The Market Conditions Addendum (Form 1004MC) is an essential component of many residential appraisal reports used by lenders to get a broader picture of a neighborhood’s real estate market beyond individual property comparables. Instead of looking solely at the condition and sales figures of the home being appraised, the 1004MC analyzes overall market trends to reveal whether local home prices are appreciating, stable, or declining.
This addendum became standardized after the 2008 housing crisis, as lenders sought better tools to assess market risk and property values more accurately. The form is filled out by the appraiser using data from local Multiple Listing Services (MLS) and covers three time periods over the prior year: 7–12 months ago, 4–6 months ago, and the last 3 months.
Key metrics on the 1004MC include:
- Median sale price trends to track appreciation or depreciation.
- Days on Market (DOM), showing how quickly homes sell.
- List-to-sale price ratios that indicate competitive bidding or price discounts.
- Supply and demand, measured by comparing active listings versus closed sales.
- The volume of foreclosure (REO) sales, which can depress local values.
By analyzing these, the appraiser summarizes whether the market is appreciating, stable, or declining and whether inventory is low, balanced, or high.
This information directly affects lending decisions. For example, a declining market could lead lenders to require larger down payments or higher interest rates due to increased risk. It also impacts homebuyers and sellers—appraisals in declining markets may come in lower, affecting financing and sale prices.
For a deeper understanding of property appraisal basics, see our article on Comparable Sales (Appraisal), which explains how individual property comps are selected and used in valuation.
Understanding this form helps buyers, sellers, and lenders make more informed decisions based on both the specific home and the neighborhood’s market health.
For official guidance on the form, refer to Fannie Mae’s Selling Guide on Market Conditions Analysis: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B4-Underwriting-Property/Chapter-B4-1-Property-Assessment/Section-B4-1-3-Appraisal-Report-Assessment/1032999971/B4-1-3-04-Market-Conditions-Analysis-and-the-Appraisal-Report-Form-1004MC.htm
Additional resources include the Appraisal Institute’s market conditions FAQ and Investopedia’s overview of the 1004MC.
