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.
- 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.
- 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.
- 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.
- 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.
- 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.