Does comp mile radius have to be.......?

[Antonio Bodley]

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.

[Dion DePaoli]

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.