Within 1 mile radius of each other? So lets say I come across a comp that matches everything to the subject home, but it is 1.10 miles away and another comp is .39 miles away but it is not an exact match like the other comp furthest away. You mean it is an absolute must that comps fall into the same category similar to the comp that is less than a mile away even if it is not an exact match like the other comp? I happened to be running comps on a home and ran into this same situation.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
14y
Appraisers have to deploy these rules in their reports. Some investors do miss understand the rules and how they apply.
Comparable properties in an appraisal should be less than 6 months since sale transaction and less than one mile away. No, that does not eliminate properties that are greater than 6 months or further than 1 mile away. What is called for, is you can not skip over a relevant comp in the data set to get to a preferred comp. The closer comps are in time (like yesterday) or in distance (like next door) the better. The purpose of the comp group is to be as homogenous as possible.
Additionally, the term "exact match" is really hard to find. Even condo's and PUD's don't have exact matches. Comps when listed on the grid, have manual adjustments to make the properties similar. The guidance on adjustments should be less than 15%. This is a little abstract for some so let me explain. If subject property has 1000 square feet and Comp A has 900 square feet, comp A can be used. The 900 square fee would adjust up to simulate both comps being the same size. If comp A was 1,500 square feet, an adjustment greater than 15% would be required and thus the comp should be set aside for a better closer match. It is possible that another closer match does not exist as it may be older in sales date of further than one mile. The comp that requires the lesser of the manual adjustments is to be used. So if Comp A is larger by over 15% and Comp B is 1.5 miles away but is closer in size and less adjustments are required, then Comp B should be used.
Other manual adjustments sometimes fool folks such as pools. In most cases pools do not add value directly. Pools put the home in a different comparable group, which is other homes with pools. Commonly pool homes are not compared to homes without pools. The same goes for water-view, on water and some of the other little less tangent property attributes. In order to do some of those comparisons a rule might need to be set aside to find a more comparable property. So if the closest pool property is 1.2 miles away, the rule would be set aside. BTW, a justification of why the rule was set aside is usually included on the report any time a variance from any rule happens.
Other concepts come into play such as not leaving the neighborhood or being mindful of geographical features which might create a difference between two properties such as a large road or a river. The neighborhood guidance causes confusion a bit. More often than not many neighborhoods are comparable but folks try and say they are not comparable in order to use a more favored comp instead of the more correct comp in a subdivision down the road.
The rules are meant as guidance. Remember that comps are at least 3 and now a days 5 sold comparable are not so uncommon. The appraised value is a median value from the comp group. No single comp can have such a significant effect, is more of the concept. Because manual adjustments are required to align subject and comp properties a larger group of comparable should lead to a stabilized consistent value. When subject property attributes start to vary from the guidance rules the comp group will increase under the same concept. I am sure you have heard of the bank asking for additional comps. It is believed as the group increases the median value derived from the group that comes out will be an accurate and stable value.
The difference between a real estate agent running comps and an appraiser doing a report will be the manual adjustments. As with most things in life, the more detail that is looked at, the more accurate the product.
Investor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
14y
I like to used comps within a 1/2 mile radius. That however is not a guarantee either. There could be similar homes in different subdivisions but one subdivision may be hotter than the other for various reasons giving that property an increased value. There could also be other natural or man made barriers ("north" or "south" of the blvd) that can bump the price of comps within your geographic limits.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
As to distance you have it made! As Brian mentioned make sure the neighborhoods are comprable to yours. School districts can make a difference but these other external factors may not be an issue if your home comps are close in value, that will indicate similar neighborhoods. If there is a significant difference find out why and you may be able to adjust the comp value for that issue. Sounds good.....
Wholesaler · New York City, NY · Member since 2012 · 20 posts · 1 vote
14y
I'm a new investor and I'm currently looking to understand how to better evaluate the market through running comps. However, I've attended several workshops and heard 14+ different ideas on running comps. What would be the best and simplest way to run and apply comps in a wholesale investment strategy???
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
14y
Make sure you compare apples to apples. I moved from an area where I had a 4600 sq. ft. house with a 2100 sq. ft. guest house on 20 acres with a pond. It was a unique property, that was also within 5 minutes to major shopping. However the closest comps in regard to the rural setting, large home, pool, etc. were in a community about 5 miles away.
On the other hand, in southern California a block in one direction can mean the difference between Newport Beach and Costa Mesa address, and a difference in pricing. Or, ocean views vs. no views.
The point is, each area is different. Get to KNOW your market, wherever it is, and when doing comps, compare "like" properties.
Karen M. The property in question is quite similar to the comp property in many ways from the number of bedrooms, bathroom, and square feet was not exact match but close enough. The only one difference is the distance being a little further away from the subject property.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
14y
Antonio Bodley, where did you come up with the 1 mile number?
It depends on the neighborhood. Is it the same neighborhood? Would the same buyer consider both places equally? Even 1/10th mile away can be too far is it is on the other side of railroad tracks or across a county line. Several miles away may not be far enough if you are evaluating a country estate or waterfront property.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
14y
It sounds like the comp you want to use would work. As long as there's nothing about the area it is in that is totally different from the neighborhood your property is in. Remember you are trying to get "comparable" sales, they don't have to be identical. Is the neighborhood the same age, homes of similar quality, size, property owners the same make up, close to schools, stores, etc. Those are the things you're looking for.For what it's worth, aside from being a licensed contractor, I'm a licensed agent too, and do comps often.
Real Estate Professional · Salt Lake City, UT · Member since 2010 · 608 posts · 163 votes
14y
I try and run my comps within the boundries of major streets within a mile radius. As stated before, it is so important to know your area. In my area East of a specific street is priced higher than West and in general increases in value going East.
Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
14y
What I have done to eliminate the guessing about values, I have established relationships with many local appraisers whom I can call and have them look it up and give be a quick ballpark value so I have something to go off.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
14y
Appraisers have to deploy these rules in their reports. Some investors do miss understand the rules and how they apply.
Comparable properties in an appraisal should be less than 6 months since sale transaction and less than one mile away. No, that does not eliminate properties that are greater than 6 months or further than 1 mile away. What is called for, is you can not skip over a relevant comp in the data set to get to a preferred comp. The closer comps are in time (like yesterday) or in distance (like next door) the better. The purpose of the comp group is to be as homogenous as possible.
Additionally, the term "exact match" is really hard to find. Even condo's and PUD's don't have exact matches. Comps when listed on the grid, have manual adjustments to make the properties similar. The guidance on adjustments should be less than 15%. This is a little abstract for some so let me explain. If subject property has 1000 square feet and Comp A has 900 square feet, comp A can be used. The 900 square fee would adjust up to simulate both comps being the same size. If comp A was 1,500 square feet, an adjustment greater than 15% would be required and thus the comp should be set aside for a better closer match. It is possible that another closer match does not exist as it may be older in sales date of further than one mile. The comp that requires the lesser of the manual adjustments is to be used. So if Comp A is larger by over 15% and Comp B is 1.5 miles away but is closer in size and less adjustments are required, then Comp B should be used.
Other manual adjustments sometimes fool folks such as pools. In most cases pools do not add value directly. Pools put the home in a different comparable group, which is other homes with pools. Commonly pool homes are not compared to homes without pools. The same goes for water-view, on water and some of the other little less tangent property attributes. In order to do some of those comparisons a rule might need to be set aside to find a more comparable property. So if the closest pool property is 1.2 miles away, the rule would be set aside. BTW, a justification of why the rule was set aside is usually included on the report any time a variance from any rule happens.
Other concepts come into play such as not leaving the neighborhood or being mindful of geographical features which might create a difference between two properties such as a large road or a river. The neighborhood guidance causes confusion a bit. More often than not many neighborhoods are comparable but folks try and say they are not comparable in order to use a more favored comp instead of the more correct comp in a subdivision down the road.
The rules are meant as guidance. Remember that comps are at least 3 and now a days 5 sold comparable are not so uncommon. The appraised value is a median value from the comp group. No single comp can have such a significant effect, is more of the concept. Because manual adjustments are required to align subject and comp properties a larger group of comparable should lead to a stabilized consistent value. When subject property attributes start to vary from the guidance rules the comp group will increase under the same concept. I am sure you have heard of the bank asking for additional comps. It is believed as the group increases the median value derived from the group that comes out will be an accurate and stable value.
The difference between a real estate agent running comps and an appraiser doing a report will be the manual adjustments. As with most things in life, the more detail that is looked at, the more accurate the product.
Real Estate Agent · Henderson, NV · Member since 2011 · 1k+ posts · 550 votes
14y
Ned hit the nail on the head. Ask yourself would the buyer of house A consider house B as an alternative? If the answer is yes, then you can get more specific in your analysis with regards to the differences between the properties. Keep in mind that not all differences are material. A difference of 50sf for 2000sf homes isn't likely a big deal or even physically detectable. Location is the most important factor to consider. Paint color can be changed, roofs can be fixed, but you can't change location.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
14y
Phillip Dwyer, true I could have worded that better. It seems like I was attempting to state the final number is the mathematical median of the adjusted group. Which is not what I was trying to convey. I was trying to illustrate the comp group being adjust to be as homogenous as possible. And to base your value on one comp opposed to the analysis of the entire group is not a good idea. The final appraised value given by an appraiser is an opinion and can be above, below or on that mathematical average and it is noted no math formula is used by an appraiser for a sales cost approach. All that said, to define the undefined is not always easy.
Ned Carey I ran my comps on Zillow. That's where the one mile radius come from. I run all my comps on Zillow or Trulia. Occasionally I may travel out to look at homes when I have time, which is very little. Other than that I just run my comps using Zillow or Trulia. I prefer to use Zillow sold properties to run comps because Trulia comps are no where near the subject house.
Brian Levredge I wish I could find comps within 1/2 mile radius. I rarely get lucky to find comps that close and so similar to the subject home.
Bill Gulley The comps I get usually end up being a 1 point something mile away down the road from the subject property or around the corner a few blocks down.
Curt Davis I spoke to an appraiser. Even he said appraisers can get home values wrong just like real estate agents get home values wrong quite often.
Dion DePaoli It's a good thing you said that does not eliminate properties that are greater than 6 months or further than 1 mile away. All my comps are older than 6 months and further than 1 mile.
Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes
14y
I guess just ask someone from here who has done RE business there. I found out on these forums. You could search for Alabama disclosure or something similar and see what you get. Should be easy to find.
Curt Davis - KAIZEN Realty538 Reviews