Neighborhood Housing Trends
In most appraisal reports there is a section that describes neighborhood trends. Many times you will see boxes like the ones above. These boxes are used to describe the current market conditions in the neighborhood of the home that is being appraised. These boxes are a convenient way of reporting the appraiser's findings. Typically this information is derived from the neighborhood that is defined in the appraisal. Some appraisers may be apprehensive about checking certain boxes that indicate either positive or negative trends or checking a certain combination of boxes. Why? They may be afraid that if they check a certain combination of boxes, an underwriter or review appraiser is going to tell them that they can't check boxes of a certain combination.
I have experienced that a few times in the past. However, it is the appraiser that has to make that determination. In my years of appraising, I have checked every combination of these boxes at certain times. Granted, it is unusual for values to be declining when there is a shortage of demand or for values to be increasing when there is an over-supply of inventory on the market. But it does happen. The appraiser has to be ready to explain the reasons for why the boxes are checked. A very careful analysis has to be performed in order to determine these trends. The report should explain why these boxes are checked. The appraiser should also have good support in their work file to support their reporting. When appraisers work hard to provide a supportable analysis of the neighborhood it lends to the credibility of the appraiser and the appraisal!
A word of caution. The appraiser needs to understand the client's expectation on where the data is derived. For instance, according to the Fannie Mae Selling Guide, the one unit housing trends in the 1004 form should reflect that of competitive sales. While this is the case, other clients may expect the trends to be derived from all residential, condo and/or multi-family sales in the neighborhood.
The good news is that the quality of appraisals is on the increase and the education of underwriters is also on the increase when it comes to reading and understanding appraisal reports. This is good for the real estate industry as a whole! So the next time you see a combination of boxes checked that doesn't make sense, don't assume it is an error. Look for the explanation in the appraisal. And if none is given, ask the appraiser to support their reporting.