Standards Rule 2-1a states that each written or oral appraisal report must “clearly
and accurately set forth the appraisal
in a manner that will not be misleading.” For statistical analysis to be reliable
and credible, the analyst must include
a sufficient sample size. Small samples
have the potential to result in conclusions that are misleading. Appraisers
must avoid forming conclusions about
market change when the sample size is
too small. Additional study of market
change using alternate methods should
be utilized to test the validity of the results implied by analyzing median price.
The 1004MC form relies upon
analysis of median or average price in
various time segments in the past as an
indicator of market change. For median
price analysis to provide reliable results,
the data included in each timeframe
must be significantly similar. If the
physical characteristics of the properties
included in one data set differ from the
data set included in a different timeframe, it is likely that variances in the
median price could be related to the
physical differences. Second, real estate
markets often demonstrate seasonal
fluctuations in demand. Analysis of the
same timeframes beyond the past 12
months may help the analyst identify seasonal influence on the results.
Larger sample sizes can help ensure the
samples have sufficient similarity.
Sara Schwarzen-
traub, SRA
La Mesa, California
Many of us in
residential appraising have been
analyzing the market and looking at
absorption for the most current three-or six-month period for many years.
We have also been gathering data of
competing properties for six or even
12 months and producing a timeline to
help plot market condition adjustments.
Looking at that data and tracking the
rise and fall of the volume of expired
listings, tracking days on market and
sale to list price ratios have all helped
us stay on top of most markets pretty
well.
This new form goes even beyond
this. Fannie and Freddie want us to
look at data for absorption broken
down into three time segments so we
can identify the trends that may appear
from those numbers. Their grid calls
for us to determine the total number
of properties actually listed in both historic and current segments. We’ve only
done the current segment up to now,
because it takes spreadsheet macros
or a great deal of time to find the real
volume of listings in historic segments.
We are in new territory. Many lenders don’t realize the work or expense
entailed to gather this data. My greatest
concern is that, once again, we are
being asked to do more work without
additional compensation. The temptation of many will be to shortchange the
process, not wanting to spend the extra
time or money to do the job properly.
My firm uses DataMaster’s for filling
out Form 1004MC, since we are already customers, but there is shareware
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