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age of comps

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FRANK JONES

Thread Starter
Freshman Member
Joined
Jul 30, 2002
Please help me settle a dispute.
It is my understanding, per Fannie Mae that comparable sales from the last twelve months can be used in a report and not be considered dated. It is also my understanding that sales from the last six months are preferred, but if they are over 6 months a simple statement saying why they were used will suffice.
Is this true, or does it have to be six months
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Frank, ....With whom are you disputing ? Inside the realm of what is logical, one's opinion of a "current" market value for a property is better determined when one introduces sales that are as "current" as possible.....or contracting dates that are as close to today as possible. I have always set as my search parameter a 6-month window of time for sale date in the MLS. In some neighborhoods I get plenty in a 3-month window and I'll do that instead. When sales are sparse, and the location may be rural, then the 12-month search is all too likely.....just to get (3) homes with hopefully similar-enough physical attributes to call them "comparables". At this point we add extra comment in the "Neighborhood Description" field or the "Market Conditions" area even if we create an override to Addendum ! Few sales and old sale dates are prime reasons for stepping outside what may be canned or cloned commentary about a neighborhood. My reliance on cloned commentary is absolutely minimal. Sale date of the comp is as much a variable as other things can be. We strive to find similarity across-the-board and when appropriate introduce the sale with distinct difference (the finished basement, the extra garage space, the fantastic view) so that we can adjust with confidence as we explain the subject's value in light of how the other homes were perceived by their respective buyers. --- Is your "dispute" in relation to some set guideline an underwriter will suggest ? I hope you are not going to follow up with a thought about "time adjustments". That discussion was recent in the Forum. Sure does sound like applying that sort of adjustment is a real red flag. I have never had to introduce such an adjustment, and perhaps with thanks of a large and active market area in which I work.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Please help me settle a dispute.
It is my understanding, per Fannie Mae that comparable sales from the last twelve months can be used in a report and not be considered dated. It is also my understanding that sales from the last six months are preferred, but if they are over 6 months a simple statement saying why they were used will suffice.
Is this true, or does it have to be six months


Hi Frank.

Funny you should ask about this, as it is the same topic that had me and one of my (probably former) clients at each other's throats about a week ago.

My firm belief is that unless there is shortage of newer sales comps that are similar to the subject, comps over 6 months old should be avoided because they do not best reflect CURRENT market conditions. But yes, FNMA says that you are allowed to use them with a simple disclosure.

I'm not accusing you of doing so, but I would caution all appraisers to be careful if they are cherry-picking the higher end sales from over 6 months ago to reach a higher value estimate.

I've seen first hand how this practice can be a huge step toward perpetuating serious financial consequences to both to the lender and the homeowner in a market that is stabilizing or on a downswing. Even if the appraisal is accepted with older sales under FNMA guidelines, the end result is that the homeowner may be getting a loan based on misrepresented equity that isn't really there. If the market then takes a dive over the six months following the appraisal, any true equity that the homeowner may have left will be rapidly wiped out. It's a very sad thing to see when a homeowner can't sell their home for what they owe on it, and they're holding an appraisal that's less than a year old that is now grossly inaccurate because comps were used from a time when the market was at it's peak. I'm seeing this happen on a regular basis to people who took out 80% LTV loans a year ago. They are not the stereotypical equity hogs that many of us think are most likely to go into foreclosure. Over the past month fully two out of three refi appraisal requests that I've recieved are falling into this category.

Look very carefully at the active listings in the subject's neighborhood, it'll give you a fairly reliable indication of which way the market may be headed. Ask yourself if the comps you are choosing now will be considered high six months from now if those active listings sell for asking price or, God forbid, below list prices.

Off my soapbox now....sorry for the ramble.
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
Frank-

Don't make me sight the section!

FNMA says, "...you will have 3 sales within 12 months, regardless the distance you must travel".

And let's talk about comps! In this area, often all sales are over 6 months--comment. Normally, all comps are outside of gross and net adjusments--comment. Normally all comps are well beyond one mile--comment.

The most drastic example I can recollect was a property First Interstate wanted appraised. A one square mile of private land existed in a sea of USFS and Champion Lumber land.
The sales were about 40, 50, and 70 miles away. They were the most proximate sales in 12 months. All over 6 months.

I commented according-- and it funded. Oh by the way, domestic water was a "spring" and the home was powered by diesel generator with a lead-acid battery storage system. Access was via 55 miles of forest service road.

There are alot of green underwriters. They are also on the list of "those that we must educate" (at least that is what USPAP infers).

Hey, you could always move to Vegas where the comps are plentiful, the adjustments are minimum, and the money is good! (I always love to take a shot at the Vegas appraisers when the opportunity arises).

Good luck!
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Vern - Please cite chapter and verse on that one if you would be so kind.

----

As to comps, the 9th Rule of Northern Michigan Appraising is as follows:

You use what you has got. (It is considered bad appraisal practice to make up sales)

That is why most of my appraisals get this little ditty:

<u>"Comps may exceed certain guidelines but are considered adequate to reasonably estimate subject's value."</u>
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
I think Dee Dee hit it right on the head. Start with newer sales. IF there are none, and that does not mean none that will work for the number they want, then start moving backwards in time.

It would also depend on where you are and the type of market. In some seasonal areas, 80% of the sales occur during a few month period. Or, like Richard, if you are in a rural area, I would guess that it would be typical to use sales older and further than guidelines suggest.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
The preferred comp is the "exact same house next door that sold yesterday". From there it is all down hill. If the comp is more than 6 months old, the appraiser should address why he/she/it used older sales. Ask yourself, <span style='color:red'>"Do they accurately reflect the present market, and if not, what needs to be done to do so?"</span>

I prefer comps no more than 3 months old...but when I pull my comps I use a 6 month time frame. If I find none or a very limited number of comps then I expand my time period to one year. Harrison's Illustrated Guide to the URAR has good standard comments for this sort of situation.

Fax me your fax number and request and I will fax back the specific Fannie reference, VA/FHA guideline...and appropriate response. My fax number is 719 528 6401.
 

Jo Ann Meyer Stratton

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arizona
Section 406.02 - Selection of Comparable Sales (effective 6/30/2002)

The appraiser must report a minimum of three comparable sales as part of the sales comparison approach to value. The appraiser may submit more than three comparables sales to support his or her opinion of market value, as long as at least three actual settled or closed sales. Generally, the appraiser should use comparable sales that have been settle or closed within the last 12 months. However, the appraiser may use older comparable sales if he or she believes that it is appropriate, and selects comparable sales that are the best indicatiors of value for the subject property. The appraiser must comment on the reasons for using any comparable sales that are more than six months old. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.

And lots of other good stuff in that section. The first sentence starts out: We require an appraiser to research, analyze, and consider influences that may affect value based on market evidence (such as closed sales, contract sales, and properties for sale in the market area; market studies; etc.). The only other "requirement" that Fannie Mae has is to explain, explain, explain.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
And then explain some more! I strongly recommend Henry Harrison's guides for those explaining comments. Those guides are available on line at Formsandworms.com.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
You use what you has got. (It is considered bad appraisal practice to make up sales)

Amen...I have sucessfully got by with sales over 1 year old in extreme markets like Adair Co., OK - second poorest county in the state. You are oft asked to go further afield, and I even have had them ask I use comps from Arkansas for Adair Co.

I really feel like the market is so dissimilar that the comparables are nearly misleading...and would be without considerable discussion and a location adjustment.

Many properties I appraise do not have a HOUSE within 1 mile, let alone a sale. That is one reason I simply do not do Secondary Market in OK except with a gun to my head.
 
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