Choosing comparable sales by price/square foot
I was doing an appraisal for a purchase a few weeks ago. The agent, who was so pleasant and helpful, handed me several MLS sheets and said, “Here, these are some great comps in the neighborhood. They are all similar in price/square foot to the property and they all support the sale price”. Unfortunately they were also all different in size and style.
Here is something really important to consider when providing an appraiser with comparable sales – telling them that you chose the comps based on the price per square foot of the subject’s sale price will drive the appraiser nuts. The appraiser would never and in our market, could not choose a comparable based on the price per square foot unless there were other factors such as model matches and other similarities. That is not to say that data is not useful – it is, but in general, not for choosing comps. There are much more important and relevant ways to choose them.
Let’s take a look at why the price/square foot method does not work for the appraiser.
The price/square foot does not consider things the appraiser MUST consider (and probably adjust for) in the valuation process such as style, size, location, quality, number of garages, finished basements, any other improvements or location.
Let’s say the property we are appraising is 17 Parker Road in Avon. It’s a 6,243 sf (although MLS says 7699 sf – which is a whole other appraiser issue) colonial, built in 2002 with 11 rooms, 5 bedrooms, 7 full and 2 half baths, 1456 sf finished basement on 0.98 acres, with views and a 3 car garage. This property sold on 9/26/2016 for $1,225,000. Per CTMLS, its current price per square foot is $159.11.
Now let’s say we are looking for comparable sales for this property to give to the appraiser. If we base our comp search on similar price/square foot properties, following would be some of our results:
- 39 Avonside – 1932 sf colonial, built in 1956, 7 rooms, 3 bedrooms, 1.5 baths on 0.78 acres. Sold 5/5/2017 for $298,000. Current price/square foot – $154.24
- 4 Candlewood Lane, Avon. 1868 sf ranch, built in 1962. 7 rooms, 3 bedrooms and 2 baths on 1.04 acres. Sold 12/16/16 – $300,000. Current price/square foot – $160.60.
- 115 Reverknolls, Avon – 3076 sf cape, built in 1974. 9 rooms, 5 bedrooms and 3.5 baths on 2.24 acres. Sold on 6/20/2017 for $465,000. Current price per square foot – $151.17.
You can see that these properties, which are relatively similar in price/square foot, are in no way actually “comparable” to our 6,243 sf colonial, built in 2002 with views. Would any of the homes similar in price/square foot appeal to the same buyer as the subject? The answer is, probably not.
Here is another example. Let’s say you have a signed contract on 47 Valley View Drive in Windsor. It’s a 1600 sf colonial built in 1992. It has 6 rooms, 3 bedrooms, 2.5 baths and a 2 car attached (it recently sold for $255,000 at $156.06/square foot per CTMLS).
If you searched for comps similar in price/square foot to support the sale price and give to the appraiser, here are 3 sales you may come up with:
- 871 Palisado Ave., Windsor – 2400 sf colonial, built in 2016, (new construction), with 7 rooms, 4 bedrooms, 2.5 baths and a 2 car attached garage which sold for $379,900. Its price per square foot is $158.09.
- 531 Rainbow Road, Windsor – 1200 sf split level, built in 1959 with 5 rooms, 3 bedrooms, 1.5 baths and a 1 car attached garage. It sold for $201,000. Its current price per square foot is $167.50.
- 5 Settlement Hill, Windsor – 2848 sf reproduction colonial built in 1988 with 7 rooms, 3 bedrooms and 2.5 baths. Sale price: $455,000. Current price/square foot – $159.76.
Are these properties truly comparable to the subject? Could an appraiser use the 1200 sf split level, built in 1959 in their appraisal to compare to a 1600 sf colonial built in 1992, or any of the others? Not if they valued their license and wanted to continue appraising for awhile they couldn’t!
The bottom line is that providing the appraiser with sales similar in price per square foot will not help the appraiser and will not support your sale price, because these properties are not truly comparable properties.
Remember that the appraiser’s definition of a comparable is a property which could be substituted by a buyer for the subject property. As you can see by the examples above, price per square foot does not reflect properties which would fit this definition.
Many appraisers are grateful if you provide them with the comparables you used to price your listing or that you think are good comparables. But you will find it most beneficial if you think like the appraiser and provide them with recent sales of homes that are similar in size, style, age, location and condition to the subject property. Properties that are truly comparable (and those which could be substituted) for the subject.
If anyone would like a presentation done at their office where I cover these types of topics and leave plenty of time for a question and answer period, please let me know. I would be happy to do one.
Also, for any agent who isn’t particularly familiar with the appraisal form itself, let me know if you would like a completed (with some info redacted) report. It will give you a good idea of what the appraiser’s job is, the information we must provide and features we may adjustment for when we estimate the value of a property.