We keep going in circles on this question of comp selection. First: Unless it is established that the appraiser in question is deliberately over appraising property, which can only be legally established by a standard 3 review, then why would the comp selection be in question? When I do a residential appraisal, I review as many as 20 comparable sales, among other things, in doing the appraisal. But, when it comes time to doing the report, I pick three comps to illustrate the results of the appraisal. I pick one comp that is larger and obviously superior, one that is smaller and obviously inferior, and the one that is most similar.
I do this for a reason-to gauge the sensitivity of price differences. If the client calls me up and says, hey, we think you are to low, I just say. “Look at sale 2 & 3. Sale 3 is far superior but only sold for $10,000 more than the appraised price of the subject, and sale 2 is very similar adjusted to the estimated price of the subject.” If the client says you are too low, I just say, “Look sales 1 & 2. The subject is obviously superior to sale 1 and most similar to sale 2. I also pick comps to show location or other differences to gauge these differences for the client. For example, if one subdivision’s has a higher average price for comparable property, I will pick a sale from that subdivision to illustrate the fact and the magnitude of this location difference. By creative sale selection, you can illustrate many market characteristics at the same time you are doing the appraisal. To do this, you have to use a different sequence of adjustments. I adjust for physical differences first like: basement, porches, garages, etc., in the order of their $ magnitude, then make a size adjustment using a regression method. Then any remaining variance is a residual and I can gauge the variance and determine how much is left to adjust for and derive some indication of what value factor is causing the variance. For example, if I run up on a comp with a swimming pool, I might use it with this sequence of adjustments to show how much the pool contributes to price. If, after adjusting for all other physical difference including size, the sale with the pool is $5,000 higher than the trend line, then it is obvious that the pool is contributing $5,000 or less. No extra charge for this service. It helps me keep up with what is going on.
Now, most of the time this process of mine means not using comparable sales that would appear to be a much better indication of price for the subject. Why didn’t I use the closer and more similar comps? I did use them. I just didn’t use them in the marketing grid for reasons just explained. Why didn’t I explain all of this detailed process in the addenda? Because I am doing, most of the time, a summary report of limited appraisal. If I explained every detail, it wouldn’t be a summary report; it would be a full narrative.
Now be have come full circle. How can or could any one know or suspect that I am not picking the wrong comps to inflate prices? The only answer is a standard 3 review. What is the official position on standard 3 reviews by appraisal boards? Answer: Insufficient funds and time to do that much detail, so we are suspending due process and constitutional rights to speed up the process.” What is the end result? Answer: Appraising for the state boards instead of the needs of the client and sacrificing appraisal theory better technique and methodology to state enforced legalistic conformity.
You are right. We are in trouble!
