What did I do wrong? Comps vs. Appraisal

[Mikel Graham]

Hello Everyone,

I'm working on trying to close my first deal in wholesaling. I've managed to get a REO property under contract. I used the comps that my real estate agent provided to me in a CMA to calculate the ARV value. The method I used was to look at sales in the past 0-6 months, a radius of 2.5 miles (big house, with big lots), and average the price per sq. ft. When I did this, the house comps out to be around 2M. 2 of the 3 comps were sold just this past March and the last was sold at the end of December. I have it under contract for 800k and it's listed on MLS for 1.1M. The inspection period ends this afternoon and by then, I will cancel the contract.

I had 2 buyers who were more than interested in the property but needed to see an appraisal. I had the appraisal done, but it only came out to be 1.2M. The appraisal used just 1 of the properties I used. Further, all of the properties were from 2011 and one was even from as far back as July 2011. The one from July 2011 was a foreclosure sale and 3.82 miles away.

I do not understand how there could be such a large variance in my calculated values vs. the appraisal. I really need to know and understand why this happened so I can avoid this pitfall in the future.

Any advice, expertise, and insight would be greatly appreciated here. If you want, I can forward to you the complete package which has the appraisal as well as my comps analysis.