The Sales Comparison Approach

The Sales Comparison Approach is the first of three approaches to value an Appraiser considers in developing their opinion of value. We will discuss this approach in this post.

Sales Comparison Approach:

This approach is most commonly used in residential appraisals as it usually is the most accurate method when determining value for a single family residence. Essentially it compares the Subject property to three (3) or more sold comparables.

Fannie Mae (FNMA) guidelines are for the comparables to be within the previous six (6) months and within one (1) mile from the Subject. FNMA requires a minimum of three comparables, but does not limit the analysis to three. The Appraiser determines the number of comparables used so as to have a credible report.

The method of choosing the comparables has been more fine tuned due to the real estate turmoil. Time is a critical factor as the declines experienced in many markets have much more influence on the current pricing. The Lenders have been requiring the appraiser to choose comparables within a three month time frame vs. the six month guidelines. While we have always tried to use the most recent comparables, sales today are not always available in this time frame.

Our next effort is to keep the 3 month time frame and expand the search area in terms of exceeding the one mile guideline (we usually ask the Lender what limitations they have, if any). If the expanded area fails to achieve the results we need, we then move to within the 6 month time frame and the one mile radius and so on. If we must go beyond the guidelines in order to get credible results, we explain and disclose the reasons we found it necessary.

Once we have settled on several comparables which are the most recent and most proximate, the next step is to determine which three or more are the closest in physical features and miscellaneous features. Please click 0n the link below to see the Sales Compaison Grid of the Appraisal report. This is the format used for this approach:

Sales Grid

Physical Features:  The main comparison points are size of the house (HLA), room count, basement or below grade rooms, lot size, quality of construction, location, view, condition, garage or carport. Other amenities considered also.

The Appraiser will try to bracket the physical features, such as size (HLA), to show a diverse choice of properties that can compare to the Subject. Adjustments are made to the comparables (positive or negative) to reflect the differences in the properties. The adjustments are determined by various data services, analyses and hands on inspections and a comparative value is attributed to the differences.

Miscellaneous Features: This grouping is for items such as financing terms, concessions, etc. This information is garnered from MLS, GIS, County record, discussions with realtors, owners, county employees and/or anyone deemed knowledgeable about the comparables transactions or the Subject property.

Click here should you want a more detailed discussion of the Appraisal Process.

 

Tagged as: appraisal, appraiser, basement, Charlotte North Carolina, Charlotte-Gastonia-Rock Hill, Comparables, Fannie Mae, Federal Housing Administration, fha loans, foreclosure, fsbo, home loans, Home Values, listing appraisal, Market value, Metro Areas, real estate appraisal, Real property, refinancing, Residential, Single-family detached home