Theoretical Question

[Phil Rice]

what makes a good comp? what makes the difference between a good comp and a not-so-good comp?

all comps, including the subject, are going to be historical data. Older sales are less meaningful, more recent sales are more meaningful. Properties more similar to the subject are more meaningful, less similar are less meaningful.

If the subject last sold 15 years ago, and your comps sold 2 months ago, then the comps are the best market data.

If the subject sold 12 months ago, and the comps sold 3 or 4 months ago, there is a judgment call. Comps are more recent, subject is more similar in size, functional utility, condition, quality, view, and location, location, location. The subject is part of the market. Sale of the subject is part of the market data. It may be that if you investigate, you will decide that the sale of the subject is not worthy of much weight. IMHO, it would be a mistake to not investigate. In all likelyhood, the sale of the subject 12 months ago will be a better indicator of the value of the subject today than any of the comps. This does not mean that you should ignore the comps.

 

[Serge Paquette]

I don't think you two (Phil and David) disagree that much.

I think you can both agree that if the subject property sold yesterday for $X under arm's length conditions and per market value's definition, it is at least a fair indicator of the subject's market value today, assuming the market hasn't changed too much. Would you consider the sale and give it weight in the valuation/reconciliation process? I probably would. USPAP says analyze it and not much else. What the heck does analyze it mean? It doesn't say you should consider giving it weight in the valuation process.

 

[Mike Garrett RAA]

How about using the subject's sale as a comp????? Seen it done more than once.

Have to comment on Lee Ann's comment about an out of town buyer paying too much and not being the market. The market is the market...we only report it, not make it. If that is the market, so be it. An influx of out of town buyers has a tendency to push values upward. We saw that in past years here with the movement of high tech people from California. Everyone kept saying..."the are paying too much, they don't know local values, yadda, yadda, yadda." But the fact of the matter is that they did buy and those were comparable sales.

Maybe the form needs another line. Adjustment for stupid buyers paying too much. :rofl:

 

[David S. Roberson]

Frederick quotes FNMA in that the Subject's sale may be used as "supporting data". Read my first post.

Phil says that the Subject will be more similar to the Subject than sales that are not the Subject. Wow. (If the Subject is your best comp, you've also probably got some marketability problems).

Is this turning into the argument Realtors offer that a house is "worth what someone will pay for it"?

Poor Gen is probably more confused than she was when she posted the question.

 

[Austin]

Mike:
Does this phrase ring any bells in your head? "Informed buyers and informed sellers each acting prudently in his or her own best interest neither of which is under any duress to buy or sell." I will give you a clue-It rhyms with definiton of market value. Does an influx of uninformed buyers create a market that fits the definition of a market and define that market in the spirit of the definition of market value's description as above stated? I don't think so. There goes that drum beat again! Where have we heard this line before: "If a seller is willing to sell and a buyer is willing to pay the sellers price, that is MV?" Can you reconcile the nuances of this seeming conflict for us Mike?

 

[Phil Rice]

Dave says:

(If the Subject is your best comp, you've also probably got some marketability problems).

I disagree. If the subject sold 12 months ago, and it is your best comp, you have a normal situation.

Every situation is going to be different. If you are in a cookie cutter neighborhood with 18 sales of nearly identical properties, all less that 6 months old, with a range from $210 - $216, and you want to use this to say that the subject is within that range, it sure makes sense to me. If the subject sold 12 months ago for $230, and the story is that the current owner overpaid, fine.

99% of the appraisals that I have done in the past 5 years has had comps that were less than ideal. If the subject sold within the past 12 months, it is my best indicator of value 9 times out of 10.

If I was paying my own hard earned money to buy a house, would I care what it sold for 12 months ago? Yes I would. It is not the only thing I would care about, but it would likely be near the top of the list. Do I think that this is also true for the typical buyer in my area? Yes I do. Do I think it is true of the typical buyer in 90% (or more) of this country? Yes I do.

Do I think mortgage lenders and the USPAP police care about what the house sold for 12 months ago, not just to go thru the motion of listing the 3 year sales history, but to make it part of the valuation process? Yes I do.

 

[Mike Garrett RAA]

Ok, Bill Clinton, define "informed buyer". How long should we take to "inform" them? Who should do the informing" How many properties do they have to look at to be "informed"?

Guess I have to go with the flow on this one. Of course there are only 12,000 to 14,000 sales a year in this market...could be every single buyer and agent is wrong, ya think?

 

[Gen Lawson]

:blink: No, not more confused than when I posted the question, but this turned into a more interesting discussion that I thought it would. I wasn't implying that I would try to ignore the prior sales (obviously, we can't be doing that), just wondering if they affect valuation.

Since this is "based on a true story" the particulars are that the older sale was in early 2001, asked $740k sold $685K after 274 DOM. Last year asked $650 sold $600 after 127 DOM. Obviously one wonders "why would seller list the property at $45k less than they just paid one year ago?" Even though my market is one of those where out-of-towners love to happily overpay, most people won't let that much money go away that fast. In my market these are upper-end homes, but not overly so, generally comparable properties on the same street sell from $500 to $900k.

So let me rephrase my question, let's assume that buyer 1 overpaid a little and then wanted to sell the house quickly, and buyer 2 bought when the upper-end market was a little soft and otherwise there is nothing strange or fishy going on, and the property is exactly the same. Let's also assume that there are wonderful comps that put the subject in the 600-685k value range. In that case, how would the prior sales affect the valuation of the subject?? I'm asking a theoretical question about the valuation process, not looking for help with this particular circumstance.

Thanks for all the replies...
Gen

 

[Phil Rice]

I have more questions than answers. Given what you have said so far:

Neighborhood sales of $500 to $900 is a wide range, does not narrow it down very much.

I would speculate that the true market value of the home is about $600. The preson who listed the home at $740 2 years ago figured he would set his price, and if some fool comes along and agrees to pay it, happy days are here. That fool who paid $85 too much then needed to sell. Maybe there is something unique about the property that makes it hard to value, like an 8 car garage? How does the days on market for the subject compare to the market average? Above average DOM is one thing, but excessive days on market is the defination of an asking price that is too high, or an incompetent realtor. Did you look at both of the prior listings? Sometimes a house does not sell because the RE agent screws up the listing, with wrong address or some other silly mistake.

If your comps give you a range of 600-685, you should be guided by the sale of the subject 12 months ago for $600, plus normal market inflation, unless you have something better to hang your hat on.

 

[George Hatch]

No, not more confused than when I posted the question, but this turned into a more interesting discussion that I thought it would.

That's what happens when you ask a group of appraisers for their opinion, and that's why appraisers usually work alone!!