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what is a comp

Top items to review in an appraisal report: Part 2

July 9, 2013 By Ryan Lundquist 1 Comment

Let’s go for Round 2 of what to look for in an appraisal report. Rather than only checking out the bottom line value, how do you know if the appraisal is solid or not? Last week I talked about looking at the neighborhood boundaries and market trends, and now let’s consider big-ticket issues like square footage, comp selection and adjustments.

1) Square Footage & Bed/Bath Count: Make sure to always look at the living area and bed/bath count in the appraisal report. Is it consistent with what you know to be true of the property or what public records says (assuming official records are correct of course)? If not, you definitely need to call attention to this difference because inaccurate measurements or missing bedrooms or bathrooms can impact value. Sometimes of course there is a reason why public records are different from what an appraiser measures. Also, remember that detached units are not added to the square footage of the main house (though they can be a part of the value still).

square footage on appraisal example

2) Comp Selection: This is one of the most important aspects of the appraisal. Whenever I teach classes about challenging low appraisals, I always recommend giving the most attention to comparable sales used in the report rather than misspelled words or minor clerical errors. A good “comp” or comparable sale is one that a buyer would consider as a replacement for the subject property. If the “comp” was still on the market, would a buyer also be interested in that property? Ultimately a competitive sale (comp) should probably have a somewhat similar location, size, level of upgrades and even bed/bath count. After all, what does a custom 3000 square foot home have in common with a 1000 square foot standard home? Not much, so they probably shouldn’t be compared. Of course there are almost always differences that require some sort of adjustment, so expect to see some. If there really aren’t any comps, it can be tricky, but this is what I do in my reports.

what makes a good comp - by Sacramento Appraisal Blog

Case-in-point: A real estate agent called me last week and told me the appraiser chose a “comp” that sold around $200,000 and proceeded to give $120,000 worth of adjustments to this property to help justify the final value at $320,000. How competitive is a $200,000 house to a $320,000 house? Would a buyer be shopping for these houses at the same time? Probably not.

3) Adjustments: Do the adjustments in the appraisal report seem legitimate to you? Do they appear to be indicative of the way buyers behave? Do the adjustments make sense when you compare all the sales used in the appraisal report? The adjustments are supposed to be based on the amount buyers would pay for the difference (not the cost of the difference). For instance, if you see Comp 1 is 200 square feet smaller than the subject property, and the appraiser gave a positive adjustment of $10,000 to Comp 1, this means buyers are willing to pay $10,000 more for a house that is 200 square feet larger. You’ll have to look at other sales in the report (or market) to see if this adjustment makes sense or not. Another example would be if your property is remodeled throughout, but the appraiser gave a minor $10,000 adjustment for the upgrades. You might need to find a property in the neighborhood that has a similar level of updates so you can help show how much the market really pays for such features (probably more than $10,000).

reviewing appraisal report tips - by Sacramento Appraisal Blog

Next week I’ll wrap up this series with a few more items to focus on. As I said before, I will post an example report at that time so you can download it and know exactly where to find these items when reviewing an appraisal. In the mean time, make sure to subscribe by email to get all posts delivered to your inbox (2-3 posts per week). I hope this has been helpful so far.

Any questions or insight? Feel free to comment below.

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Filed Under: Appraisal Stuff, Resources Tagged With: choosing the right comps, Home Appraiser, House Appraiser, how do appraisers come up with adjustments, How to challenge a low appraisal, how to review an appraisal report, low appraisal, quality appraisal reports, sacramento appraisers, square footage in an appraisal, things to look for when reviewing appraisal report, what is a comp

Does a low sale on your street kill your property value?

August 10, 2012 By Ryan Lundquist Leave a Comment

It can be a huge concern when you go to sell a property and a home down the street just sold for way less than what you planned to list your home for. Does this one sale hurt you? Sometimes lower sales will indeed harm your property value, but there are also reasons why lower sales might not pose a threat to your value. Here are a few things to keep in mind from an appraiser’s point of view:

  1. One sale doesn’t make or break the market: Appraisers need to consider multiple sales throughout the neighborhood and competitive market area. For instance, if one sale on your street closed at $250,000, but everything else has sold at $350,000, the lower sale is probably more of an outlier than anything. This one “lone ranger” doesn’t establish the trend of values in the neighborhood or trump all other sales either because it’s not consistent with the rest of the data (even if it’s the most recent sale). This assumes of course there has been no big issue to cause a dramatic decline in property value. On the other end, just because one sale closed $50,000 higher than everything else does not mean the market is now willing to accept all other properties at that level either. Outliers can be on the low end and high end of the market.
  2. Not all sales are “comps”: It’s easy to think of all sales as comps (comparable sales), but just because a property sold does not mean an appraiser is going to use the sale as a comp. After all, a “comp” is a property that a buyer would theoretically consider purchasing instead of yours because it is similar. If the sale down the street is 800 square feet smaller, has two less bedrooms or a lot half the size of yours, it’s probably not anything to sweat about because it may not even be grouped into the same comp pool by the appraiser (hopefully not – keep your fingers crossed). If there are no truly competitive sales though, the appraiser may need to use less comparable properties and then make adjustments up or down based on the market’s reaction to those differences. Ultimately, it’s usually better in my opinion to use older more similar sales and then make appropriate adjustments based on how the market has changed over time.
  3. Distressed sales: It’s important to sift through distressed inventory because these sales tend to close at lower levels. Real estate markets are often segmented with traditional sales at the highest level, and then bank-owned sales and short sales at lower levels. Sometimes there is a hefty difference of 10% or so between traditional sales and distressed sales, while other times the difference is minor or non-existent. The large price gap in many cases is often due to things like inferior condition, quick marketing to dump the asset or a swift sale to avoid seizure by the bank (short sale). Distressed sales don’t always sell at lower levels, but that’s often the case. In short, before you stress out about a low sale, realize a competent appraiser is going to analyze the lower distressed sale and either not use the sale or give it less weight in the report if need be.

Do these sales kill property value? I wanted to share these scenarios above to help show that a lower sale in the neighborhood may not always be a “value killer” because it’s not always reflective of the market. Bottom line. However, there are definitely scenarios when a lower sale is going to impact your property value. If a truly competitive property was listed on the market for a reasonable time and had a reasonable number of offers all around the list price, it’s hard to discount data like that (especially if it is widespread through the tract, which means the “lower” level might actually reflect the market). Moreover, sometimes home owners are not in touch with just how far the real estate market has declined in the Sacramento area (and throughout the United States). Keep in mind too some owners rely on valuation websites like Zillow, but there can be a huge difference between appraisals and Zillow.

Anything you’d like to add? Feel free to comment below. I’d be curious to hear the perspective of Realtors especially.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

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Filed Under: Appraisal Stuff, Resources Tagged With: appraisal report, appraiser comparable sales, choosing comps, competitive sales, foreclosures, Home Appraiser, House Appraiser, impact of distressed sales, kill property value, lower property value, Real Estate Appraiser, Sacramento Appraiser, Short Sales, what is a comp, will appraiser use recent sales, zillow vs appraisals

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