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:
- 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.
- 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.
- 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