Portland Area Real Estate Appraisal Discussion

Portland Appraiser Gives Six Ways to Improve the 1004MC Appraisal Addendum
May 6th, 2014 12:06 AM

Fannie Mae launched the required 1004MC Market Conditions Addendum to the 1004 Appraisal Report, in April of 2009, as a way for real estate appraisers to better communicate and to support market condition conclusions within home appraisals. This form is now standard for almost all home lending appraisals in the United States, including FHA. At the time, many appraisers complained that the 1004MC form is additional work that does not result in a higher-quality appraisal. Five years later, I think most appraisers concur (Please comment and let me know if you agree.).

Contrary to the assumed majority, A Quality Appraisal believes that the 1004MC is an overall good thing for the appraisal profession. Prior to this form, few appraisers were doing much more of a market conditions analysis than merely citing an area report from the local multiple listing service (MLS) (See our past blog on problems with RMLS Area Report.).  Now, many home appraisers commonly analyze detailed statistical data of the micro market surrounding the subject home. However, some appraisers continue to discount the 1004MC completely by only citing MLS or other data sources.

For many home appraisers, ignoring the 1004MC is made easier by its several flaws. The following lists ways that I think the 1004MC appraisal form could be improved:

1. Move the focus of the Market Conditions Addendum and the appraisal report away from neighborhood to competitive market area. Often, competitive market areas are larger than neighborhoods and include larger samples of data for the appraiser to analyze statistically. This is particularly helpful when working with complex or rural properties where buyers often search a large area; and where a market conditions search of only the neighborhood often results in very little comparable data for statistical analysis.

2. The 1004MC table should be composed of at least two years of data. This will help appraisers to identify if observed changes are a result of an overall trend change or just a seasonal swing.

3. Stop displaying data for two quarters and then a six month period on the 1004MC, because it is confusing to the reader. The following example shows a stable trend, but as displayed on the 1004MC form, it looks like the number of sales declined.

Portland Appraisal 1004MC Inventory


The above is a screenshot from an actual 1004MC appraisal form showing the Total # of Comparable Sales (Settled) row.

4. Include a price per square foot trend analysis. Price per square foot is often a stronger indicator of price trends than median sales price because changes in the size of homes can result in a change in median price trends, without a corresponding change in value.

5. Remove the Overall Trend check boxes for either Total # of Comparable Sales (Total Sales/Quarter) or Absorption Rate (Total Sales/Month). A trend check box for each suggests that these are two separate indicators of the market health when they are really the same (just quarterly vs. monthly). If both trends are checked as “Declining,” it appears to the appraisal reader that two areas of the market are suffering, rather than just one. The 1004MC should display both, but only have a check box for one.

Portland Appraiser 1004MC Inventory


The above is a screenshot from an actual 1004MC appraisal form showing Total # of Comparable Sales and Absorption Rate lines.

6. In addition to a table of numerical data, the 1004MC should feature some graphical displays. With today’s technology, it takes no additional effort by the appraiser to include a graphical display of data. Some appraisers already do this, but a standard set of graphs would make it easier for users of the data, and for appraisers to quickly determine if the market is healthy or changing. The following are the four charts that I suggest be included with the 1004MC (Note that all of the following charts display two years of data and not just one.):

Portland Appraiser 1004MC Price Trends Graph


Chart A shows the appraiser how median list prices and median sales prices are trending in relation to each other.

Portland Appraisal 1004MC Price Per SF Trend Graph


Chart B shows appraisers how price per square foot of living area is trending. This chart is particularly helpful as a way to check the results of Chart A. Sometimes the market can shift toward selling smaller homes, making Chart A decline while Chart B increases.

Portland Home Appraiser Volume Trends Graph


Chart C shows the appraiser a component breakdown of inventory (sales and listings) and gives the appraiser a better feel for what supply and demand is doing and at what time of the year.

Portland Home Appraisal Housing Supply Graph


Chart D shows the appraiser the overall trend in home inventory.

The appraisers at A Quality Appraisal already incorporate all of the above-proposed suggestions for improvement of the 1004MC on every appraisal (and not just appraisals for Fannie Mae or other lending). We use Microsoft Excel to produce the graphs, but free software called Total Solutions 1004MC is also available to appraisers, as are many other similar programs.

If you find this information interesting or useful, please subscribe to my blog. Also, please support us by making Portland real estate appraisal related comments on our blogs and YouTube videos. If you need Portland, OR area residential real estate appraisal services for any reason, please contact us. We will do everything possible to assist you.

Thanks for reading,


You are spot on with this Gary, the suggestions you make here are quite valid and very informative. Including more information than what is required really helps the reader to understand what is going on in a particular market. I completely agree, simply filling out only what is currently asked for can actually provide misleading information to the reader. I have been adding more information to my market conditions addendum as well but only in narrative form. I now know how I am going to display this info from now on - just like you are doing. I really like the way you prepare your market conditions addendum; it is logical and transparent. As usual, you have hit it out of the park with this one. Great work and thank you for sharing!

Posted by Tim Packard on May 6th, 2014 4:19 AM
Amen! I think many appraisers don't understand how to properly fill out the form, so it's just easier to dismiss it as unnecessary. Jim

Posted by Anderson on May 6th, 2014 4:22 AM
Thanks for the great comments Jim and Tim. I believe in exceeding minimum standards when it produces a better product. The market conditions and the 1004MC are an important part of the appraisal.

Posted by Gary Kristensen on May 6th, 2014 10:26 AM
I'm not a Portland appraiser so I can't speak to the need for changing the 1004Mc, but I can say that (as always) your blog offers me new information about property appraisal in the Portland, OR region. Keep them coming!

Posted by Greenburch on May 6th, 2014 10:52 AM
Another great post Gary! I wish you had been part of the original group that put this form together as you're spot on in your analysis. Anyone reading your blog can easily see why you're the "Go To" Portland appraiser. There's really not even a close 2nd choice. Keep up the great work!

Posted by roy@roymeyer.com on May 7th, 2014 1:16 AM


My Favorite Blogs:

Sites That Link to This Blog: