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3 Past Sales Rule In A Hot Market

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SnowinginNH

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Sep 9, 2017
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New Hampshire
We have an appraisal coming up this week for a condo sale and I've read about how appraisers have to take at least use 3 past recent completed sales and was wondering how that typically works in a "hot" market.

Generally speaking, If at least 1 of the most recent completely past sales (a few days ago to be exact) is about 40k higher than previous sales, given low inventory/seller's market in the immediate area and Principle of Substitution (all other listings are also in this new higher price range, with several currently under contract), would an appraiser be more likely to give an opinion closer to the new higher price level of the most recently sold condo in the area or one closer to the lower price level of the 2 older sales?

I realize there are tons of other factors involved beyond what was mentioned here but wanted to get a general idea of how an appraiser typically would look at this data. I can give additional information/data if that helps, thanks in advance!
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Secondary market typically requires three closed sales. Greater fool theory. Sooner or later market reverts to a mean. Only an idiot appraiser would attempt to lead (create) a market and the definition of market value implies "prudent" buyers only. Paying 10% above a market is not prudent.
 

hastalavista

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May 16, 2005
Professional Status
Certified General Appraiser
State
California
By definition, in a rising market and all other things being the same, one sale will be higher than the prior sales. This doesn't require a greater fool.

The challenge for your appraisal, assuming your market is rising and your contract price is consistent with that increase, will be due to the following:
A. If your sale is the high sale, your buyer's lender may require significant amounts of analysis and data to support that value if it appraises at/near the contract price. Sometimes their requests are unreasonable and cannot be fulfilled. This sometimes gets translated into "the appraisal couldn't support the value." If the requests were unreasonable, the better translation is, "the lender didn't feel comfortable with the loan and required additional evidence which wasn't available."
B. Some appraisers believe that a value higher than the last sale cannot be supported regardless of what the market is doing. If that is the case, whether your property is 10% or 1% above the prior sale, they will rely on the closed sales at their unadjusted sale price to set the high-value mark.

Remember... I said "assuming your market is rising and your contract price is consistent with that increase." In a "hot" market, the chances are greater than in a stable market that a buyer might over-bid for a house.

Good luck!
 

SnowinginNH

Freshman Member
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Sep 9, 2017
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General Public
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New Hampshire
Very interesting and thank you both for taking the time to comment, I appreciate the professional insight.
 

residentialguy

Elite Member
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Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
One would also try to include verified pending sales, as that it the current market speaking. (which does include considering the subject's pending sale, if applicable)
 

AMF13

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Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
The latest sale is $40k above the earlier ones, but what is the price range?
It's a bigger issue if it's $400k than $800k or $1200k, or more.
If it's $400k or less, the $40 is a 10% or more of a jump. So, I would scrutinize that sale.
Why is it so high? Mercedes in garage included?
The numbers are made up for illustration, and Mercedes unlikely, but you get the idea.
 
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