All three comps from subject's sub-division??

[Anonymous]

I am a newbie and have a question concerning what regulations/guidelines there are about using three comps from within the subjects sub-division. I have heard that this is not allowed at all by most underwriters. I have also heard that this is allowed as long as the sub-division isn't new (i.e. has a significant number of resales). I understand that each house has to be considered independently. But some guideance would be grealty appreciated. Thanks in advance.

 

[airphoto]

Jason,

Believe this relates more to condos, etc.

 

[Blue1]

Jason,

Fannie Mae guidlines state: "For properties that are in established subdivisions OR for units in established condiominium or PUD projects (those that have resale activity), the appraiser should use comparable sales from within the same subdivision........"

That being said, sometimes it's not possible to find all the comparable sales within the subject's immediate area in which case you just need to explain.

P.S. Wayne has kindly provided a link to Fannie Mae where you can go and print out the guidelines.....Look at the top of this page for "Appraiser Links " Good Luck. :wink:

 

[graindart]

I get special instructions from certain lenders that states that if it's a NEW subdivision with the only sales being made from the builder to the 1st owner, then they need at least 1 comparable from outside the subdivision. However, if in this new subdivision, you have at least 1 resale to use as a comparable, then they can all be from the subdivision.

They just want to know what it will sell for being that it's a "used" house. For example, in some new subdivisions that are still having new builds, a new house can be purchased for $100,000. It stands to reason that if a buyer is looking to buy in that subdivision, with all things being equal, the buyer will most likely choose the brand new house. In order for someone to sell their 1 year old house, they're probably going to have to discount it some to make their house more attractive to the buyer. If you were to base your appraisal on all new home sales, your subject property would probably be worth $100,000, but if you were to get at least 1 sale showing what happens when the house resells as "used", then you will probably get a more realistic number, of say $97,000.

 

[Jo Ann Meyer Stratton]

Grainart: That is exactly the question the actual lender is asking--not the loan officer, or builder or owner. But the second a buyer chooses the color of paint for the exterior, that home is a "used" home even if the concrete for the footings haven't been poured. That all ties in with Fannie Mae's new term "created sales" that I just love. It is the same thinking behind both situations. What will that house with its emeral green carpet, pink walls, dark gray vinyl, walnut toned cabinets sell for as of the date of the effective date of the opinion of value if the lender forclosed on the property (like I said before, even if the concrete hasn't been poured) on that specific date. So the more "used" homes as comparables that can be found the better.

 

[Bill_FL]

The reason for not selectiong all of the comparables from one subdivision or project are two fold.

First, the underwriter/lender wants to know that this is not a specialty subdivision. Meaning, there are other, similar competitive subdisivions. They do not want to be tied into a a specialized market. If that market segment folds, they are stuck with something that the "typical" buyer might not want.

Second, in new construction, comparables from competing subdivisions are required by most lenders so that the seller/developer does not "create" his/her own values. If they have sold 5-6 homes in the new subdivision (such as spec built) and you use only those, you have allowed the developer to set value. To prove value, once again, you must show from outside the project that the properties compete on the market for typical buyers.

 

[Ida S. Romo]

Jason,

Others will probably post the link to the guidelines.

The subdivision can be an important factor in choosing comps, however, not the only factor. Marketplace is also an important factor. Buyers (of the comps you are using) set values based on what they were willing to pay. When buyers are searching for a home, they generally do not limit themselves to only one subdivision, they "shop" the marketplace....and so should an appraiser when choosing appropriate comparables. If you have 3 comparables from the subject's subdivision and one within the same "marketplace", utilize it, as it supports your value opinion.

Imagine what would happen if, (over the past several years) all appraisers only used comparables of the same model as the subject from the subject's subdivision.......The value would never increase, because, using outside comps was a no-no.

As far as new construction, always use additional comparables of resales within the marketplace, adjusted for age/effective age, condition etc. which, again will support your value opinion.

As far as FNMA guidelines are concerned, if you have to deviate, which will sometimes be the case, thoroughly explain your reasoning behind the deviation. You are writing the report for the underwriter, make it easy for them to comprehend and as thorough as possible........

It is not fun to go back to a file on an appraisal which you did 6 weeks ago and explain something that you did not explain in the first place.....It is easier to close your folder and file it away only once.....more time for the fun things in life!

Ida

 

[Wally Jones]

Ida,

Welcome to the Forum! I, for one, look forward to your future contributions.

8)

 

[Ida S. Romo]

Thanks Wally :!:

 

[Tim Hicks (Texas)]

Ida,

You make good comments, but some may take them out of context. If you have sufficient sales from the subject's addition, you should use those sales. Ex. 30 sales within the last six months, then there would be no reason to use sales outside the subject's addition. The subject's addition is well represented and its market is well represented. We have too many appraisers that ignore the sales in the subject addition and utilize sales in better additions that do not show their superiority in photographs. If I am reviewing an appraisal and I see 30-50 sales from the subject addition and the appraiser used none of them, then that throws up a red flag. Why would the appraiser use sales from a competing addition when there are sufficient sales from the addition? The answer: the appraiser is appraising a projected number not the property. This is not always true, but I find it true too often than not.

Yes, you can use sales from a competing addition if the sales are similar in market charactersitics. However, there is usually a reason why sales are higher in one addition than they are in another. I would not venture outside the subject addition unless market sales are limited and you are forced to utilize sales outside the addition.