Help For Appraisers Worried About Collateral Underwriter

Multiple Regression Analysis and the Collateral Underwriter: MRA Is Not Your Only Option

Social media has been nuts the last couple of weeks with some appraisers seemingly clamoring for more information on multiple regression analysis (MRA). So what is the big deal? Fannie Mae has decided to implement a new analytics application, Collateral Underwriter (CU), available to assist lenders in making sure that appraisal quality is maintained by the lenders. You cannot scroll through some of the groups without seeing some new post asking for copies of regression spreadsheets or long threads debating the topic.

There have been many of us touting the benefits of using it for years. It can be a very useful tool. I very much believe it is a tool that every residential appraiser needs to know about and be able to utilize at some competent level. But there is always a catch to anything worth doing, and MRA is no exception. Learning regression is a process and is not something one should tread into lightly. MRA is another toolset that must be mastered and cannot be picked up quickly. Regression is such an important topic that the holy grail of appraisal tomes, The Appraisal of Real Estate 14th Edition devotes an appendix to it. It will not suddenly make your appraisals better.

Waiting until the last minute to even consider something as complex as MRA is surely going to sell some software and some books. Many companies out there will gladly take your money and hand you the keys to a 200-MPH Ferrari, when all you have done is driven a hybrid. That is the approach that some companies are taking, and they could care less if your use of such tools are done so with any level of compliance or common sense.

If you take anything away from this post, there is no easy solution to utilizing MRA. Folks that claim you can do a data export of comparable sales from an MLS and upload it and press a button and voila: instant defensible adjustments and values are selling you snake oil. Many, many hours of study, practice and practical experience are needed to use this type of analytics. Remember that you must be able to defend your methodology and explain them. If you cannot do so, you will find yourself in hot water quickly.

I do not think you have to be a statistical expert to use MRA, but you do need to know some fundamental things about how it works. If this is how you seek to support your adjustments, you need to understand that MRA will not always work in every situation. Like anything in valuation, you should identify your weaknesses in the approach. Read any valuation textbook that teaches the three approaches to value. You will find in each section devoted to the respective approach, a section that discusses the understood flaws in that approach. Each approach has different methods for analysis, some are better than others in certain situations and some are worse in others. Some methods are proven outdated over time, so one must stay abreast of things. Like any appraisal problem, we must discuss the strengths and weaknesses of whatever we do. Then reconcile why we are using one method over another or giving weight in one regard over another.

Other things will work just as well and in many cases are better than MRA. You, as the expert should be familiar with enough of them to figure out what works best to support your rationale for adjustments. There are options such as sensitivity analysis, qualitative ranking, and paired sales among others. There is no real need to purchase an expensive software program and try to use it right away. Like I have already stated, every appraiser should be familiar with the various methods out there, and hopefully this apparent crisis will prompt some appraisers to sharpen up there tools and to learn how to use new ones.

I do not think Fannie Mae is on a witch-hunt, but I do think they want appraisers to make supportable adjustments. I am still very much in the same perspective I was in when I wrote about the Appraisal Quality Lender letter Fannie Mae published in December of 2013. The CU is a comparison tool that will allow the lenders and Fannie Mae to isolate abuses for such things as using $25/square foot adjustments for every property that they appraise.

If you are brand new to the thought of trying to learn MRA, I am including some links to some places to start. In full disclosure, I am a designated member of the Appraisal Institute and a candidate member with the IAAO. I am not a paid endorsee of any products here. These are simply things that I have picked up over the years and thought enough of them to share.

Books

A Guide to Appraisal Valuation Modeling
By Mark R. Linne, MAI, CAE, M. Steven Kane, and George Dell, MAI, SRA

Practical Applications in Appraisal Valuation Modeling
By M. Steven Kane, Mark R. Linné, MAI, CRE, CAE, ASA, and Jeffrey A. Johnson, MAI

An Introduction to Statistics for Appraisers
By Marvin L. Wolverton, PhD, MAI

Fundamentals of Mass Appraisal
The International Association of Assessing Officers

Software/Training

David Braun, MAI, SRA AVT, Inc

I am going to share Automated Valuation Technologies, Inc’s Regression+ as a possible program to explore. Personally, I use it and I have found it to be the better system for me. I have used SPSS, Excel (trying to create my own and worksheets others have made to sell or give away) and a few other products that will remain nameless. Why is Regression+ my choice? It is because of the training that comes along with it. David Braun, MAI, SRA runs the company and designed the software he sells. I might be going out on a limb here, but I believe David is probably one of small group of experts in MRA that is working as a practicing appraiser currently.

He has lots of videos, a training series to work through, some free downloads for other things and what is best, he is available to talk. I have never had an issue getting him on the phone and asking questions.

www.avttools.com/products/regression

Appraisal Institute

The appraisal institute has several classes worth looking at. They have a new professional development program called Analytics for Valuation. It is comprised of three classes for those with some background in this type of analysis. For basics, they have a class in statistics called Real Estate Finance Statistics and Valuation Modeling. The Appraisal Institute also offers a class that focuses on using other means to support conclusions in addition to MRA with the class Residential Applications Part 2: Using Microsoft Excel to Analyze and Support Appraisal Assignments Results. Of course, some appraisers with limited exposure to Excel may want to take a class of two in it, Using Spreadsheet Programs in Real Estate Appraisals and a brush up on theory with Thinking Outside the Form: Tools, Techniques, and Opportunities for Residential Appraising.

McKissock

McKissock offers a new class worth looking at as well. One of which is Fundamental Concepts of Analysis.

IAAO

The International Association of Assessing Officers offers some good classes on mass appraisal and some on MRA. Mass appraisal is great way to get started from a theoretical point of view. It starts you off with basic statistical fundamen6tals like central tendency advancing through some serious course work. Assessors must have a working knowledge of mass technique and the IAAO are constantly updating this facet.

Course 300 – Fundamentals of Mass Appraisal

Course 311 – Residential Modeling Concepts

Course 312 – Commercial/Industrial Modeling Concepts

Course 331 – Mass Appraisal Practices and Procedures

These four classes are all in person education. www.iaao.org/wcm/Education/Courses/wmc/Education_Content/Courses. They do offer some online variations. http://www.iaao.org/wcm/Education/Online_Courses/wmc/Education_Content/Online_Courses

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These are all good places to start, but like anything, valuation is a journey, you are never quite to your destination. You have to keep working at it and improving your technique. I hope that you find some of this helpful and a good starting point. I am looking at some more programs currently and may follow up this piece with my thoughts on them.

Have any comments or would you like to submit content of your own? Email comments@appraisalbuzz.com.

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About Woody Fincham

Woody Fincham
Woody Fincham- Woody Fincham, SRA, AI-RRS, RAA, Member of RAC is the founder and President of Accurity Fincham and Associates, a Virginia based valuation and consulting firm. He is also a member of the national leadership for Accurity Valuation. Woody specializes in high-value residential homes, conservation easements, high-performance homes, review and consulting as well as both lender-based and non-lender-based work. He has been a featured panelist at the Association of Appraiser Regulatory Officials (AARO) and presented at the Appraisal Institute annual conference. He has also been a non-member participant in the Collateral Risk Network (CRN) and is one of the national instructors for the Appraisal Institute on residential topics.

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