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How Many Comps To Use?

Discussion in 'Newbies/Appraiser WannaBe' started by ZZGAMAZZ, Sep 20, 2007.

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  1. ZZGAMAZZ

    ZZGAMAZZ Senior Member

    0
    Jul 23, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    I haven't seen this discussed and that surprises me:

    I am aware that 3 sold is the minimum number of comparables required in the appraisal of a "typical" property.

    I personally have a much easier time establishing an opinion of value when I include 5 or 6 sales; and now that it appears necessary to include 1 or more active listings in order to demonstrate baseline market reaction, the number is increased to 6 - 9.

    I realize the inefficiency in providing additional comparables when there is no value-added service in doing so; yet "cookie cutter" jobs are few and far inbetween in my SoCal market.

    It is my opinion that virtually any value can be obtained by using 3 comps but the additional due diligence required to provide more than 3 often provides the impetus to ensure that the opinion of value is as appropriate as possible. That's just my gut feeling but there is also a concept referred to as the "law of large numbers" that might be invoked.

    Is there a danger of aggravating the underwriter by including too many comparables? Are there any disadvantages of providing "too many" comparables other than the wear and tear on the appraiser? (This might appear to be a very naive question but it's integral to what I do and your opinions are appreciated.)
     
  2. Charles Knutson

    Charles Knutson Member

    0
    Jun 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Yes -- if market values are stable or rising, and the three best comps are clear and convincing, there is no reason to use more than three.

    The first company I worked for as a trainee had a policy of using 4 or 5 comps in every report -- until an underwriter told them to stop it. The market was booming, and most of the reports were suburban cookie cutters, and the extra comps were unnecessary.

    A different supervisor told us a story that had been drilled into him by as a trainee under an old school appraiser -- he was taught that if more than three comps are used, underwriters become suspicious that there is something wrong with the property or the report, and are more likely to reject it, or at least review it with a fine tooth comb. I'm not sure if this was true way back when, but it is less so now.

    If there is anything out of the ordinary in a report, I'll often go to 4, 5, or 6 comps -- but I almost never use more than that.

    For a divorce report last January, I used 12 comps -- which included every sale and active listing in the subdivision. Last spring, I did a report on an over improved house in a crummy sub area -- I had 8 or 9 comps in that one, to establish the range of values in the general area, using comps that were all over the map in price, age, condition, size, and location. But these 2 reports may be the only ones I've ever sent out the door with more than six comps.

    Now, the markets that you are working in generally require more than three -- but you can probably use 3 or 4 solds, an under contract, and 1 or 2 active listings. If you want to be thorough, you could use solds and under contracts for comps 1-6, and reserve 7-9 for active listings. The map software that Bradford Clickforms uses has different colored arrows that can be added for listings -- it could make for an impressive map to separately identify the actives.

    But is that necessary? Nah . . .
     
  3. George Hatch

    George Hatch Elite Member

    457
    Jan 15, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    There are some appraisers who will tell you that you should be able to make your case with 3 comps.

    Too many comps can sometimes contribute to information overload. I generally limit it to 5 or 6. If I need to mention more than that I usually do so as 1-liners.
     
  4. David Wimpelberg

    David Wimpelberg Moderator Staff Member Moderator

    191
    Mar 30, 2005
    Professional Status:
    Certified General Appraiser
    State:
    New York
    For clarification, there is no USPAP requirement on the minimum number of sales. Lenders typically require minimum of three.

    I'm of the belief that the report should include at least the minimum number of information to support the value conclusion. That can include sales, listings, pending sales, etc. That will vary with each report.

    There is a point where adding new market data is not providing any new information, just regurgitating what has already been said. I use that as my cutoff point, and simply mention that additional support is available and contained in my workfile.
     
  5. Mr Rex

    Mr Rex Elite Member

    288
    Jan 12, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    Depends on the borrowers credit score. :unsure: Some are so bad that they are on the automatic "Please provide 2 additional comps" list, regardless of whether you use 3 or 9 comps.:)
     
  6. Fred

    Fred Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Retired Appraiser
    State:
    Virgin Islands
    The number three has no specific appraisal significance, except that's how many fit across a page on Fannie's form.

    There are times when you can only "use" one sale. Other than that, use as many as necessary. Keep in mind that if you like to use the line adjustment method, three sales can only support a maximum of two adjustments.
     
  7. Ken B

    Ken B Elite Member

    187
    Feb 18, 2004
    Professional Status:
    Certified General Appraiser
    State:
    Florida
    ZZ: You can consider as many comparables as you feel is necessary to develop your opinion of value. However, unless necessary due to unusual property features or market conditions, 3 is the normal for reporting purposes given a typical residential property. For a commercial property, I normally include from 4-7 comparables in the report.
     
  8. Jon Liberatore

    Jon Liberatore Junior Member

    1
    Nov 15, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Maryland
    3 SOLD sales is the minimum, but you as the appraiser makes the call whethere or not you use 3 or 9 to determine your opinion of value
     
  9. Mary Tiernan

    Mary Tiernan Senior Member

    0
    Dec 16, 2003
    Professional Status:
    Retired Appraiser
    State:
    Michigan
    I am of the opinion that the comparables provided should bracket the subject's amenities - sometimes, I feel lucky to have found three sales which bracket each of the subject's amenities - sometimes I am unable to find any sales which bracket the subject's amenities.

    If I find three sales within 6 months which bracket the subject, I do not feel the need to add more. If I only have 2 sales within 1 year which bracket the subject, I will provide a total of 4 sales, because my 2 sales exceeded the six month selling guideline.

    If it takes 5 sales to bracket each of the subject's amenities, that is what I provide - but no reason to overkill - especially in a tough rural area.
     
  10. Marcia Langley

    Marcia Langley Senior Member

    0
    Aug 26, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Missouri
    ZZ,

    Three closed sales are the minimum required by Fannie.

    After using your three most comparable sales, you may find that some attributes of value have not been demonstrated. For example, your three best comparables inclue only one that has a basement like the subject. You may feel like a fourth sale provides additional support for the added value of a basement.

    You hear many shorthand comments that address this issue like bracketing and avoiding accross the board adjustments. What these comments really refer to is credible demonstration of the elements of value.

    If the 4th comp does not add credibility in the form of demonstrating value elements, it probably is not needed.
     
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