No Reasonable Competitive Comps For Property Bordering Lakefront Homes?

[Willa Magin]

What happens with comps when the nicer areas have no turn-over, thus the properties that are recently sold are not true competitive comps to the subject property that is well-appointed & well maintained.

It is Adjacent to Waterfront Homes 2-3x the sales price of the subject home which is 1.3x the price of homes recently sold less than a half mile away..... but not near lakefront homes or visible in anyway from the subject property.

The subject home is not overdone for its purposes as it has walking and driving access to a gated private community dock and boat launch.

It also has its own many outdoor features like an outdoor shower, basketball court, huge deck, screened porch & more;

It borders pricier “$600,000 and up” Lake Front Properties that turn-over very infrequently;

Common sense and appearance tell you the property bordering the lakefront properties is more valuable but there are no comps in this neighborhood with a similar location or view.

How does the appraiser validate the obvious value in this home?

 

[George Hatch]

There are several ways to do it. One way to do it goes like this:

Let's say the subject is located in neighborhood A, which has basically two location types, waterfront and non-waterfront, our subject being one of the latter. There are no recent sales of either type in this neighborhood.

Neighborhood B is 1/2 mile away and has no waterfront parcels or walk-to-water parcels, but it does have recent sales that are similar to the house I'm appraising. The primary difference is the location.

Both neighborhoods will have a sales history, so if the most recent parcel like your's in Neighborhood A occurred in 03/2017, we can use the comparable sale in Neighborhood B that sold in that time frame and compare them for any difference in pricing. Once all the other variances between the two properties are accounted for (size, condition, features, etc), the remaining difference in price will be attributed to the location. do this with 2 or 3 sales at different time frames and we get a reliable pattern that we can use to develop the location difference for the current "outside" sales to our subject.


If Neighborhood A has recent sales of the waterfront homes, the sales history of that neighborhood can be used to identify what that location differential has been by comparing previous sales with other sales that occurred during the same time frame. A 2016 waterfront sale sold for 15% more than a non-waterfron sale from a month earlier - 15% is the adjustment to the current sale to equalize it to our subject.


Long story short, when it comes to houses in the urban and suburban areas there are always "comps"; they just not always as comparable or as recent as we would normally prefer. Nevertheless, we have to work with what we have. The assignment doesn't go away just because the analysis is hard.

 

[hastalavista]

Your screen name identifies you as a member of the public and not an appraiser.

Are you having your home (waterfront) appraised and are concerned about the lack of sales, or was there some other reason for the question?

The reason I ask is because if you are having your house appraised, there may be things you can do to assist the appraiser.

 

[Willa Magin]

Your screen name identifies you as a member of the public and not an appraiser.

Are you having your home (waterfront) appraised and are concerned about the lack of sales, or was there some other reason for the question?

The reason I ask is because if you are having your house appraised, there may be things you can do to assist the appraiser.

Thank You! The question exists because I have a friend concerned about her house appraising even tho she had 4 offers at and around the sales price that all came in at about the same time. She did not allow it to bid up. She took it as they came in, even surrendering a slightly higher amount . The House was listed for a week and was incredibly popular because it has many great features and most buyers felt /saw the value due to it having water views and being beside much more expensive housing, as well as its overall condition. The only sqr. Ftg. “Non-water” comps in her neighborhood are Homes without any updates and much less preferable lots .5 mile away from her cul de sac private lot shared with waterfront homes..... and an appraiser is really going to have to use fresh thinking. She did provide him with comps from a nearby neighborhood and the last sales prices from some of the lake homes that dated back to 2006. It is like a well-kept secret and no one near the water ever moves. She is concerned that the appraiser will not go the distance to get a true appraisal value.

 

[Willa Magin]

There are several ways to do it. One way to do it goes like this:

Let's say the subject is located in neighborhood A, which has basically two location types, waterfront and non-waterfront, our subject being one of the latter. There are no recent sales of either type in this neighborhood.

Neighborhood B is 1/2 mile away and has no waterfront parcels or walk-to-water parcels, but it does have recent sales that are similar to the house I'm appraising. The primary difference is the location.

Both neighborhoods will have a sales history, so if the most recent parcel like your's in Neighborhood A occurred in 03/2017, we can use the comparable sale in Neighborhood B that sold in that time frame and compare them for any difference in pricing. Once all the other variances between the two properties are accounted for (size, condition, features, etc), the remaining difference in price will be attributed to the location. do this with 2 or 3 sales at different time frames and we get a reliable pattern that we can use to develop the location difference for the current "outside" sales to our subject.


If Neighborhood A has recent sales of the waterfront homes, the sales history of that neighborhood can be used to identify what that location differential has been by comparing previous sales with other sales that occurred during the same time frame. A 2016 waterfront sale sold for 15% more than a non-waterfron sale from a month earlier - 15% is the adjustment to the current sale to equalize it to our subject.


Long story short, when it comes to houses in the urban and suburban areas there are always "comps"; they just not always as comparable or as recent as we would normally prefer. Nevertheless, we have to work with what we have. The assignment doesn't go away just because the analysis is hard.

Thank you! I’m going to look at this and see if it can translate. I appreciate your thoughts and perspective greatly!

 

[Willa Magin]

Your screen name identifies you as a member of the public and not an appraiser.

Are you having your home (waterfront) appraised and are concerned about the lack of sales, or was there some other reason for the question?

The reason I ask is because if you are having your house appraised, there may be things you can do to assist the appraiser.

If you have a moment, I am interested in what can be done.

 

[hastalavista]

Thank You! The question exists because I have a friend concerned about her house appraising even tho she had 4 offers at and around the sales price that all came in at about the same time. She did not allow it to bid up. She took it as they came in, even surrendering a slightly higher amount . The House was listed for a week and was incredibly popular because it has many great features and most buyers felt /saw the value due to it having water views and being beside much more expensive housing, as well as its overall condition. The only sqr. Ftg. “Non-water” comps in her neighborhood are Homes without any updates and much less preferable lots .5 mile away from her cul de sac private lot shared with waterfront homes..... and an appraiser is really going to have to use fresh thinking. She did provide him with comps from a nearby neighborhood and the last sales prices from some of the lake homes that dated back to 2006. It is like a well-kept secret and no one near the water ever moves. She is concerned that the appraiser will not go the distance to get a true appraisal value.

Your friend is the seller, so she is even more removed as a stakeholder than the borrower/buyer. And she has some basis for having a concern.

Here is the deal: Unless the buyer's lender understand the dynamics/uniqueness of the market, this appraisal may just fall into the normal/everyday "assignment" category (which, from what you describe, it clearly isn't).
The problem with an atypical property/market falling into the typical property/market bucket is that the expectation is the assignment can be done relatively quickly and at a relatively lower cost. From what you describe, the appraisal is going to require a fair amount of research and analysis, including going back in time for historical sales as well as going to competing markets and doing some comparative analysis like George Hatch was explaining.
Your friend (the seller) and the buyer have two things to worry about:
A. This sounds like a complex appraisal, and it requires a higher-level competency than, say a tract home appraisal. The lender needs to understand this and ensure that the appraiser is sufficiently qualified and competent to take on such an analysis.
B. You could have the greatest appraiser of all time, but depending on the lender, they may only be comfortable with plain-vanilla collateral. So, despite how well the appraiser can support and explain the valuation analysis, the lender may still shoot it down due to the atypical features of the market.

In the ideal world, this is what would happen:

• The buyer would select a lender that was (a) familiar with this market and (b) made loans on properties that don't always fit in to a nice, pretty picture. A local lender is more likely to fit this profile than a national lender, but I'm not dismissing national lenders; it is just more likely that a local lender will know the market and have relationships with appraisers who are competent in that market.
• The appraiser who is engaged understand the dynamics and challenges involved prior to accepting the assignment; this way, s/he can accept the assignment based on her competency (ability to do a complex assignment) to solve the problem. Additionally, s/he will (or should) quote a fee and turn-time that is commensurate with the complexity of the assignment. From what you describe, the appraisal on this house should cost more than an appraisal in another market where transactions are aplenty.
• Your friend's agent should put together a full package for the appraiser; this includes sale data (closed, active, pending, put on the market and withdrawn, etc.) for this market; a discussion of the low turnover; a comment on how the listing agent determined the listing price, and a summary of the competing offers/multiple bids. If the listing agent (or the buyer's agent) have additional data from other neighborhoods/markets they think are similar, they should submit that too; the danger is that their idea of "similar" is based on price and not physical characteristics. However, good agents should know what an appraiser can consider, and good appraisers are usually willing to accept data recommendations from real estate agents (why wouldn't they?).
• The appraiser, taking all the information s/he has researched, and considering any additional information that is provided to her/him from the agents, will then do the analysis. When it is all done, the value may or may not be consistent with the contract price, but everyone who reads the appraisal will understand how this problem was analyzed and should feel comfortable that the complexities were appropriately addressed. Once more: "appropriate" doesn't mean "meets the contract price". The appraisal needs to support its conclusions based on the market data and the appraiser's competency in completing the analysis. The value is what the value is; if the contract price and the value are the same (which obviously happens many, many times) then everyone is happy! And, if the contract price doesn't match the value, your friend (while not liking it) should be able to see why, based on the data, that is the case.

The more your friend (her agent, the buyer and the buyer's agent) can do to hit the first 3 bullet points, the more likely that the 4th bullet point will be the outcome.

Best of luck!

(For what it is worth, I appraise in the San Francisco Bay Area; including the City of San Francisco. High-density, a lot of transactions, plenty of sales, right? Every now and then, I get the atypical property where the best comparables may be 3 years old or, in one case, 10 years old. For my local lending clients, they understand this and they don't have a problem with it. I don't do retail/large-volume appraisals for national lenders, but they likely would have an issue with that type of property. Naturally, they'd blame it on the appraisal. But as appraisers, we cannot make data up. And that's what your friend is facing; a lack of transactional data. So, to get what is available, is going to take time and expertise.)

 

[Willa Magin]

Your friend is the seller, so she is even more removed as a stakeholder than the borrower/buyer. And she has some basis for having a concern.

Here is the deal: Unless the buyer's lender understand the dynamics/uniqueness of the market, this appraisal may just fall into the normal/everyday "assignment" category (which, from what you describe, it clearly isn't).
The problem with an atypical property/market falling into the typical property/market bucket is that the expectation is the assignment can be done relatively quickly and at a relatively lower cost. From what you describe, the appraisal is going to require a fair amount of research and analysis, including going back in time for historical sales as well as going to competing markets and doing some comparative analysis like George Hatch was explaining.
Your friend (the seller) and the buyer have two things to worry about:
A. This sounds like a complex appraisal, and it requires a higher-level competency than, say a tract home appraisal. The lender needs to understand this and ensure that the appraiser is sufficiently qualified and competent to take on such an analysis.
B. You could have the greatest appraiser of all time, but depending on the lender, they may only be comfortable with plain-vanilla collateral. So, despite how well the appraiser can support and explain the valuation analysis, the lender may still shoot it down due to the atypical features of the market.

In the ideal world, this is what would happen:

• The buyer would select a lender that was (a) familiar with this market and (b) made loans on properties that don't always fit in to a nice, pretty picture. A local lender is more likely to fit this profile than a national lender, but I'm not dismissing national lenders; it is just more likely that a local lender will know the market and have relationships with appraisers who are competent in that market.
• The appraiser who is engaged understand the dynamics and challenges involved prior to accepting the assignment; this way, s/he can accept the assignment based on her competency (ability to do a complex assignment) to solve the problem. Additionally, s/he will (or should) quote a fee and turn-time that is commensurate with the complexity of the assignment. From what you describe, the appraisal on this house should cost more than an appraisal in another market where transactions are aplenty.
• Your friend's agent should put together a full package for the appraiser; this includes sale data (closed, active, pending, put on the market and withdrawn, etc.) for this market; a discussion of the low turnover; a comment on how the listing agent determined the listing price, and a summary of the competing offers/multiple bids. If the listing agent (or the buyer's agent) have additional data from other neighborhoods/markets they think are similar, they should submit that too; the danger is that their idea of "similar" is based on price and not physical characteristics. However, good agents should know what an appraiser can consider, and good appraisers are usually willing to accept data recommendations from real estate agents (why wouldn't they?).
• The appraiser, taking all the information s/he has researched, and considering any additional information that is provided to her/him from the agents, will then do the analysis. When it is all done, the value may or may not be consistent with the contract price, but everyone who reads the appraisal will understand how this problem was analyzed and should feel comfortable that the complexities were appropriately addressed. Once more: "appropriate" doesn't mean "meets the contract price". The appraisal needs to support its conclusions based on the market data and the appraiser's competency in completing the analysis. The value is what the value is; if the contract price and the value are the same (which obviously happens many, many times) then everyone is happy! And, if the contract price doesn't match the value, your friend (while not liking it) should be able to see why, based on the data, that is the case.

The more your friend (her agent, the buyer and the buyer's agent) can do to hit the first 3 bullet points, the more likely that the 4th bullet point will be the outcome.

Best of luck!

(For what it is worth, I appraise in the San Francisco Bay Area; including the City of San Francisco. High-density, a lot of transactions, plenty of sales, right? Every now and then, I get the atypical property where the best comparables may be 3 years old or, in one case, 10 years old. For my local lending clients, they understand this and they don't have a problem with it. I don't do retail/large-volume appraisals for national lenders, but they likely would have an issue with that type of property. Naturally, they'd blame it on the appraisal. But as appraisers, we cannot make data up. And that's what your friend is facing; a lack of transactional data. So, to get what is available, is going to take time and expertise.)

Thank You so much for your thoughtful and insightful reply. On behalf of my friend and myself, we are so grateful for your time and energy.

Both yours and George’s advice have helped immensely. She now has much needed focus for her energy and that has relieved some of her anxiety.

Much Much Gratitude!

 

[chad hampton]

I don't live on the ocean side of NC, but I would think that a local appraiser that appraises in the outer banks or down the coast understands how to appraise those properties. That's the benefit of a local appraiser, they understand their local market.

Not sure there is much to do before the appraiser does their job. Maybe the agent can prepare a small packet of info for the appraiser to considered. I always appreciate those things when I'm appraising a challenging property. Let us know how it turns out.

I also agree with much of what Dennis said. A local lender would also be a wise choice. All aspects of RE was meant to be local. I doubt a rocket mortgage (or similar) will be as thorough and detailed as they should be. I'd always be in favor of keeping real estate and lending local.

 

[Willa Magin]

I don't live on the ocean side of NC, but I would think that a local appraiser that appraises in the outer banks or down the coast understands how to appraise those properties. That's the benefit of a local appraiser, they understand their local market.

Not sure there is much to do before the appraiser does their job. Maybe the agent can prepare a small packet of info for the appraiser to considered. I always appreciate those things when I'm appraising a challenging property. Let us know how it turns out.

I also agree with much of what Dennis said. A local lender would also be a wise choice. All aspects of RE was meant to be local. I doubt a rocket mortgage (or similar) will be as thorough and detailed as they should be. I'd always be in favor of keeping real estate and lending local.

Thanks greatly for the info & support. I will update.