistics’ process which produces graphs, but again, their data may not directly correspond to your subject property.
  4. Various versions of “MC Form filling” software also have graphs available. However, these are only reporting 12 months of data, to correspond with what the MC form asks for. Some of these form-filling software may not include more than 1 trend line. The polynomial line may not be included.
  5. National statistics mentioning a sales price trend for a particular region may not be highly accurate. Those don’t define specific property characteristics matching your property. Some of these products don’t include properties in your specific area. I recommend that these types of products and media reports not be used to report specific trends of your subject property. They can be useful for broad market info… but that’s not what the ‘form’ wants.

Demand/Supply – In other words, how does the current availability of comparable listed homes compare to the sales of similar properties?

  1. Your list of MLS generated comparable sales and listings will reveal that trend. If roughly the same quantity of each, “In Balance”. If listings are more, then “Over Supply”. Fewer listings than sales indicates a “Shortage”.
  2. Some appraisers also look at and analyze Off Market and Cancelled listings to see how the full list of properties inter-relate.
  3. There are some text books that say this trend relates to ‘marketing time’ of properties. Well, maybe. But factual reporting has to start with basic numbers of related properties. Marketing time may be different across a region for various property types. Therefore, don’t use info from ‘over there’ to report what’s happening ‘here.’

Marketing Time – The anticipated time to sell the appraised property, after the Effective Date of the report.

  1. You can develop this from the DOM or CDOM as shown on the comparables MLS print-outs (or display). Generally speaking, there will be a range of ‘days’ for the comps, which relates to our term ‘Exposure Time.’ You can choose an appropriate checkbox correlating with your opinion of how long it will take to sell the property as the Marketing Time coupled with additional local info. Reporting of Exposure Time is required in reports, per USPAP.  #2 & 3 are how I report this info in my appraisal reports.
  2. The Opinion of Value in this report is linked to the appraiser’s opinion of Exposure Time. Per USPAP Std. 1, the opinion of Exposure Time is always presumed to precede the effective date of the appraisal. This is the estimated length of time the Subject property would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date, assuming a competitive and open market. Development of this opinion can be a range based on a) statistical information about days on market; b) information gathered through sales verification; and c) interviews of market participants. Comparable sales and listing CDOM information was entered on the sales grid. Based on that info, the range of Exposure Time is to days, with the appraiser’s ET opinion placed approximately at the low end ***mid point ***high end of the range.
  3. Marketing Time is an opinion of the amount of time it might take to sell the Subject property at the concluded market value during a period immediately after the effective date of the appraisal, and can be expressed in a range. In addition to items a) – c) above, it also includes analysis of anticipated changes in market conditions. It is a function of price, time, use and anticipated market conditions.

One-Unit Housing Price & Age – Fairly straight forward info developed from your chart of comparable sales, except for Pred. The high and low prices, and the oldest and newest ages of comps.

  1. Where the rubber hits the road is with Pred, i.e., the Predominant Price and Predominant Age of the properties. This is the ‘mode’ or most frequent number within a range, either price or age. Seldom is Predominant obvious, because it may not exist!
  2. If a true MODE does not exist, you can develop this number by using what I call the ‘mid-point’ between the Average and median of the low to high Range.  It’s basically the Median between the original calculated Average and Median, and will report the appropriate number between those. This technique is supported by others in our appraisal world when there is no true Mode.
  3. You CAN report Pred as a range, per instruction from FNMA.
  4. Don’t forget to include an explanation when your appraised value is SIGNIFICANTLY different from the Predominant figure you report.  SIGNIFICANTLY is the word used in the Selling Guide, however, most report reviewers expect an explanation when your value is just, different.

Some of what I’ve discussed in this essay has to do with using spreadsheets, and formulas that you can use within spreadsheets to generate the data points you need. Once basic parameters are understood, it’s not difficult. Some of this becomes semi-automated if you have a particular report software with a built-in spreadsheet worksheet which can export calculated results to a specific field on the form. You can also design custom spreadsheet worksheets and export downloaded data to those.

I would encourage all appraisers who don’t have experience with spreadsheets and basic formulas to seek out either live or on-line training classes/seminars so you can become more proficient in your work.

Secondly, use ‘visual indicators’ such as data graphs in your reports to backup your conclusions. And yes, this does relate back to the checkboxes so prominent on the appraisal forms.

PFA figures and opaque crystal balls don’t work any longer! Nor does the MC Form!

Dave Towne
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on

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8 Responses

  1. Avatar Mike says:

    Dave, Don’t worry, I will not be hurling my perfectly good 20 year old clip board at you. Nor will I disagree about using charts graphs and spreadsheets in our reports. I will not even disagree with what Fannie Mae states in their selling guides.
    What I will state is that Fannie Mae is not always correct. The 10-15 25% adjustment guidelines, UAD, Collateral Underwriter, and the 1004MC are all good examples of how Fannie got it wrong. Waivers and hybrids are another way Fannie is getting it wrong.
    When it comes to market trends, entire neighborhoods do matter, probably more so than comparable properties. First rule of real estate is location, location, location.  People buy homes based on school districts, access to amenities, interstates, employment and sometimes based on a perceived status of an area.
    In many parts of my area (and I am sure others as well) we do not have homogenous properties. There are typically many different style and size homes within an area, sometimes we have newer homes being built on fill in lots. And what about the buyers whot tear down the old small home and build a mc mansion? All those sales are based on location. Does the value of the 2,000 SF home in a neighborhood of 1,000 SF homes compete with home in other neighborhoods? No. Isn’t the value of the oversized home impacted by the value of surrounding properties? Unless the subject is unique historic or just an odd., Fannie Mae is dead wrong here.
    As Appraisers yes, we need to give our client what they want, but in reality it is our signatures, our opinions, and our licenses. The Appraiser must appraise to market value, in other words, the actions of a typical buyer, not Fannie Mae.

  2. Matt McCormick on Facebook Matt McCormick on Facebook says:

    Excellent article

  3. Baggins Baggins says:

    So like just winging it is now off the menu? I liked the MC, sometimes it was reasonable and it helped provide a good framework for effective research to identify consistency in market and comparing several MC’s, etc. There it is, that’s my final data set, this MC is working, I’ve got my 2 in 90, 2 actives, and it’s showing trending reasonably. A good final data set comes around with reasonable margin for high vs low value expectations, and MC is effective as a quick look tool to see if you’re there or not, along with 1 line market overviews. As long as my MLS provides this auto MC I’ll keep using it, although I change some items slightly.

  4. Avatar TruthBTold says:

    For me, given the time constraints I am put under to complete an appraisal report, the MC Report has been the best tool available. I am able to outline my specific neighborhood using the MLS tools, specify specific property characteristics unique to my subject (sq.ft., lot size, bed/bath etc…) and come up with enough data to support a trend (large metro area). Other options I’ve seen are much more time consuming, and a lot less specific, MSA data, data by zip code, all without the ability to be property specific. Without using the MC Report, it will take much more time, without compensation to fulfill my responsibility to report a credible trend analysis. For me, this is another slap in the face of appraisers. The Fannie Mae announcement generally states that it creates more work for them, therefore it is less profitable for Fannie and their new partners in crime, lending institutions. Just another statement of “we’re only interested in what benefits us and lenders, to hell with USPAP, accurate reports, public trust, or consideration for the appraiser and what it takes to produce a credible report”!

    • Baggins Baggins says:

      Revision request. Appraiser to remove the MC form and use our proprietary analytic tools and print outs instead. Don’t forget to try out our typing services so you can get back to appraisal and not waste your time with appraisal. The free market takes care of fees but remember the lenders must quote the appraisers fee before consulting with the appraiser. It’s the law.

  5. Avatar don says:

    Lots of great comments. IS the truth being told? In my vision I believe that the market is a big thing. Most MLS’s provide a download feature that enables us to past 150+ or – items into excel. Reading the Active, pending, contingent and closed listings using statistical and sorting methods. These methods do indeed illustrate that neighborhood are different. Simple sorting of the mean and medium illustrate whether the marketing is advancing or slowing. MLS has become the greatest boon to appraisers, allowing to prove in believable, readable information blocks that we are RITE.

    Most appraisers learned their trade when lenders were mostly loaning on a sale, the refinancing changed the integrity of financing. Most sale had honest agents, and escrow people. Appraiser’s couldn’t go wrong. No wonder we were looked down. We were only told the information they wanted us to hear..

    Modern competition among MLS’s is allowing us to write reports which insure we are believable.

    We can still use these tools to write good reports regardless to demand made by self serving underwriters

  6. We as appraisers have an absolute obligation NOT TO MISLEAD in our appraisals. The ONLY excuse for having ever used a 1004MC is “FNMA required it.”

    CLIENTS may NOT impose conditions on us that in our opinion could or would result in a misleading appraisal report. That includes the  mandatory use of 1004MC UNLESS it is one of those rare instances in which it does show relevant data.

    IF you have data that you believe to be more relevant than 1004MC then THAT is the data that should be providing. UNLESS those moronic clients that still insist on it (1) either give you the leeway to use something else or (2) pay you a separate pre screening fee before you have to accept of reject the assignment, so you can tell whether you are permitted to accept their assignment or not; we should no longer be working for them!


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Crystal Ball & PFA Techniques

by Dave Towne time to read: 6 min