Imagine home valuation in this neighborhood. Every house identical… except for the ones next to the industrial site.
As a VA Panel appraiser, we have access to something called “Tidewater” on VA orders. This allows us to reach out to the lender and ask for what the agent used to assist their client in pricing/making an offer on the home in question (most lenders discourage this in any other transaction). This means that over the years we have received properties from real estate agents on properties where we had a question as to the rationale used to develop a contract price.
Sometimes the properties we get are great comparables, already in our search or overlooked somehow, and immediately included in the report. Sometimes they aren’t “comps” at all. So what is a “Comp?”
A “Comparable Property” is: “Able to be compared to the subject property”
A property that the buyer pool would likely also have considered in their search
For standard homes, comps are all similar in nearly every area (location, condition, size, lot size, etc) and this makes the analysis far simpler.
For unique homes, comps may only be very similar in one area, and a wide group of comps is used to bracket all of the various features (if the home is a 3,000 sqft 1 bedroom home, you may have a 3000 sqft 2 bedroom, and a 1500 sqft 1 bedroom as comps to bracket both features because the subject is very unique in this combination of features).
A recent sale. Most lenders have a default desire for sales within 90 days. However, in rural areas, this is likely to be impossible. Sometimes the most recent comparable property sold 2 years ago. In which case more recent sales that are less comparable will be included and adjusted, but the dated comparable will also be included to help develop the opinion of value.
A “Comparable Property” isn’t:
A listing. Listings can be helpful for agents in pricing a property, but they only tell half the story. They tell, “How much do sellers want,” but not the other half of the story, “how much are buyers willing to pay.” Listings may give some information, but sometimes they are deceptive. Over the course of the past 3 years as Indiana County sale prices declined, for 2 years listing prices were increasing.
Always a sale that is close in price to the subject contract. Sometimes we get a list of properties that are right at/near the contract price… but they’re all in superior condition, size, acreage, etc. That means that they support a lower value for the subject. Because, no two homes are the same, true comparables are a little better and a little worse than the subject in various factors.
An average of local sales. We had this provided once, and in the agent’s defense, it was a very hard market to appraise in. Taking an average of the local market and giving it with a list of local sales to the appraiser is not “comps.”
If you’re going to provide comparables to an appraiser make sure they are comparable.
For more quidance on comparable selection:
http://www.workingre.com/three-dangerous-ways-choose-comps/
https://sacramentoappraisalblog.com/2014/10/30/how-to-pull-comps-like-an-appraiser/
https://birminghamappraisalblog.com/appraisal/what-does-the-appraiser-do-when-there-are-no-comps/