Appraisal Ace Blog

A Realtor and good friend asked me recently about how an appraiser looks at comps.
February 2nd, 2010 10:20 PM


 First of all what we are trying to do first and foremost is to compare apples to apples. That is, the most similar properies are usually the best comparables.

For an appraiser the most important comps are the ones that sold most recently because those tell us what buyers are paying for homes. For a Realtor, I would think that Actives and Pendings might be the most important, because those are your seller's competition and the pool of homes from which your buyer might consider purchasing. Run a CMA to see what the average list to sales price ratio is and apply that to the listing prices to get an idea of what buyers are actually paying.

The 4 things I look at first are (1) closest in terms of location and sales date. I try to define the neighborhood boundaries and, if possible, only use comps from within the same neighborhood. I also don't usually go back further than 90 days. If I have to exceed 90 days, in order to find enough sales, then I have to know whether the market declined or increased since then and apply a percentage increase or decrease to the sales price.

Then I look at (2) size and room count, I stay within 10%+- if I can. Model matches are the best, of course. Lot size has some effect, but not much for most tract homes.

(3) Age would probably be next. We try not to use comps that are more than 10 years older or newer. It's hard to adjust much for age due to remodeling, different levels of upkeep and deferred maintenance.

(4) Condition is the hardest thing to quantify, but that would be the other thing that I would try to match. Hard to measure sometimes from the MLS listings. I always have to call or email the listing and buyer's agent to get a true picture.

There is no rule of thumb for adjustments; it is case-by-case and market derived. What I mean is, what is the market reaction to missing appliances or a pool or proximity to the train tracks? Experience in the market, interviews with agents, matched pair analysis and regression analysis are the ways we isolate each variable and measure how much in terms of dollars or percentage each contributes to the home's value.

Long winded, sorry about that, but as you see it's not so simple. There are other factors, but we can talk about those at another time.


Posted in:General
Posted by William McKnight on February 2nd, 2010 10:20 PMPost a Comment

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