The secondary mortgage market has become very cautious about providing mortgages and it is therefore more important than ever that your listing appraises properly in order for the transaction to close. In vibrant markets with lots of selling activity, this is not a problem. However in market areas with seasonal activity, such as waterfront or resort areas, unique homes, or small neighborhoods this can be a challenge. Some neighborhoods haven't had a sale in six months, never mind the three month period that some lenders are requiring in declining markets.
You probably know the properties in your market area better than the appraiser, so you can provide the appraiser with some information that can be helpful to your sale and useful to the appraiser. Finding three comparable properties that have sold the past six months can be a challenge. Don't start by focusing on a price range, some appraisers do that and miss important comparables. Instead look at all the past sales in the neighborhood and focus on the ones within a square mile radius that are closest in square footage, style, and condition. If you have to expand your selection to reach the three minimum, go with style next and then condition and then square footage. If you still don't have the three minimum, then go beyond the mile radius, but stay within the neighborhood. If you need to go outside the neighborhood, think about where a buyer of your listing would also look for a home - it may be another neighborhood in your town, or it could be a neighboring town, if your listing is waterfront and the other neighborhoods in your town are inland.
If your market has been declining over the past year, and whose hasn't? Then be aware that the appraiser will need to provide two additional comparables of properties sold within the past three months to support the appraised value.
You should print out the MLS Book Report on the five comparables that best support the highest sales price of your listing and be prepared to explain the quality, condition, amenities and upgrades of those properties. If you haven't been in the interiors of the homes, call the listing agent and ask for the details. Also ask if there were any seller concessions as the appraiser needs to know the true sale price of the home. I discuss the comparables with the appraiser and provide them with the MLS print outs. Most appraisers are appreciative as it saves them time.
Since April 1, 2009 appraisers also need to fill out a market trends report or "Market Conditions Addendum to the Appraisal Report", which is also called the Fannie Mae Form 1004MC or just "Form 1004MC" (ten-oh-four-M-C). This form has been driving appraisers batty as there often aren't enough sales in a market area to determine a market trend. NAR has recommended that a pool of at least 50 sold properties be used in completing the form and my market area hasn't seen 50 sales in several years! The pool of properties are supposed to be comparable properties, so this is left up to the appraiser's judgment, however, the pool of properties has to seem reasonable to the underwriters or the lender could reject it.
I'm not suggesting that you identify 50 properties to be included in the pool, especially since many appraisers are using automated systems to generate the data for this report. However, I am suggesting that you be aware of this form as it could have an impact on the appraisal if the appraiser chooses a pool with many foreclosed properties in it or in an area that is declining more steeply than other areas. If the appraisal is not in line with the market trends, then it will be questioned by the underwriters and could get adjusted downwards by them.
Know the market trends for the past 3, 6 and 12 months in the broader areas around the neighborhood that your listing is in so that you can talk intelligently about them with the appraiser. Not all appraisers are familiar with your neighborhood and you need to be able to make the case as to why they should consider some geographic areas and not others as part of the pool of properties. Using the Form 1004MC I tested out several different pools of properties and found that they varied from a very slight decline of 1% to over 11% depending upon the pool chosen. Most agents aren't aware of this form or the impact it can have on the appraisal.
What about the unique property with no comparables at all? The secondary market has no interest in that property. The buyer had best be a cash buyer or be able to obtain a portfolio (in-house) loan from a bank or credit union.
Comments(4)