How Appraisers Chose Comps.

JOSEPH ELLINGTON

November 1, 2022

Virginia Beach Appraisal Blog 2022

Guidelines for Appraisal Comparables: What Do Appraisers Look For When Choosing Comps?

The selection of similar sales for the Sales Comparison Approach is a crucial aspect of any analysis.

The valuation of your home is based on these comparables; picking the wrong ones can have a favorable or negative impact on that number.

In this post, you’ll learn all about the appraisal comparable criteria used by appraisers, as well as the specific features appraisers look for when evaluating a comparable property.

The meaning of “comparables”

Using nearby similar properties and making any necessary adjustments for the subject property’s positive or negative features is a standard practice in residential real estate assessment reports.

Most appraisers will refer to sales and listings that are most comparable to yours as “Comps,” short for “sales comparables.”

They are typically recent sales in the area and are very similar to your own property in many aspects.

The comparable properties (comps) in some areas will be very similar to one another.

The chances that an appraiser will uncover comparable sales that are an exact model match increase, for instance, if you live in a planned development with several different models of houses.

It’s like trying to find comparables for a house in the middle of nowhere, where nearby homes may be completely different.

See below for a sample of comparables in an actual report formatted for an appraisal. As can be seen from this grid, all three comparable properties are very close matches to the home we’re analyzing. Lot, view, style, number of rooms, HVAC, and parking are all comparable to the first. This is also true of the other two examples.

Appraisals Guidelines for Assessment

Most appraisers adhere to some unofficial standards when selecting comparable properties, but doing so is not mandated by law.

Lenders have established rules that appraisers are expected to follow, although it is not always practicable to do so in order to generate a trustworthy report.

Finding recently sold properties that are analogous to the one under consideration is the gold standard for developing appraisal comparable criteria. In most cases, these are the comparables that will provide the most useful findings for the appraiser when determining the value of your home.

The suggested guidelines look like this when broken down into their individual characteristics.

Location

When selecting similar properties, location is one of the most crucial factors for an appraiser to consider.

All comparables must be located in the same area as the subject, or in an area that is quite similar to it.

Generally speaking, lenders require that the comparable properties be located within a mile of the subject property.

There may be a surplus of comparables within a mile’s radius in some areas, while in others there may be a shortage. Both the comparable sales and the actual properties themselves should be located in the same general area as the appraised home.

If the appraiser is inexperienced with the region, using comparable sales from a community that is vastly different from your own could result in a huge valuation differential.

If an appraiser is unable to identify comparable sales in the immediate area or in neighborhoods that are statistically similar to the subject property, they will need to either increase the search radius or look further back in time.

Space Available at Location (Lot Size)

There is no set percentage that an appraiser should stick to when making site or lot size comparisons, but there are some reasonable guidelines to follow.

The appraiser must constantly examine the lot’s usefulness and topography in addition to its size.

Size is the most crucial factor, but usefulness and geography can also play significant roles.

A lot with an irregular shape may be worth less than a square or rectangular one, and a lot with a steep incline may be worth less than a level one, depending on the market.

Lots with steeper slopes tend to sell for the same as level lots that are half as big in my area. Since most customers in this market are starting families, ease of use is crucial.

The appraiser is the only one who can say whether or not these aspects of the lot boost or lower the value, but they must be taken into account.

View

The home’s view is another factor that should be considered by an appraiser.

Although there are no hard and fast rules, the view should always be considered.

Views of residential areas, woods, or pastures will be typical. In most cases, there will be zero difference in value between them.

There is a premium for homes where the view can be enjoyed from within.

Having a view of the ocean, the city, or the golf course can significantly increase the value of a home.

Appraisers should take a property’s perspective into account at all times, and it’s ideal to find comparable properties that offer an identical or similar vista.

Condition/Quality

The property’s condition and quality make the greatest contributions to its market value. It’s best to avoid them if at all possible, because they can entail substantial changes.

Condition

The term “condition” is used to describe the state of the house in terms of wear and tear, age, and any recent renovations.

A conventional 1004 assessment report for a single-family home uses a scale from C1 (poor) to C6 (excellent) to describe the property’s condition.

A home in condition C1 is in like-new condition, while a home in condition C6 is in such disrepair that it is unsafe for human habitation.

Quality

The materials used to construct or renovate a home are what we mean when we talk about quality.

Quality, like condition, is ranked from Q1 to Q6.

The hallmarks of Q1 excellence are a high level of customization, expert manufacturing techniques, and a polished appearance. Q6 employs the lowest quality construction materials and may or may not contain standard home features (electrical, plumbing, etc.).

Always, an appraiser seeks comparable properties that are in similar condition and quality to the one under consideration.

Due to the size of these modifications, it’s crucial that the characteristics used as comps are either identical or within one tier of condition/quality on both ends.

Bracketing

An appraiser should “bracket” or group together all relevant aspects of the property in question.

Appraisers will “bracket” a comparison if the selected properties include both attributes that are better and worse than the subject property.

This means that the Sales Comparables grid must include at least one comparative with a superior quality and at least one with an inferior quality.

Comparable 1’s lot size is larger than the subject property’s, while Comparable 3’s lot size is smaller. This results in a “bracketed” lot size.

While not strictly necessary, it is recommended for the most accurate assessment of the property’s worth.

Negative Effects

Anything that negatively affects your property is referred to as an “adverse influence” or an unfavorable state.”

Large telephone lines in your property, a business across the street, or a high school behind your home could all be examples of these.

If the appraiser believes they will have a negative effect on your property, they must always be taken into account and indicated in the report.

The appraiser should also make an effort to compare the negative influence to another comparable that also has a negative influence.

Real Estate Types

When selecting comps, the type of property should always be taken into account.

A single-family home should never be utilized as a condominium comparative, and the opposite is true for the usage of a condo comparable for a single-family home.

Conclusion

There are several appraisal similar criteria that should be followed, even if there are no legally enforceable laws or regulations that an appraiser must adhere to in every report.

Finding the most comparable, most current, and nearby comparables for your home is really the key to it all.

These comparables are the ones that the appraiser should find to be the most comparable and useful in determining your home’s value.

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