Paying close attention to a property’s previous sale can be a big deal. I know it’s tempting to say value is all about the current market, but sometimes looking at the past can help us understand the present. Here are some reasons why I pay attention to previous sales. Any thoughts?
5 things to consider about a property’s previous sale:
- Requirement to Explain: If you didn’t know, appraisers are required by USPAP (our uniform standards) to analyze and report the past 36 months of sales or transfers of the subject property. Thus analyzing a prior sale can be a normal and even mandatory part of the appraisal process.
- Context: A previous sale can sometimes give tremendous insight into how the market responded to the subject property. This is especially true if a property is unique or funky. What did the subject property compare to at the time of its previous sale? How did it fit within the market? Digging deeply into neighborhood sales can help us answer these questions and maybe even influence the comps we choose for today’s value.
- Clues into Adjustments: A prior sale can give clues into how much we might need to adjust for certain aspects of the property. For instance, if the subject is located on a busy street, a previous sale might help us see if that was a big deal or not compared to other neighborhood sales. Or maybe the subject property has a very large lot for the neighborhood, and prior sales can help us gauge how much of a premium there was if any. Or imagine a house is twice as large as anything else in the neighborhood. Let’s find some current comps of course, but let’s also look to the past too. Can we maybe glean some value context by seeing what buyers were actually willing to pay for this beastly home in the past? Maybe so.
- Comp #4: Appraisers can use the subject property as a comparable sale in reports. Not that appraisers need permission, but according to Fannie Mae, “The subject property can be used as a fourth comparable sale or as supporting data if it was previously closed” (B4-1.3-08). I’ve done this on occasion when a property is unique and data is limited. After all, what is more comparable than the subject property itself?
- Past vs. Present: If there was a previous sale in the past, we can probably milk it for some perspective, but let’s remember we ultimately have to let the current market speak to us instead of imposing the past on the present. After all, the market might be different today due to a change in zoning, change in buyer demand, gentrification, etc… It’s worth noting too sometimes sales in the past simply sold for way too much or way too little.
Example: Here is a graph I made for an appraisal I did recently that was going to court. The subject sold three times in the past at a mid-range of the competitive market. Does the history of sales help build credibility for why I reconciled the value to the middle range? I think so.
Tip for Agents & Owners: If something has changed about the property since the previous sale, be very intentional about talking with the appraiser about the change (please use my Info Sheet for Appraisers). Also, I recommend opening up discussion about the nature of the prior sale so the appraiser can have more information and maybe make a judgment call about the sale (especially if the property sold too high or too low for some reason).
I hope that was helpful.
Questions: How do you use previous sales when you value properties? What is #6? Did I leave something out? I’d love to hear your take.
If you liked this post, subscribe by email (or RSS). Thanks for being here.
Great post Ryan, love the graph. I used one very similar graph on an appraisal that was also supposed to go to court (home had prior sales, but few physical changes). I’m confident that the graph was the reason that the other party backed out at the last minute and did not challenge me further in court. On another note, I prefer to not place a prior sale of the subject in the grid. That is something that I did in the past, but then I came to the conclusion that using a prior sale in the grid is only filling up grid spaces with something that can be easily narrated. However, I know that somethings appraisal clients just want to see full grid spaces (and not read the report :-), so I get it.
Thanks Gary. A graph sure can be a powerful representation. Other times of course we graph something and it’s not as straightforward. I hear you on not putting in the subject as a comp. I don’t have a problem with it either way. Regardless of what is done, I think your mention of commentary is critical. We can give commentary about the nature of the previous transaction and even use the previous sale in our final reconciliation of value too.
Great stuff! Great graph!
One other way I use the previous sale of the subject property is to also look at the previous sales of the comparable sales. Sometimes you luck out and a current sale also sold within the same time frame as the subject property’s previous sale. In those cases you can establish a strong relationship between the subject and the comparable sale historically. This scenario is great for adjustment support.
Thank you Tom. Fantastic tip on looking at previous sales of the comps. This can be very helpful and it’s definitely something I do also. I tend to like to see what properties sold for originally directly from a tract builder too. I take that with a grain of salt because prices can be padded with all sorts of concessions and such, and then the resale market may not honor the upgrades or the view in the same way the buyer initially purchased the property. But in my mind it’s still worth looking at the comps and the subject to see if they sold on par originally.
Prior sales are very relevant if they are current, ie. within the last year or so. Older sales are still relevant if you are having a tough time with a certain adjustment. With any luck you can just do a historical search and find matched pairs with the subject.
Well said Robert. I agree. I think you could’ve written the post. 🙂
I like the point you make about the agent opening up the dialog with the appraiser. Agents have been skittish about talking to the appraiser, however if they have useful information it should be considered and the appraiser should be willing to listen.
Thanks Tom. Great point. The appraiser has to tell the story of the previous sale in the report, and I know as an owner or agent I would want to do my part in helping to unpack the transaction – particularly if it was a distressed sale, private sale, or maybe even sold too low or high for some reason. In some cases we have to be really careful about giving too much weight to a previous sale that didn’t reflect the market at the time.
I’d never really thought about the importance that a former sale price would have in determining the actual value of a property. It makes sense that it would show a lot of context though, which is also something that I hadn’t thought about. I really appreciated your graph though! It really put it all into perspective. I’m getting ready to sell my house in the next year or so, and this was great information. Thanks for the insight!
Thanks Tobias. It’s always interesting to me to look back in time and see if I can decipher something about the market. Sometimes there is something really useful there, while other times not so much. Have a great day!!