What if there are no comps for the appraiser to use?

Newer tract markets usually have ample sales, but how does an appraiser establish value in a neighborhood with no recent sales? There isn’t a quick answer, but here are some of the things I do as a Sacramento area appraiser.

  1. Older Sales: I look at sales over the past 1-3 years in the immediate neighborhood. While it’s ideal to have model match sales within a 90-day time period, that’s rarely possible with more unique neighborhoods with tight market boundaries. It therefore becomes important to use older sales in an appraisal report and then make an adjustment to the sales price depending on whether the market has declined or appreciated in value over time. For example, I might use a sale that is twelve months old in a unique neighborhood and then give a 15% adjustment downward after figuring out the market has declined by 15%. Methodology like this becomes important for appraisals along the Sacramento River, more custom homes in Camden Passage West in Elk Grove, or even sometimes in areas like Curtis Park, Land Park or Midtown depending on the property. Of course if the appraisal is for lending purposes, the lender will likely want to see some newer sales in addition to older ones.
  2. Competitive Neighborhoods: If there are no real comps over recent months in the immediate neighborhood, I find competitive neighborhoods for comparison and then use recent sales in those neighborhoods. It’s important to ask the question, “where else would a buyer for this neighborhood shop for a house?” and then look for comparable sales in those neighborhoods. These competitive tracts will likely be outside of a typical one-mile radius, which is okay. This can work well when appraising in places like Little Pocket or Country Club Estates where I might have to cross a freeway or major street to find adequate comparables (I try not to do that though where possible). However, some neighborhoods are very distinct, which makes it more challenging to really find a competitive neighborhood. Take the Woodlake neighborhood in Sacramento, for example. This neighborhood resembles Land Park, yet is located nearly five miles away and is surrounded on all sides by properties with signficantly lower values. There is really nothing comparable to Woodlake in the entire 95815 zip code, so sticking with historical sales to a certain degree seems more reliable to me than picking sales from 5-10 miles away. Even Gold River is a good example of a distinct community. When appraising in Gold River I do not ever use comps outside of Gold River because it really is its own community.
  3. Current Listings: I talk with real estate agents who have current listings in the immediate neighborhood to see if I might glean some insight into how the market is seeing the neighborhood. While listings are not sales, they are able to tell us something about the market and are important for consideration.
  4. Recent Withdrawn Listings: I run a search of recent withdrawn sales in the immediate neighborhood and then talk with the real estate agents involved. Why did the property not sell? That question usually gleans some insight into how buyers perceive the neighborhood.
  5. Other: I talk with appraiser friends, real estate agents, create historical graphs, consider other metrics, rental value, and poke around online to see what I can find too.

I’d be curious to hear more from real estate agents, home owners and appraisers. Why do you think there might not be any comps for the appraiser to use? If you have any insight or a point to add to the discussion, feel free to comment below.

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Comments

  1. says

    Hi Ryan,
    Great topic for a sometimes slower housing market. I’ve found this to be a pattern even in the densely populated neighborhood under $125K where it’s more difficult to obtain financing. Prior offers, counteroffers or rejected offers might give a clue if you have access to that data. Check your inbox. Bill

    • says

      Thanks so much, Lawrence. So many times lending guidelines of “past 90 days” and “one-mile radius” just don’t fit the market for unique houses and certain neighborhoods, huh.

  2. says

    Sometimes it seems that the hardest part of our job is finding sales, especially for homes that have sold by owner. The MLS sales are easier to find but if there are none I start looking at county records or even some of the “for sale by owner” sites (a local site lists homes which he has listed and that have sold and closed). You have to do a lot more research but I am finding a lot of people are selling their homes themselves because they don’t want to pay the commission.

    • says

      Tom has a good point here. I’ve read where some appraisal reviewers are in a sense disciplining appraisers for using FSBO sales because they were somehow not as exposed to the market as a listing in MLS. I disagree with them and agree with Tom. Locally, we have 2 good sources of FSBO data and I’m on those sites weekly for better than MLS comp photos, comp data and what listings there are available. I do find that the listing prices on these sites are really exaggerated, like homeowners in denial of a housing correction though. But, when I see a “Sold” listing, I look it up to see if I can match a recent sales price in Legal News with the physical data for a 4th – 6th sold comp.

    • says

      Thanks Tom. In my neck of the woods I’m not aware of a good FSBO site to verify data. That can be a problem. I see why Bill mentioned reviewers not being happy with appraisers for using FSBO comps too. As long as the sales can be verified and details known, there shouldn’t be a problem with using them. The nature of the sale and any concessions should be known for FSBO sales can be funky and not reflect market value (just like other sales on MLS though too, right?). Thanks Tom (and Bill below).

    • Ralph Valencia says

      I would say in doing hundreds of reviews; it is not necessarily an issue with the utilization of a FSBO as a comp; but the lack of applying the Scope of Work and Definition of Market Value in its utilization. As Ryan stated, a sale must be ‘verified’ on top of being researched and analyzed. Part of verification in HUD, FNMA and in the Appraisal of Real Estate 13th Ed indicate that verification is with someone principle to the transaction. Typically in a FSBO… there’s no agent to call, reliance is made solely by the owner or seller; who must reflect pertinent information about the home and motivations of the buyer and seller at time of sale. For the comp to be determined to have been sold at ‘Market Value’ a ‘reasonable’ amount of exposure on the open market; more items to be uncovered by the research part of the Scope of Work.
      I’d say a good 70+% of appraisers out there do not ‘verify’ sales; or do it properly. And it will show in the writing of the report.
      SO again.. like Ryan; I agree they are ok to use, if you want to do the research needed to make correct determinations about the sale and any adjustments.

  3. says

    I had a realtor make up some comps for a friend of mine. Wasn’t until it was too late that she found out all the information was bogus. Tells you how careful you have to be with certain members of the real estate industry…

    • says

      Wow, Tamara. What do you mean the Realtor made up comps? Was it that the Realtor said certain properties sold, but they actually hadn’t? I wonder how that impacted your friend’s decision to buy or sell. Thanks.

      • Anne Graviet, CHS says

        I accidentally busted an agent switching home styles on a BPO.

        They dropped mobile/manufactured homes on Heathston Ct 95843 among SFD tract homes and there are no comps for those. The prior agent relabeled the SFDs and turned them into manufactured homes on their report. When I did the second BPO, they found out.

  4. Anne Graviet, CHS says

    Thanks for another great blog post, Ryan!

    On those homes where we’re “20-miles out and 1-year back” and there’s just nothing we can do about it, I will also check Zillow’s comps and of course, Realist’s tax records comps, which has a lot of auction sales and bulk sales in there but it’s something when you got a big fat O like you’ve illustrated in your blog post. (I’ve noticed that you’re very clever with your choices of pictures and there’s a lot of subtle humor in your blog, which makes it fun.)

    I love Woodlake but I wouldn’t want to valuate homes there – if I had to use an outside Woodlake comp, I’d probably go to Bird Tract or Garden of the Gods area. What do you think?

    • says

      Thanks, Anne. 20 miles is quite the distance, but understandable. The market changes so much within 20 miles, which makes it complicated to use such distances. I saw an appraisal recently where the appraiser used Granite Bay comps for an Elk Grove property. That was very much innaprproriate in my mind and it really skewed the value. There is something about using comps right there in the neighborhood where possible. Or if you go outside of the market area, the more recent sales there better be consistent with older sales in the immediate neighborhood (unlike the Granite Bay vs Elk Grove situation).

      Woodlake is so distinct. While I am not opposed to using comps from Arden-Arcade and Carmichael, it’s just such a touchy issue. I really try hard not to do so, though comps from these locations can be used if necessary (but then it’s so important to really consider if there is an adjustment up or down for the neighborhood).

      • Anne Graviet, CHS says

        Elk Grove to Granite Bay? Whoa! Was that done by the guy who drove up from Fresno to do the appraisal for a cut rate fee? Or maybe he couldn’t use short sales as comparables – lol!

        Location location location – you’re 100% right about using the local comps as our guide. What’s neat about the Sacramento Area is that we’ve got a lot of pockets of low-turnover super-cool neighborhoods tucked here and there all over the place (from Elk Grove to Granite Bay – lol!) It adds to the charm of living here and its so fun to discover the little jewels in our area, isn’t it?! Doesn’t make it easy for us to valuate them, though, but that’s where our local neighborhood expertise is invaluable 🙂

        Peace out and a thanks again Ryan!

        • says

          Good memory, Anne. I honestly don’t know what the appraiser was thinking. The property in Elk Grove was on 5 acres and had an estate feel. It was very nice, but it did not compare to properties that were located 15-ish miles away. There was really no compelling reason why comps in a different city and county should be used over against recent sales in Elk Grove. Ultimately, would a buyer for this property in Elk Grove really consider the Granite Bay sales as similar replacements? I don’t think so. Even if the sales in Elk Grove were 6-12 months old, they should’ve been used before making a leap to Granite Bay. My appraiser friend who showed me the report definitely agreed too. I was really surprised to say the least. Useage of Granite Bay comps with no location adjustment in this case really boosted value beyond what it should’ve been.

          Thanks, Anne. Good conversations on this post. I’m really enjoying it. I think you’re so right about the jewels in our area. There are so many wonderful little pockets (and even a place called “Little Pocket” too). 🙂

    • says

      I am very flattered. Thank you. You asked for an answer via email, but since you asked online, I have a few thoughts to share about my philosophy of reposting. I’ve thought a good deal about this, so here’s my take. Please do share, but why don’t you write a few original sentences for your readers and then link to my original article? That would be very respectful and help your readers engage over here too maybe. I always prefer that for a number of reasons: 1) It helps spur on originality on another website; 2) It honors the original author’s hard work by letting the work stand on its own in its original place; 3) It keeps search engines focused on the original content rather than splitting attention to multiple sources hosting the same exact content. Often times another website or blog will copy and paste a full article, even with good intentions, but it can end up taking away search queries from the original site. Since I know how much work it takes to organically build a strong online presence and how important good and original content is, I believe firmly in practices that help honor a person’s hard work by directing traffic to the original post. I know that seems a bit anal in some regards and maybe too technical or long of an answer, but that’s my idea of a respectful social practice for “reposting” online content. I think it’s also acceptable to provide a bit of the original content as a teaser and then a link to the original post to read the rest. That’s also good policy in my book. When the full content is shared though on another site, I’m not sure that really upholds the points above. If someone thinks differently though, I’m open ears.

      Again, thank you for being willing to share. I really appreciate it very much. Thank you for asking too. That means a lot.

      Anyone listening, while on the topic of content, I’d be curious to hear from others on this. I recently attended a “social media” class with a group of real estate professionals. The speaker told everyone to copy and paste online articles on their blogs because that is good for SEO and it is a quick way to get readers to a blog. To the speaker’s credit, it was said that the original author should be noted and a link to the article was a good idea too. However, while I understand the intent of the speaker, the practice that was being encouraged ultimately seemed selfish to me because it essentially was telling people to use other people’s content to boost their own SEO. IN order to save time from being original and creating resourceful material, just take from someone else and use it to your own advantage. Yikes. Is that the end result of what the speaker was saying? What do you think? No biggie? Bad social media policy? Okay?

      • says

        I agree Ryan with your thoughts re: re-posting, with no intent to be mean, just my opinion. I’m not a great blogger like you, but I do work hard on our videos and try to put our own original thoughts and personality.

        RE: Social Media RE Class
        I know there are acceptable ways to do sourcing, call-out’s and quotes, for small portions of text, but it frightens me to think that’s being pushed unless people are given guidelines of where sourcing teeters on copying and getting in trouble with copyright items.

        I saw the online shredding of a lady that “copied” online and you do NOT want to be this person: http://deirdrereid.com/2010/11/09/blogger-basics-copyright/

        • says

          Heather, you really know your stuff when it comes to social media. I think you hit the nail on the head with “acceptable ways to do sourcing”. There is always a learning curve, so it’s good to know this stuff. Thanks for the link. I sure hope to not be the subject of being blasted one of these days like that. Yikes.

  5. Ralph Valencia says

    Another nice article Ryan!

    For items you have already mentioned;

    I think #1 is rightfully placed. Older sales are the easiest to see and track down, and time adjustments, at least in my experience are the easiest adjustments to measure, make and support. We advise this to appraisers currently versus blindly throwing in crappy ‘recent’ sales. Some of my best ‘comparables’ were seemingly ‘older’ sales in a number of appraisals I did.

    I like the idea of including ‘competing neighborhoods’ I like it more so when the appraiser can explain to me in commentary as a reader. This can usually go hand in hand with using an old sale in the immediate area. (i.e. I have a 16 month old sale on my subject street; and a recent comparable from a competing neighborhood. Support that it’s a competing neighborhood with commentary or by throwing a 16 month old comparable in the grid; hopefully the 16 month old sale is in line with your 16 month old sale from the immediate area; thereby proving support for comparable neighborhoods and also giving you basis for supportable time adjustment!

    Listings vs. Withdrawns; I like withdrawn listings more so than I like current listings; I apologize to any realtors I might offend, but realtors are always pushing the market; withdrawns are a reflection, in at least half if not more cases, of a market that was pushed up more than the buying pool can afford. On top of looking at listings, and withdrawns; look at their respective listing histories; a trend graph I always include measures Original List Price, Current List Price (which includes list price at time of sale) and sale prices. There is ALWAYS a significant difference between the Original List Price Trend and the List Price (current or at time of sale)…ALWAYS; I have hundreds of graphs to prove it – That is not to say a few realtors of the whole did not get it right, but that the trend leans that way. So again… I prefer withdrawn properties over listings; additionally look also at expireds, or cancelleds… each home gone off the market is a measure of what the value IS NOT. While one listing may not be definitive… look at enough of them and you will see a trend.

    As for stuff maybe not mentioned in greater detail…
    I would say defer to the idea of bracketing. Appraisers get to stuck in the box of ‘COMPARABLE’… so jump outside of the word comparable for market comparison. While there may be instances where larger homes sell for more than smaller homes; I have yet to see THAT market. I see them generically as outlier sales; but never do they seem to trend that way.
    Look at ALL sales in neighborhood. If you have say a 1,800 Sq Ft home on 1 acre…and you see a 900 Sq Ft property on 1.2 acres, recently sold for $125k…. you can almost definitely say; its worth ‘at least more than $125k. Then look to the other side; You find a 3,000 Sq Ft sale on 2 acres recently sold for $200k; you know almost definitively it can’t be worth more than $200k. You at least now have an established ‘range’; continue using the bracketing method to skim down that range, supporting all items of marketability that come along the way; choose the best ‘sales’ for market comparison, with detailed explanation of current TOTAL inventory so that a reader is better versed in the market by reading your report. You may not even include those sales in your report; but explaining them to the reader gives them an idea of what you’re thinking….it provides more than ample market support; and can be duplicated.

    That’s all I got….for now 😉

    Thanks Ryan!

    • says

      Thanks Ralph. Your commentary is a great resource, Ralph. Thank you for sharing your insight and methodology. I like the way you talked about “bracketing” values in a neighborhood. I do that all the time. I really like what you said about choosing older sales instead of “crappy recent sales”. Some recent sales are really just placerholders to meet loan requirements. They are often not real comparisons, but only something inserted in a report to abide by a 90-day comp requirement.

    • says

      I hear you. I think listings only help to gauge the market. Sales should be given the most weight. It would be odd to see only listings in a report to establish the value. That’s for sure. Thanks for your insight.

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