distance of comparables

[markTX]

We are in the process of obtaining an equity loan. The appraiser hired by the bank gave us a lower value than I expected. The comparables he used were all 1 to 1.5 miles(also in different directions) away from our house. I thought this was remarkable since there were four recent(<6mo) sales within our small six street neighborhood. Our house(1580sqft) is larger than all the other sold houses(980 to 1200 sqft), but it seems goofy to use houses so far away to get similar sizes.
The only explanantion I can think of for the need to look out of the neighborhood is that we got a great deal on our house. We were renting the house next door and bought it as a FSBO from the owner. He had a new job in city 1.5 hours away and was eager to stop his commute. He did not want the hassle of preparing it for the market; it needed some easy work, which we did. We got a great deal, but does that mean our house will always appraise low ( and thus require long distance comparables) because of the low sale price 2.5 years ago. Thanks for your help.

 

[Ray Ohler]

to do with it, whether it was 2.5 years ago OR 2 months ago. However, the public should understand that some of the appraisers are a little
gun-shy these days, with GOOD reasons, too numerous to go into. You didn't say whether this was an "exterior" (drive-by) or based on a complete interior and exterior inspection. There again, it really SHOULDN'T matter. However, we're stuck with the gun-shy bit again. If it was based on a "drive-by", I recommend that you request an interior inspection or at least take interior pictures and submit them along with the more comparable sales YOU believe should be utilized and ask for reconsideration. If it was based on a "full" (interior and exterior) inspection, then SOMETHING is wrong. :?:

 

[Mountain Man]

My first question (without knowing your market area), are the neighborhood boundaries defined in the appraisal report? A neighborhood may not be just a particular subdivision, but an area of similar houses, economical boundaries, physical land boundaries, municipal boundaries, etc. Where I am, I am lucky to find a comp within 5 miles. But, I have also seen neighborhoods defined by school zone boundaries! Not defined by the MLS or subdivisions, but defined by the market (what buyers wanted, their children to go to what schools). The theory of substitution is the back bone of the comparable analysis (this house with those features VS that house with these features).

In general, my comparable selection is some thing like: immediate subdivision, adjoining & similar subdivisions within the neighborhood, and then the market area as a whole. If comparables in the subject subdivision were totally ignored, I would be concerned. Ask the lender if the appraiser had considered the sales next to your house. It may be that the appraiser did consider the sales, but found that large and outrageous adjustments were needed. That may have been cause to look for other sales in the neighborhood area. Most reputable appraisers (myself included) do not mind taking a call from our client (the lender) or the customer (you, the borrower) to explain the thought process and why a particular sale was not used. :idea:

Next question: “We got a great deal, but does that mean our house will always appraise low (and thus require long distance comparables) because of the low sale price 2.5 years ago.” Appraisers are required to consider any market activity within the past YEAR of the date of the appraisal (for single family residences). I guess that answer depends on: 1. the market data, and if you really did get a great deal (sweat equity may be expected, but not guaranteed). And 2. did you get a bum appraisal this time around? Again, call the lender and ask for a nice conference call to the appraiser. Be nice, none of us are perfect. But with out a doubt, there are plenty that just don’t care and are not so ......... equitable (to use a real estate term ). 8)

If you really disagree and think that the appraiser is wayyyyy off base, you very much have the right to hire your own appraiser to either get another appraisal, or a review of the previous appraisal. If your independent findings indicate that your appraisal is trash, I am not sure that you would want to use that lender either. :wink:

Mell.

 

[lorhutton]

We bought a new home in a new subdivision in 12/99. We refinanced in 3/01 due to the drop in interest rates....and received an appraisal that was very fair...and in keeping with the property values in our area. Our appraiser had to use comps from a distance away....which he qualified...as our development is somewhat one of a kind in our county.
Now.. a neighbor across the way..same exact house...same exact selling price...only with a deck added post purchase twice the size of ours...refinanced for the purpose of dropping PMI. Their house appraised at...yes..you guessed it...at $24,0000 less than ours...and even less than the town assesement...which is at 80% value....using the sale of 3 homes nearby...one on a very busy main road and very old...another also very old...and another on a the same busy road...but much smaller. Of course, the bank used the appraisal as a reason as to why the PMI was still required. And...the appraiser was the same appraiser who conducted the original appriasel when they closed one year earlier. In addition, when they questioned the appraisal...which also contained errors (stating the foundation was block..not poured, as well as a few other details) they told by the bank that the appraiser suggested that they to come up with comps that they thought were more appropriate ( I heard this message myself on their answering machine...no confusion at all about what was said)
Bottom line is...after calling the lender on it...and writing a few very well worded letters, questioning...among other things...how they would accept comps from the homeowner when they would not even permit the homeowner to obtain their own appraisal from a licensed appraiser...the PMI was indeed dropped. Enough said.

 

[wade3333]

MarkTX, I'm not so sure it is goofy to go to a similar neighborhood to attain a comp for your house. Your house is 1580 sq. feet. you know 2 comps 980 and 1200 sq feet. If the neighborhoods were similar I would not use the 980 sq foot house. In my opinion it is not a comparable, the adjustments are too high.
Is your house the largest in the neighborhood, this has to be consided.
Just a couple of my thoughts, I normally let the heavy hitters anwser questions in this forum Wade

 

[George Hatch]

I would go with Wade's post on this one. The smaller of the two sales would require too many adjustments to be considered as a primary comparable sale. The larger of the two should have made it in lieu of more similar sales within the neighborhood. Using sales from outside the area is always a last resort. The question here is whether the appraiser was aware of these two sales. I'm not from Texas, but I've heard that it is a non-disclosure state. If so, the sale information may not have been available to your appraiser.

The obvious possibility is that the appraiser may have missed the more proximate sales because they weren't specifically looking for them. Let me explain. Appraisers pull their data from various sources that may include public records, the local multiple listing services used by the realtors, and other paid subscription services. In most areas these databases are automated and computerized. The appraiser plugs in the parameters of their search and the database spits out the results. The appraiser then runs down the most likely sales and uses those for the report. The drawback to using an computerized database for the search is that the database only responds to the parameters that are put in. If the appraiser isn't looking for smaller homes, the database won't volunteer them.

In this case, the appraiser may have limited the comparable data they were searching for to homes of similar size, maybe varying as little as 15% of the size range (larger or smaller). This would spit out results that would includes homes ranging between 1,343 and 1,817 SqFt; thereby leaving your two more proximate sales out.

Even if the appraiser declined to use the smaller sales, they still should probably give some consideration to them as background information. Probably should have explained their exclusion as well. If there is a difference in value between your neighborhood and the other neighborhoods the appraiser's comparables come from, the more proximate sales could be used to justify a location adjustment. If there is no difference, then it wouldn't really matter where the sales came from. The value indication would come out the same.

There are very few appraisers who won't reconsider their appraisal if presented with new data. I would recommend you forward your alternative data and see what happens. At the least, you should get some explanation, and hopefully some closure.

George Hatch