Sometimes finding really good comparable sales is a challenge. I mean, it’s not like we live in Las Vegas, Florida or California where cookie cutter subdivisions are common. It’s different here and you have to really know your market. I have been an appraiser for almost 30 years and there are markets in our little state in which I will not appraise (more about the appraiser’s requirement for “geographic competency in another post) because I don’t know the market well enough to select appropriate comparable sales.
When appraising for a purchase, I am often provided comparable sales by an agent. I am always happy to review these (and especially talk to the agent about them) because I get an idea what the agent used to price their listing. And, even though I always do my own research, I find that some of those comps are really great for my report. Other times, even though they may support the sale price, I am not able to use them as they don’t follow any of the guidelines I must adhere to.
So, I thought it would be great to share some very, very basic guidelines the appraiser uses for comparable sale selection. None of this includes data analysis…just initial comp selection.
1) Homes which have sold in close proximity to the subject (if no sales in close proximity, some in an equal market area (this may include a similar location with same K-12 school if that is a determining market factor) that are similar in style, age and condition. They do not have to be exact matches.
2) Similar homes which have sold within the past 6-9 months or if necessary, 12 months (a more recent sale is preferable however, as it is a better indicator of current market value (older sales must be explained and well supported within the report).
3) Consistent pricing with other homes of similar size, style, age and amenities (in other words, no comparable sale selection based on sale price)
4) Arms-length sales (unless bank sales are the market. Ensure that the seller was not under duress i.e. lost job, estate, relocation – all sales should be verified).
5) Must consider similar property active listings in the area which are used in the report to determine if they are within a reasonable range for the sales (anything higher or lower would show an increasing or decreasing market).
It should be noted that all appraisals go through several review processes including the AMC (appraisal management company) and underwriter as well as uploaded to the Fannie Mae portal. At any or all of these points, our comparables can be questioned and/or other sales provided to us for consideration.
It should be understood that AMCs and lenders all have access to online real estate sale resources and often do their own comparable sale research. In addition, local appraisers are frequently hired to do a thorough review of our reports to report any discrepancies or determine if the comparables used are truly the best available and most appropriate.
As appraisers, our reports must be based on the data, the reason we used the sales in our report, the analysis we used to select them and the support we have for those choices. The appraiser has a responsibility to the lender who is funding the loan to provide them with a well supported value that we can support with market data.