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Is it okay to use comps from a different city?

October 5, 2017 By Ryan Lundquist 14 Comments

Can you use comps from a different city? Most of the time that’s a bad idea, but sometimes it’s the best option. Let talk about this a bit as I share an example of why I did this recently in an appraisal. The discussion below really has to do with school district boundaries too. Anything to add? I’d love to hear your take.

The situation: I appraised a duplex (two attached units) in the city of Citrus Heights in an area that was just a few streets away from Fair Oaks. As locals know, Fair Oaks tends to sell at higher levels compared to Citrus Heights, so pulling “comps” from Fair Oaks could quickly inflate value if I’m not careful. But this portion of Citrus Heights is located in Bella Vista High School territory, which is a top-rated school. The school boundaries include the eastern portion of Fair Oaks, Orangevale, and a small portion of Citrus Heights where the subject property is located. Does this matter for value? Is it going to be okay to use comps from a different zip code or city? Let’s take a look.

Here are all duplex sales in Citrus Heights over the past 10 years:

Now let’s compare duplex sales in Citrus Heights with duplex sales in Bella Vista High School territory to see if there might be a price difference. As you can see, Bella Vista has a much higher school rating on GreatSchools.org compared to surrounding schools. 

How to find school boundaries: I found the boundaries for Bella Vista on GreatSchools.org. When you pull up a school profile on this website all you have to do is click “nearby schools” located on the right side of the page to bring up exact boundaries and a comparison of ratings. Otherwise the school district might have a map.

After finding school boundaries I drew them in MLS to look at specific data. Being that there are portions of three zip codes in this area, a zip code search would not have worked. A one-mile radius definitely wouldn’t have worked either.

It’s pretty clear duplex sales in Bella Vista territory are selling toward the higher end of the market. They don’t always sell for more compared to everything in Citrus Heights, but obviously they’re selling toward the top.

The big question: Do Citrus Heights duplexes within Bella Vista boundaries sell for more?

In short, it looks like Bella Vista High School boundaries matter for value for Citrus Heights duplexes. These sales tend to compete toward the top of the Citrus Heights duplex market. Not only that, they also compete toward the top of the Bella Vista market which includes portions of Fair Oaks and Orangevale.

Three Takeaways:

1) Using comps from different cities: It’s fine to use comps from different cities and zip codes, but we have to be sure we are really looking at the same market. If we’re just “cherry-picking” higher sales from around the corner in a different city, that’s no good. Appraisers get handed so-called “comps” all the time that are from areas that clearly command higher prices. I’m definitely not advocating for that here. What I am saying is if we study the market and it’s reasonable to use sales from a different city or zip code because they’re competitive, that’s fine. Remember, it’s never about how far an appraiser can go, but where an appraiser should go for comps. Sometimes we are bound tightly in our comp search by just one or two streets, but other times (like above) we might end up using sales from other zip codes and cities. In this case after my research I ended up using comps from Fair Oaks for a Citrus Heights duplex because they were similar in price and they fed into the same highly-rated high school.

2) School boundaries: Sometimes school boundaries can be a big deal for value, though other times not so much. In most areas there is really just one school that serves a neighborhood, but when different cities and zip codes collide it might be a good idea to consider if there is any value impact with the boundaries. Sometimes we might even have to step back and maybe search for comps by school district, which will mean we might end up with comps from different cities.

3) Different trends: Just because I used Fair Oaks sales for a Citrus Heights duplex does not mean I would do the same for single family homes or vacant land. The market might not be the same for every property type. 

I hope this was helpful or interesting.

Questions: When have you used comps from a different city? When would you NOT use comps from a different city or zip code? Anything to add?

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Filed Under: Appraisal Stuff Tagged With: Bella Vista High School, choosing comps like an appraiser, Citrus Heights, comp methodology, Fair Oaks, finding school boundaries, great schools, how to choose comparable sales, Orangevale, school distrct and value

Reader Interactions

Comments

  1. Joe Lynch says

    October 5, 2017 at 7:31 AM

    Great post Ryan. I’m going to have a similar example at my class next week. Had an appraisal in Winters backing Putah Creek with few comps so went to South Davis for two sales. Adjusted 32% for the difference between the two markets.

    Reply
    • Ryan Lundquist says

      October 5, 2017 at 7:48 AM

      Awesome example Joe. Thanks so much. I’m glad you brought up this example too because we certainly can use comps from different cities and use adjustments for location if they are needed. I didn’t address that, but it’s definitely the truth. I did something similar recently when using a sale on the south side of the river vs the north side.

      Reply
  2. Matt Boxberger says

    October 5, 2017 at 9:22 AM

    Great post, excellent detail, thanks Ryan. The charts used total sales price – is there an option to compare by $/SF, to ‘normalize’ for size differences (assuming the duplexes don’t all tend to be the same size)?

    Reply
    • Ryan Lundquist says

      October 5, 2017 at 9:28 AM

      Thanks Matt. I think that would be great. I didn’t make one, but I could. The tricky part for duplex stats is the square footage isn’t always correct or listed in Tax Records. If it’s not listed in Tax Records, the square footage in MLS is sometimes just a guesstimate. So that can be a challenge. I like the idea though and I know we have to consider size in all of this. It just goes to show we cannot let a graph do the thinking for us. We have to know how to look at it and what it can and cannot communicate.

      Reply
  3. Cheryl Rouse says

    October 5, 2017 at 10:59 AM

    Wow, Ryan! This is very powerful stuff! I have learned so much from you! My confidence as a real estate professional has soared due to the knowledge you impart!

    Reply
    • Ryan Lundquist says

      October 5, 2017 at 11:09 AM

      Thanks Cheryl. You are the best. I appreciate the kind words. I think it’s so interesting to consider how schools make a difference with value and how it’s even okay to use comps from other cities at times.

      For any onlookers, one thing about greatschools.org we have to remember is the ratings might not correlate perfectly with real estate. Though there is no mistaking that high-performing schools and property value go hand in hand. Another thing is the ratings can change over time too. Just as values are always changing, people’s perceptions of schools and neighborhoods change too. I think this is why we have many locals wondering about “South Folsom” and “North Folsom” with all the building that is scheduled to happen. How will that change values or people’s perception of Folsom? I’ll tell you in a few years… 🙂

      Reply
  4. Lou Munoz says

    October 5, 2017 at 8:06 PM

    You are right to be leery of going outside a subject’s municipality. In my judgement you are asking for trouble doing so, certainly when it is a lender assignment. Too many uninformed and ‘by the checklist’ staffers and reviewers involved. Type of assignment? Current or other time frame involved? Complexity of property, i.e. new or existing, similar and comparable? Attached units or detached? Do the rents reflect an isolating issue and corroborate the sale prices? Tax rates similar? Feeder areas around a school district on occasion will be charged ‘out of district’ premiums if the area(s) are not physically within the municipality/jurisdiction.

    If the assignment is or might be part of some contentious litigation, then you better be certain you are covering all your bases, dotting i’s and crossing t’s. And as I say if it’s for lender work….forget doing so. It’s not worth it.

    In all cases, and regardless of the type property, I do hope your fee was sufficient to cover the depth and scope of work, analysis and documentation. I know an AMC is NOT going to pay for the level of work involved.

    Reply
    • Ryan Lundquist says

      October 6, 2017 at 10:43 AM

      Thank you Lou. I appreciate your thoughtful commentary. There is so much to think about here, and your comments underscore how complex value is.

      Reply
  5. Gary Kristensen says

    October 8, 2017 at 10:09 PM

    I’m slow to the party this week Ryan. I’ve done a couple appraisals where I didn’t just use comps from a different city, I used comps from a different state. I would rather have several very similar properties from far away, even a different market, where I can show how they reacted in relation to their local market than say that I have nothing locally that is similar. When an appraiser goes farther for sales, the market analysis should also include those areas and, if they are different, compare and contract those areas.

    Reply
    • Ryan Lundquist says

      October 9, 2017 at 4:27 AM

      Thanks for jumping in as always Gary. I love it. I haven’t had the occasion to use a comp from a different state. Not yet anyway. New goal for 2018. 🙂

      Reply
  6. Bill McKnight says

    October 9, 2017 at 10:48 PM

    Thanks, Ryan. Great use of market data to prove your hypothesis. Great visual also. Should make it clear to anyone reading the report.

    Reply
    • Ryan Lundquist says

      October 10, 2017 at 8:04 AM

      Thank you sincerely Bill. I really appreciate it.

      Reply
  7. Tom Horn says

    October 21, 2017 at 5:52 AM

    Whenever I talk to agents I like to discuss acceptable places to look for comps. I think it is very important to use comps from within the neighborhood but if this is impossible then looking in what I call a “competitive market area” is the next best thing. This may be in a different city if sales are scarce where the subject is.

    Reply
    • Ryan Lundquist says

      October 23, 2017 at 6:56 AM

      Very well said Tom. “Competitive market area” is a great term to keep in our real estate lexicon because it reminds us to make choices based on similarity rather than geography. Just because it’s nearby doesn’t mean it’s a good comp. What is a “competitive market area”? That’s always the question at hand, and we might end up choosing “comps” further away if needed because that market area or subdivision is truly competitive.

      Reply

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