Picking Comps

[Michigan CG]

Also, not sure how it generally compares with the appraised market value price right now, but the appraiser did include a cost value and that was at $228K. It's too bad they don't just use the average of the two, I'd be okay then!!

SCA = $185,000 and the Cost Approach came in at $228,000. The appraiser does not know how to do a cost approach.

 

[David Mescon]

Typically, when choosing comparables, your appraiser should be using the most chronologically recent, physically similar and geographically proximate sales available. Whether chronology, proximity or similarity trump is market or submarket specific. What matters most in one market may differ from what matters most in another.

One more thing - if your realtor is that good, she should know how to measure the home's gross living area. Go with her and do it - then you will know for sure. Good luck!

 

[maryjo313]

SCA = $185,000 and the Cost Approach came in at $228,000. The appraiser does not know how to do a cost approach.

So that's unusual then for them to be that different?

I did look up what an AMC is and my lender did send me this reply when I asked who they used (before I got the report)

"We do contract with a third party coordinating service to obtain local appraisers for all of our files."

So sounds like an AMC is indeed in play.

 

[maryjo313]

SCA = $185,000 and the Cost Approach came in at $228,000. The appraiser does not know how to do a cost approach.

I'd say as well that the CA is actually the one that I believe is correct, Given what we expected the home to appraise for, when I looked a similar new homes, they did run about $8-10K higher, than the comparable resale homes of this age, so seems about right. It's the SCA that looks screwed up. Is there some reason you are assuming the CA was done wrong instead? Or are you saying that the CA would be determined using the SCA as a starting point? I thought these are determined separately.

 

[Delta85]

Oh for heaven's sake, I never said that it SHOULD have been used. That's called irony (humor), my comment about how I would have been fine if they were averaged. Obviously in today's market appraisers are probably never going to use the cost approach (certainly not for a resale) and I would expect that it's pretty much always higher in that case. But considering that the home I am buying is less than 10 years old, I just found it interesting where that value fell in comparison. Since new homes around here run only slightly more than comparable resales.

Your comment did not read as irony. You seemed to make the case that you would have been happy had the two been averaged and I only asked if the numbers worked against you would you still hold that belief.

 

[Delta85]

She's already on top of that. We went over comps before putting in the bid, but for the appraisal we need to make sure we have ones that are the closest possible, and there's over a month of extra time since we last covered them. Plus we'll need to look at that size difference, since we did think the home was 240 sq ft larger than it actually is.

But ultimately it's still going to come down to whether the appraiser is willing to drop, or emphasis less, the short sale. We're not going to find many, if any, sales, closer than that one (it's 0.3 miles from the house I'm buying). But yes, we do at least want to have comps ready for the next one if we do need to go that way. I have seen that mentioned reading over other topics on here, that it can be good to be pro-active with the appraiser in terms of offering comps, correct?

And this may depend on if the seller is willing to take at least some cut in price based on the size being wrong. If they refuse to come down at all, then I'll have to walk away. So regardless of how it does turn out, the appraiser will have done me a big favor by finding that mistake in the size of the house. My impression of the seller though is that they really want to get this home sold and they aren't too stretched thin to compromise some.

The comparables are really what it boils down to if you feel a certain value can be supported in an unbiased way. If you can't support a value without cherry picking sales based on price then you are off base.

Like I said if the realtor is as good as you say and knows her stuff and her territory then this should be a no brainer for her. In my experience some realtors are either not good at competently pricing homes or willfully price them based on an agenda. I've faced challenges from realtors many times and the vast majority of times have been presented additional comps cherry picked based on their sales prices and not for the comparability.

 

[maryjo313]

Cherry picking

The comparables are really what it boils down to if you feel a certain value can be supported in an unbiased way. If you can't support a value without cherry picking sales based on price then you are off base.

Like I said if the realtor is as good as you say and knows her stuff and her territory then this should be a no brainer for her. In my experience some realtors are either not good at competently pricing homes or willfully price them based on an agenda. I've faced challenges from realtors many times and the vast majority of times have been presented additional comps cherry picked based on their sales prices and not for the comparability.

Well, in this case it mostly seems to come down to whether to include (and give high emphasis to) the short sale nearby. I'm not sure if that's what you include under cherry picking, but it does seem to be one of the bigger things in play here. Pretty much any of the normal 4 BR sales nearby replacing that one would have brought it more to a price I could work with. So that seems to be where we need to make our strongest case.

Unfortunately my lender tells me that once an appraisal is done, Fannie Mae does not allow for ordering another. So my options are now limited to changing the appraiser's mind, or starting from scratch with a new lender.

 

[maryjo313]

Comps

My realtor did say there's another closed sale this past week in that subdivision, but it's a slightly larger basement home, which are relatively rare in this area, so not sure how much of an adjustment that would be, but that home sold for $225.

 

[George Hatch]

A - Appraisers don't average sales prices, just like they don't fixate on price/sf for residential properties. Many realty agents might do both, but that's because most of them don't know how to appraise. That includes many of the Million Dollar Roundtable winners who have been in the business forever. Knowing how to get a deal done doesn't necessarily mean they know how to perform a valuation that will be meaningful to a mortgage lender. (That is, assuming there are any lenders who care what any realty agent thinks about value) The two occupations involve two very different skillsets. Most realty agents don't have what it takes to be a good appraiser and most appraisers don't have what it takes to be a good agent.

B - There's surely a whole bunch of sales data in this area, most all of it being less similar than these sales. Those less-similar sales data aren't similar enough to present as direct comparables in an appraisal report, but if the appraiser was doing their job they would have considered the direct comparables within the context of this wider dataset.

They would also have considered the historical sales trends for the comparable neighborhoods as compared to the subject neighborhood.

C - Your home is probably part of a neighborhood, and the composition of that neighborhood (in terms of property attributes) may be of effect on the appraiser's reconciliation of value.

D - The short sale status of S#1 might be a big deal to its sales price. It might not be. All the other elements of each of the other sales may or mat not be apparent. Maybe all 4 sellers were under some pressure to sell. Maybe not.

You don't say what this neighborhood is like vs the others so we can't know. You may not even know it all that well. The appraiser gave more weight to the two sales that are least similar in size. By itself and assuming everything else was equal they'd have to have a really good reason for doing that. That reason - if it exists - may or may not be limited to proximity. Just the fact that the appraiser did that probably means something.

MAYBE S#3 comes from an inferior appeal neighborhood that has always sold for less and S#4 comes from a superior appeal neighborhood that always sells for more. Neither of these sales directly match up with S#1 or S#2, nor do they match up with each other. Why is that?


With all that said the simplest explanation is often the correct answer. Maybe you're right. Maybe the appraiser just lowballed the value conclusion in the appraisal report out of laziness, sloppiness or malice (towards your interests). Short of retracing the appraiser's steps there's no way for anyone here to give you the definitive answer you seek.

 

[Michigan CG]

..........."We do contract with a third party coordinating service to obtain local appraisers for all of our files."

So sounds like an AMC is indeed in play.

Ask them the name of the AMC.