Appraisal Comps: “Just the facts, Ma’am” – STUFF EVERY AGENT SHOULD KNOW!
“The story you are about to hear is true; only the names have been changed to protect the innocent.”
That was the opening line from the famous 1960s TV series Dragnet – an “educational drama” that taught young boomers growing up in a small Minnesota farm town that: (1) smart cops in LA solved every crime they came across; (2) you could spot criminals from a mile away with just a “hunch;” (3) most “juveniles” in LA were thieves or drug addicts; (4) ALL “hippies” in LA were thieves or drug addicts; and (5) most criminals had long hair and most definitely were not middle-aged white guys with crew cuts.
Fiction (and concerns about how naïve young boomers were) aside, there was a famous line from the show that every appraiser probably loves: “just the facts, ma’am…” That was what the show’s main character would say when he was interrogating witnesses, as the witnesses always wanted to add their own emotion-based editorial spin.
I thought of this when I watched this Facebook video by the renowned appraiser Anthony Young. Mr. Young reminds agents who want to help appraisers to just bring relevant data, and to never try to unduly influence appraisers with emotional appeals – e.g. we need this appraisal because the buyer is a very sweet single mom, blah, blah, blah.
BUT – Mr. Young also reminds agents to definitely share ALL OF THE FACTS that will help the cause and that may NOT be in the MLS info. Examples: the comp smelled like pet urine; the comp had adverse external influences like freeway noise, train tracks in back, an adjacent cemetery, etc.; the comp had a steeply sloped lot that reduced its “effective size” to 3,000 sf; or – the comp had soil, foundation, roof, or whatever else, condition issues.
Mr. Young’s point was this: Don’t just hand appraisers a bunch of sales. Do some extra research so you can share ALL of the facts that will help the appraiser objectively support value.
Basic Guidelines For Comparable Sales
Last but not least, agents often share comps with us too when we are rebutting an appraisal that came in low – and more often than not, we cannot use the comps they provide because they are not within standard appraisal guidelines. Hence, we share the below comparable sales guidelines periodically.
Comps should ideally be within 20% of the size of the subject property (unless no other comps are available). For example, appraisers usually cannot use a 1,300 sf comp for a 1,000 sf subject property. Likewise, appraisers cannot use a 700 sf comp for a 1,000 sf property. Appraisers also cannot simply employ a “price per square foot analysis” like some agents and homeowners often do; appraisers are required to correlate to similar-sized homes.
Comps should ideally be within one mile of the subject property and not over any major barriers like a freeway, a river, or railroad tracks.
3. Same Town/City
Comps need to be in the same city as the subject property in most cases, even if a comp in another city is less than a block from the subject property.
4. Closed Date
The strongest indicators of current value are those comps that have closed within the past 90 days. Pending sales and listings are only used on the appraisal report to show what the current market is doing; appraisers do not consider these comps in their final opinion of value.
5. Lot Size
The appraiser must also consider the lot size and lot utility in the valuation. If the subject and all comps have flat usable lots, the appraiser will adjust for large variances in lot size. In areas where lots are sloped, appraisers will estimate a lot’s usable area or “utility” and adjust accordingly. The important thing to remember is that a 40,000 square foot sloped lot will often not have any more value than a 10,000 square foot flat lot.
6. Adverse Influences
If the subject is on a busy street or abuts a school, freeway, railroad, industrial area, cemetery, etc., the appraiser must include at least one comparable in the report with a similar location influence. This is necessary to determine if an adjustment is required for the adverse influence.
7. Bracketing Comps
Valid comps need to “bracket” the appraised value. Hence, at least one comp needs to be priced higher than the appraised value, and one should be priced lower. Additionally, the appraiser must “bracket” each amenity of the home with the comps. For example, the appraiser must include homes that are larger and smaller than the subject to “bracket” the size of the home.
8. Condo Comps
The appraiser should ideally include comps from inside and outside of the complex. If either are missing, underwriters often call for appraisal reviews.
If the subject enjoys an unobstructed view of an ocean or a lake, for example, the appraiser must show the value of that view by using some comparables with a similar view and some with no view. Appraisers generally should not use “view comps” to support the value of a property with no view. This is also a good example of why appraisers do not use the “price per square foot” analysis. If two homes are identical and one has an ocean view, and the other does not, the one with the view will skew the analysis.
10. Closed Date
Comparable sales must have closed prior to the inspection date of an appraisal. Appraisers cannot use comps that close after the inspection date.
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