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Number of Comparables - is less OK?

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Judy Whitehead (Florida)

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Florida
I've searched through USPAP and for some reason cannot find anything directly relating to the number of comparables that either "have to," or "should" or "may" be used.

We are looking at a prior appraisal on a subject that was provided to us by the lender and that appraiser used just 2 comps - with rather wide variation in sales price.

We are using 4 - and our current estimate of market value is lower than this appraisal done 6 years ago. Is there anything that says 2 is enough? Is there any specified guideline that this violates? My thought is that if you placed yourself back six years ago and could have used more than two and that would have lowered the estimate of value, then that is the answer....the appraiser was misleading by not including other sales that would have affected the market value? Is that correct?

P. S. The owner of the subject is an attorney - we are "gun shy."
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
You can do an appraisal with no comparable sales but it is highly unlikely that anyone would put much faith in your conclusion. I believe the number of comparable sales utilized in a report is a Fannie Mae guideline. To my knowledge, the USPAP does not address the number of comparable sales in a report.
 

Carnivore

Elite Member
Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Judy,

My position has always been produce a credible report that does not mislead the reader. So if one comp is all you got, then why put in two or three others if they really are not comps and require huge adjustments to bring them in range. Essentially all sales are comps, its just a matter of proper adjustments. Still this ends up confusing the reader.

Some will throw at you the Fannie Mae requirements. Yes, this could be used as a industry standard, but, its nothing more than a supplemental standard. You must look at: Intended user, purpose to determine your scope of work.

Now if your just a form filler, then maybe three should be used no matter what. :) Heck, why not four, five or six. That will draw plenty of attention.

Maybe what needs to be addressed is not that there are no comps but more importantly why there are no better comps. The subject must be an oddball, does a lender really want to lend on it. Maybe they should just use tax value, or an AVM.

sarcasm off.

p.s. Heres a novel thought. Some appraisers say that the income or cost approach is not applicable so they dont have to invoke departure. Maybe the sales comparison approach is NOT APPLICABLE and you could use cost or income or both. Try invoking departure on the sales comparison and do the income or cost alone.

Skinning cats, thats what we do, we skin cats!
 

Scott Warner

Freshman Member
Joined
Oct 20, 2002
Professional Status
Licensed Appraiser
State
Pennsylvania
Please see item #1 under Appraiser's Certification. (Page 2 of the Statement or Limiting Conditions. "...have selected a minimum three recent sales...".[/b]
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Is there anything that says 2 is enough? Is there any specified guideline that this violates?

USPAP does not require a minimum number. You can do a comparable sales approach with a single comp. In the situation of a lay-down (identical building on identical lot in same subd.) I often weight a single sale yet have two more as filler.

Scott hit the real key. What did the appraiser certify? And using the ole' fannie mae certification, you basically promise to do three. It does not hurt any of us to read our own certification and limiting conditions at least once every 90 days. How can you do drivebys, sign off on other people's work, and still comply with your own certifications....you can do it, but often the certification needs modified and that is not going to be acceptable in secondary market work.
 

Will Trueheart

Sophomore Member
Joined
Feb 18, 2003
Scott and Terrel are correct about the number of comparable sales being at least three when that report is used for financing a property using the Mae's secondary market requirements.

USPAP does not have a requirement for a mininum number of sales.

IMHO, the mininum number of sales required is the number it takes to support the appraiser's opinion of value.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
So if you can't find three sales.....create one just so you will follow fannie's guidelines. NOT! Quite often in rural eastern Colorado you might only find one closed sale and it could be as much as two years old. Ever wonder why they call them "guidelines" and not rules?
 

Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
Agree with everything above. Just want to add that I seem to remember a posting on the old forum that linked to an artical that showed diminishing accuracy with each additional comparable over 3. Anybody else remember this?
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
I live in southside Virginia in a fairly populated county, but everything east of me is really rural. I did an appraisal about ten years ago in eastern Halifax County on a small rancher home financed with FHMA. I inspected the home and nothing else was close so I went to the county seat and visited a Realtors office. The Realtor knew of one sale in the general vicinity and it was 5 years old. I spent an entire day on this assignment.
I developed a rule based on experience on these very rural isolated communities. If the community has a church and the church looks well cared for I will use the cost approach and whatever data is available to do an appraisal. If there is no church you can see it in the condition of the neighborhood and I usually just drive by and let that one pass. It is a direct correlation; economic life and property stability are directly related to the status of the community church. I have never seen it fail. If the church has a cemetary you know you are safe.
 

Tim The Enchanter

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
I developed a rule based on experience on these very rural isolated communities. If the community has a church and the church looks well cared for I will use the cost approach and whatever data is available to do an appraisal. If there is no church you can see it in the condition of the neighborhood and I usually just drive by and let that one pass. It is a direct correlation; economic life and property stability are directly related to the status of the community church. I have never seen it fail. If the church has a cemetary you know you are safe.

Now that's a novel theory. At least to my eyes. :lol:
 
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