COMPS?

Question

Dumb question but what does Comps mean?

Bill Gulley · Answer

Bret is right on, a "comp" is a comparable sale, just to add a bit.

Comps must be selected based on time of sale, location, style and comparability to the subject property, the subject property or "subject" is the one you are comparing the comps to.

An ideal comp is a sale within three months and within the same subdivision, or within 1 mile. You don't want all of your comps in the same subdivision, you may use 2 but the 3rd needs to be outside that subdivision so that price is not greatly influenced by one subdivision or say one builder.

If there are no comps that meet those requirements you move further away from the subject within a 2 mile radius, then 3 miles and so on. You may also look further back in time, to six months. Comps should be within 3 miles and within 6 months if possible. Usually going back to an older sale is better than considering a property further away, a sale 10 months ago would be better than a comp 5 miles away with all other things being equal.

You can find the way comps are viewed on the Appraisal Institute's web site.

As you'll see there, the appraisal methods used in the market with comps is a process of deducting or adding to a sale price of the comp based on how the subject compares to the sold comp. For example, the sold comp may have a single car garage, the subject has a double car, you add the value of the additional garage to the comp to bring that sold value up.  If it were the other way around, you would deduct the value for the comp sale price. That garage might be worth $8,000 and you will see that in the market with comps sold or you may need experience in estimating such values. That's what the appraiser does. Just remember, never adjust the value on a subject property, adjustments are made to comps.

When I started, I parked my wagon and hitched up my horses at my appraiser's office in the buying process when I got a copy of the appraisal and took it to him. He explained what he did to get the value. The best way to understand an appraisal is look at one and ask questions.

You'll also see there are three approaches, the market described above, the income approach, based on income potential of the subject and the replacement approach, what it would cost to build the subject and then depreciate the improvements based on age and condition.

It's an art as much of a science, don't expect to nail a value on a subject, your goal is to get close. :)

Rod Walker · Answer

Dev,

You now have an answer to your question. I'm confident most in this community will echo same sentiment: there are no dumb questions. Knowledge comes from exploration. Remember: It's okay not to know something, but it's not okay, or least rarely helpful,  to pretend you know when you do not,....Good Luck

J Scott · Answer

Rarely is the cost approach the right method for residential single family valuation.

First, are you sure there aren't any comps?  Have you spoken with a real estate agent who is familiar with the area and has MLS access?  If so, I would recommend going a little bit further out before considering changing your valuation method.

Regardless, I'm sure a good agent in your area can help you determine the ARV.

Vladimir Gonzalez · Answer

Thanks Bill, very valuable information.

TONY GREENE · Answer

off the subject a little

I'm looking at a 1bdrm house and there aren't any comparable sales in the area should i use the cost approach?

Brandon Turner · Answer

Hey @Dev Why welcome to the site! Hopefully you got your answer! See you around the site!

Bill Gulley · Answer

As opposed to the old days yes, it's the luck of the draw.

The law prohibits a lender or any party to the sale from attempting to influence an appraiser. This shouldn't be taken as not having the right to communicate with them, I'd say your lender needs to grow some hair. If you have a better comp you can certainly ask that it be considered, you can ask questions and certainly ask for explanations, but tactfully so as not to make it sound as if you are making any demand. "Attempting to influence" is subjective, you might begin talking to the appraiser by explaining you're not going there in an attempt to influence a value so much as to provide additional consideration or data or ask a question. Local custom will prevail as to how appraisers expect to be insulated and policies of lenders, but it doesn't mean you can't communicate at all. But, do be careful and respectful. :)

John Moore · Answer

Bill, excellent reply.  Of recent date I've found that most appraisals come in very conservative and usually under my expectations.  Since the appraisers come out of  pool of appraisers that the mortgage company is required to use, it appears it's the luck of the draw on what you're going to get.  The new controls prevent the lender from exercising any influence over the appraiser or even speaking with them. This may not be a universal experience, just in certain areas.

Dev Why · Answer

thank you :-)

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