Can Value Be Higher Than Highest Comp?

[Kimber Pro Tac]

I have an order for a sale of a split level home for $189k. Similar above grade comps are $181, $181 (within two blocks) and $169k (9-10 blocks away). In fact, these are the highest comps in past 12 months, regardless of sq. ft. I told L.O. the appraisal was going to come in shy of sales price, as I was taught that the value couldn't be higher than highest comp. Correct, or is this just a guideline?

Anyway, the L.O. calls back, says do the appraisal, because the Agents "are sure that the home will come in higher" due to new addition and remodeling. I was (am?) going to do the report and bring it in at what in works out to be, even though it is less than the purchase agreement.

Well, I did the inspection today, and I must say this is definately worth more than the comps. The problem is, the addition, (which is a master bedroom, bath, closet) is off the lower level, also sub grade, so square feet still don't count.

How would you suggest I convey value, and give a fair value higher than the highest comp? Thanks for your speedy response, as my weekend can't start till this one's in the bag!

 

[CANative]

First, answer this question:

Why can't the the value be higher than the highest comp?

 

[Steve Owen]

Don't let FANNIE guidelines direct the appraisal process into a blind alley. Of course the value could be higher (or lower) than any of the best three comps. In such a case, I usually try to find a fourth comp with higher value, even if it is not a very good comp. That's mainly because it is easier to put such a thing in than it is to argue with some dumb uw about why the subject is better than any of the comps.

 

[Tom McDowell]

When you say the subject is worth more than the comps do you mean the original selling price or your adjusted price?

Don't confuse "comparable" with "sales selected."

 

[Thomas Fiehler]

Ditto the other comments. Plus, that's why you have a column for adjustments! :dance:

 

[Otis Key]

I told L.O. the appraisal was going to come in shy of sales price

Preconceived valuation????????????????????????????

How can you tell (better yet, why would you) the LO that it's going to come in shy of the sales price without appraising it? You're hire to provide an unbiased opinion of market value. That means, Provide the appraisal which will provide the opinion of value. If you do that, then you'll not need to worry about your original question because the report will present (hopefully) all the details, data and information necessary to support that opinion that you arrived at in an unbiased manner.

 

[Ron Hauser]

Marc, in your process of doing this appraisal, you need to call all the comparable Realtors and find out if in fact your property is in better condition than the subject's. Also ask about amenities, below grade finish, seller concessions and sale date. Is the below grade addition actually an addition or is it completion of the below grade level? I am wondering how and why someone would go to all the trouble to add an addition to the basement. If in fact it is an addition, did they pull permits to do the work? If after completing the grid and you feel that the value is still higher, it is what it is. If I had 3 Michael Jordan rookie cards that were all the same in average condition and 1 in mint condition, I would and could sell the mint condition for more money. Take interior photos to show why you feel this property is in better condition than the comps. Rarely do I bring my value in higher, but due to seller concessions, lack of amenities and worst condion has caused my value to be lower than sales prices. If you do not have any sales that help with value, no one says that your 4th or 5th comp cannot be a current listing or under contract property. Also check the data to see if an adjustment for time can help with the value. Also take into concideration the amount of time this home has been on the market and how many contracts were written on it. Buyers and sellers are the market and our job is to interput the market.

Marc, the best advice I can give you is to never mention anything to the LO, Realtors, buyers, home owners or anyone else involved in the deal, anything about value until you actually inspect the property. I recently had an appraisal request on a purchase of a home for $330,000 and my comps were $275, $269 and $259. I still did the inspection before asking the Realtors for comps. They provided me the same comps I had. Funny thing, the Realtor found another appraiser that appraised this property for $315,000 and the deal closed. The appraiser used newer, larger comps over a mile away and this also passed a review appraisal.

Marc, you must also be thinking, if I do not meet value will I continue to get business from this LO. In the past 3 years I have lost more business than I have been able to rustle up due to my ethics and moral standards, but I can still sleep at night. Good luck with this one.

And to answer your question, yes we can have an opinion of value for more than the comps, UW do not like it but it happens.

 

[Brian S Bentley]

I would never give my subject a value above my highest sold comparable without a very detailed "BOOK" about why. I'm sure the UW will be all over you about appraised value and is already sounding like a big HEADACHE

As noted above, it would be very smart to go ahead and find a 4th and maybe 5th comparable larger that sold between 190k-210k.

Remember if it's a good arms length transaction, then the subjects buyer and seller are setting market value for the subject property. You could state this in your report.

Thank God it's the weekend! Wait I'm in Real Estate I never really get off.

 

[Tim Hicks (Texas)]

After you have been around a million years like some of us, you will realize that there are myths regarding appraisals. First of all, we work in an imperfect market and every house in a subdivision does not sell every year. Think about this, somebody has to have the most expensive house in the neighborhood. I would bet that there is probably another house that is nicer or more expensive than your subject, but it just has not sold. Look at past years sales. You might be surprised. We can not create sales to satisfy an underwriter. Sooner or later, you will have an appraisal with all positive adjustments or all negative adjustments. Sometimes that is all you can do. Complete the appraisal with well supported adjustments and let the chips fall where they may.


It is just as bad to under value a property as it is to over value a property.


We are appraisers, we render opinions of value. We don't let guidelines or myths stand in the way of performing a credible, honest appraisal.

 

[Mark Deason]

Preconceived valuation????????????????????????????

How can you tell (better yet, why would you) the LO that it's going to come in shy of the sales price without appraising it?

As I originally stated, the P.A. is for $189,000. The highest sale in the subject area was $181,000. If you are under the belief that your end value can't be over the highest comp, it was obvious the appraised price was going to be short of the purchase price.

That being said, the replies support my thought that I should be able to document and explain why this home is worth more than my comps, which are basically the same as the subject minus the addition.

I still invite comments on this subject on how to address the value, especially being a split level where my adjustments won't necessarily be for square footage. Thanks all~