3 Types of Appraisal Information to Look For When Driving Your Comps
Comparable sales, also known as a “comparable” or collectively called “comps,” are the prices paid for similar houses that are comparable in location, condition, features, and size. Comps are essential in real estate appraisers because they are used to determine a home’s value. Using comps, buyers can decide on the price offer while sellers figure out how to price their home competitively in the market. When driving their comps, real estate agents and appraisers can pull up details they need on their comparables from a Multiple Listing Service (MLS) database.
Accurately pricing a property is a crucial factor in appraisals. What if you priced the property too low or too high? What if you overlooked some areas that affect the property’s worth? Precise information for comps is indeed the one thing to keep in mind, so here are the types of appraisal information to find that are important to the appraiser.
Three Types of Appraisal Information to Find
1. The appraisers look for comparable sales to determine and establish the value of a subject property.
Comparable sales help estimate a property’s appropriate sale price. It is the recent sales of the properties that are similar in the same neighborhood with prices that are alike. Comparable sales help the appraisers justify a market value for the property. When doing comps, appraisers mostly begin with several numbers of comparable properties, let’s say 10 properties, then cut down their list to about five that seem to have the strongest equivalence to be used in the final property comparison.
There are criteria that appraisers look at when conducting comps. Below are the main components of a comparable sale:
a. Sale Time Frame: Due to the ever-changing market, appraisers prefer to use the most recent comps. Depending on how fast the market changes, your neighborhood’s home value can’t be compared at the price of your property in today’s time. In the past years, appraisers still use public records of comps from the previous six months but now, most are maximizing the only three months only of comparable sales. After all, comps sold dates that are dated too far are already too old to be accurate for the current market.
b. Lot Size: Homes in some neighborhoods have the same lot sizes, and there are some in a mix of lot sizes. A home’s land measured in acre correlates to its value. For instance, a home that sits on 10 acres of land costs more than a home on one acre. So basically, when doing comps, evaluate homes that have similar lot sizes to the subject.
c. Price per Square Footage: The price per square foot rises as the home size decreases, and it decreases as the size of a home increases. Therefore, the price per square foot of smaller homes is higher than those of larger homes. That is why, to be accurate, you must adhere to the 10 percent rule which states that both the square footage of the land and the improvements must be within 10 percent comparable to the subject property being evaluated.
d. Proximity: When seeking comps, the closer it is to the subject, the better. Comps should be in the same neighborhood, and they should be under proximity. Appraisers usually consider properties within a certain radius that are within a quarter to a half-mile to the subject. Take note that location is one of the main features in determining property value; the attractiveness of the neighborhood has a strong association with listing prices. For instance, a home that has an ocean view worth higher than a home in the same street with no similar view.
e. Number of bedrooms and bathrooms: The number of bedrooms and bathrooms plays a major factor when doing your property comps. For instance, a property with a three-bedroom worth higher than those with a two-bedroom. Therefore, appraisers try to find comparables with the same number of rooms similar to that of the subject. The number of bathrooms has also a discernible effect on the property price. A home with only one bathroom often has a low value than those who have two or more.
f. Property age and construction: Properties whose ages are closer to the subject generally make the best comparables. It is best to stay within about a five-year range when choosing a property’s age as your comps. Though it doesn’t necessarily mean that newer houses are better than older ones or that newer houses command higher value, but the condition relative to the subject’s age does really affect the price. Also, major systems like HVAC, temperature control, and plumbing, for instance, must have similar conditions as the subject.
g. Property condition: The condition of the property also determines the value. Generally, homes that are in poor condition are worth less than homes that are in good condition. There are standardized conditions and quality ratings for you to determine property comps to consider. Condition ratings range from C1 to C6, where homes that fall under C1 to C3 are well-maintained homes in good condition. For instance, a home with a rating of C2 is worth more than a comparable property with a C4 rating.
2. The appraisers capture photos of comparable properties from outside and describe the conditions of the exterior.
Appraisers will evaluate the structure and the quality of the property on the outside. If the property you are appraising doesn’t have any problems other than an old-looking exterior, ask when the renovations were made because such property improvement can increase the valuation of the property.
3. The appraisers provide comments on the comps location.
Appraisers check the property’s neighborhood if it’s safe by interviewing the locals and the neighbors in the area. They also check for nearby amenities, such as shops, cafes, and restaurants and whether the comparables are just a walking distance to these. Is the property located on a noisy freeway or a busy street? How far each of the comparables is located to a school district, and is it the same distance from the subject’s location? The location where the property sits and the topography could affect the value assigned to comps.
Comparables are used to find the home’s fair value. But not all the time you can stumble upon a perfect comparable. Then there are adjustments. Adjustments are made to the comps to show if they are superior and inferior to your subject.
These three types of information can be found easily when you have more people doing time-consuming tasks, such as searching through hundreds of property listings and sales reports.
Once you’ve outsourced these time-consuming tasks, you can focus on visiting the properties yourself and gathering evidence that will validate your property valuation. This strengthens your credibility and reputation as a trusted realtor or real estate appraiser.
If you’d like to explore the idea of outsourcing, then click the button below to set an appointment with our outsourcing consultant. Find out how you can get your own outperforming team!