Sales comparison approach with no comparable sales?

[Pete Palmer]

I am appraising a house in a small rural community of approximately 1,200 people. The house was built in 1998, Dallas Traditional, 1297 SF, 2 car attached garage, brick veneer, good quality. The problem is there are no truly comparable home sales in the neighborhood ,or even in the city. The house is located in a homogenous neighborhood of single family brick veneer homes built primarily in the 1970's and of average quality. I found 1 other home built in 1997 in the same town that has sold and is equal in quality, but it is almost 2,200 square feet. I went to city hall and was told that the subject and the one comparable that I did find (2,200 SF) were the only two house built in town in the last 20 years accoring to building permits. I researched surrounding towns, and found no comparbles there either. I would have to go 100 miles away to find comparable homes and they would be located in a market that is not comparable. With the very few sales in this town, I would not be able to determine a reliable location adjustment.

If I use the sales that are available in town and make adjustments for quality and age I get line adjustments exceeding 30 percent and gross adjustments around 60 percent. Has anyone ever had a problem like this? Does anyone have suggestions on how I should approach the problem?

 

[Couch Potato]

If I use the sales that are available in town and make adjustments for quality and age I get line adjustments exceeding 30 percent and gross adjustments around 60 percent. Has anyone ever had a problem like this? Does anyone have suggestions on how I should approach the problem?

So what is the problem? You can only use sales that exist. If that means large adjustments, that is just the way it is. Although I would suggest taking a wider view. You might need to go 200 miles to get the best comps. :new_smile-l:

 

[Doug Wegener]

Explain, explain, explain. Do the best you can with comparables you have. Look for listings in the surrounding towns also.

The principle of regression comes into play here wherby newer homes suffer by association with older homes. Surely you should be able to find a comparable that has been updated or remodeled?. I would look for those.


Use language like: net, gross, and some single line adjustments exceed some underwriting
guidelines. This is considered necessary and acceptable due to the limited comp selection
available in the subject area.

How far back did you go in the surrounding towns? Maybe they have something newer that is an older sale you can use.

Use the larger home and adjust and whatever other comparables you can find. Whatever you do it will be ugly.

Also this is a situation where a good cost approach is very useful, use it.

I dont believe I would go farther than 100 miles for comps, although you could for possible 4th or 5th comps.

I apologize in advance for being only a lowly licensed appraiser giving advice to a certified appraiser.

 

[Mztk1]

Yup. I've had those problems (Same house 2X). The last time I appraised it, I found the most similar sales in the town and used them (they were far from similar). Then I looked for similar houses to the subject in surrounding towns (had better luck). I went 50 miles away. Once I found them I looked for similar sales in the distant town to the sales I had in my town. I put as comp #4 a house from a distant town that was similar to the subject and as comp #5 a house from that same town that was similar to comp #1. As comp #6 I put a house similar to the subject from another town and as comp #7 a sale that was similar to comp #2 from that town. Comp #8 was from the same town as comp #6 but in a different area so I used that and got a comp from that area of that part of town that was more similar to comp #1, and used that as comp #9. I extracted location differences.

I also looked for land sales in my town and found several that were competitive. I looked for land sales in the other towns and found them there too. I put the land value differences and a discussion on the value of the house from one location to the other based on changes in building costs (derived from M&S) and difference in land value in the addendum.

It was a credible report and superficially looked messy but after reading it was highly convincing. So convincing the first time that when it came to the second appraisal on it the lender called me again.

Good luck.

 

[Lee Lansford]

...

If I use the sales that are available in town and make adjustments for quality and age I get line adjustments exceeding 30 percent and gross adjustments around 60 percent. Has anyone ever had a problem like this? Does anyone have suggestions on how I should approach the problem?

You may have already identified the solution to the problem...you just haven't accepted that the solution isn't pretty.

 

[Mary Tiernan]

Forget guidelines. Think like a purchaser. Who is the typical purchaser? What is the motivation in the area. Then look for comparable sales.

Another thread on here asks how do you define complex? Perhaps this is complex for your area - I think you can complete the report, but you have to think outside the "typical" box - this does not sound like an urban area which typical guidelines are meant for.

Most importantly, make sure your report is sufficient to lead the reader to the same conclusions.

 

[The Warrior Monk]

If I use the sales that are available in town and make adjustments for quality and age I get line adjustments exceeding 30 percent and gross adjustments around 60 percent. Has anyone ever had a problem like this? Does anyone have suggestions on how I should approach the problem?

Never appraise to arbitrary guidelines; they are simply an afterthought that might have to be addressed in some narrative. The market is the market, and in order to create a credible opinion of value, the appraiser has to use the best data available.

 

[CBBoston]

Remember these are guidelines not absolutes. Some of the phone monkeys treat them as absolutes but then again they often know nothing. As others have said clearly explain why you've put in what you have and why the adjustsments are so large. Then explain it again. Then for good measure explain it a third time. Usually if you expain it enough, it sinks in.

 

[PropertyEconomics]

Hell the OP cant even explain what they did here and why. At this point its a discussion among all of us but the OP disappeared. Questions must have been too hard to answer.

 

[Jodie Argubright]

If you have good land sales, consider giving the cost approach the most weight. I've done several properties where there just are not enough sales around and the adjustements yielded unreliable results. The lender had no prob. with me giving the most weight to the cost approach since I use M&S and good land sales... Good luck.