comps
517) GRM Determination
09/21/09
Dear H2,
I have been asked to complete the income approach to value for a single family-investor owned property in San Lorenzo, CA. I have completed the Single Family Comparable Rent Schedule and have established a market rent for the subject property, that is supported by good comps in the subject neighborhood. I have not been able to find a recent sale of a similar, proximate, investor-owned property that I could use to establish a Gross Rent Multiplier (GRM). Other than using the subject's estimated market value, and my established market rent to calculate the GRM, do you have any suggestions how I may independently establish a GRM?
Thanks,
Richard Hildebrand Dickhilder@aol.com
Dear Richard,
In order to use the GRM income approach you have to find comparable sales that were rented at the time they sold. If this is not possible, you cannot use the GRM Income approach.
H2
I have been asked to complete the income approach to value for a single family-investor owned property in San Lorenzo, CA. I have completed the Single Family Comparable Rent Schedule and have established a market rent for the subject property, that is supported by good comps in the subject neighborhood. I have not been able to find a recent sale of a similar, proximate, investor-owned property that I could use to establish a Gross Rent Multiplier (GRM). Other than using the subject's estimated market value, and my established market rent to calculate the GRM, do you have any suggestions how I may independently establish a GRM?
Thanks,
Richard Hildebrand Dickhilder@aol.com
Dear Richard,
In order to use the GRM income approach you have to find comparable sales that were rented at the time they sold. If this is not possible, you cannot use the GRM Income approach.
H2
510) Competing Property
07/11/09
Dear H2,
I am a little confused by the 1004MC form. In the instructions area at the top of the form it says sales and listings must "compete" with the subject and then in the inventory analysis it ask for "comparable" sales and listings. I was appraising a 50 year old home of about 950 sq ft and although there were other similar size homes in the area, some were built as recently as 2004 and are selling for about the same as the 50 year old subject due to some REO activity. But I would not try to use a 5 year old comp for a 50 year old subject even though it may be a "competing property". What do you think they mean ?
E. Brown ebrown@atc.cc
Dear E. Brown,
The concept of a competing property that I use for the 1004MC form is that assuming the subject property became unavailable, what listings/sales would a potential buyer of the subject property consider as a reasonable substitute in the same neighborhood.
H2
I am a little confused by the 1004MC form. In the instructions area at the top of the form it says sales and listings must "compete" with the subject and then in the inventory analysis it ask for "comparable" sales and listings. I was appraising a 50 year old home of about 950 sq ft and although there were other similar size homes in the area, some were built as recently as 2004 and are selling for about the same as the 50 year old subject due to some REO activity. But I would not try to use a 5 year old comp for a 50 year old subject even though it may be a "competing property". What do you think they mean ?
E. Brown ebrown@atc.cc
Dear E. Brown,
The concept of a competing property that I use for the 1004MC form is that assuming the subject property became unavailable, what listings/sales would a potential buyer of the subject property consider as a reasonable substitute in the same neighborhood.
H2
502) REOs and Short Sales as Comps
06/12/09
Dear H2,
It is getting increasingly difficult to locate recent comparable "market" sales when engaged in an assignment to determine the "market value" of a property. A search of comparable sold properties in just about any location now includes "short" and "REO" sales. My interpretation of the definition of market value would preclude me from considering these as comparable sales to determine market value since these sales, by definition, do not represent market value. Am I off base with this point? It is my opinion that the 1004 MC is intended to show what is happening in the market place, and is not intended to indicate the market value of a property or an indication of value for a property. An example is the sale of a bank owned property that has been through foreclosure and has been listed in MLS at a price. My determination of market value (for this or any other property) has nothing to do with the sale price, but rather, its market value, correct? So, in my search for sales, only sales that are true market sales can be used, correct? I have been told that these bank & short sales are the ones to use because they are what is taking place in the market. I disagree and call their attention to the DEFINITION OF MARKET VALUE as preprinted in every report and further that NO MODIFICATIONS ARE PERMITTED.
Who is correct? These are very trying times for appraisers. Thanks for all that you do for us in the trenches. You are the man!!!
David Bramuchi David@BramuchiAppraisals.com
Dear David,
The definition of Market Value that is printed on the URAR pertains to the value of the subject property and not to the comparable sales. You must consider everything that is going on in the market area, which includes such things as future development, employment trends, etc., etc. Therefore you must consider all known sales and listings, both present and historical. Most clients require that you display at least three comparable sales in the report. These are supposed to be the best comparables in your opinion. The USPAP says that it is solely up to the appraiser to determine which comparables to select, what adjustments to make, and how much weight each should be given. Short sales and REOs affect each market area differently. A big consideration is whether they are competing with the subject property and if so, what effect this competition will have on the value of the subject property. The 1004MC/72 is another matter. This requires additional factual information that Fannie Mae, Freddie Mac and others ask as part of their scope of work requirements to help them make underwriting decisions. How much weight you give this data is still up to you.
H2
It is getting increasingly difficult to locate recent comparable "market" sales when engaged in an assignment to determine the "market value" of a property. A search of comparable sold properties in just about any location now includes "short" and "REO" sales. My interpretation of the definition of market value would preclude me from considering these as comparable sales to determine market value since these sales, by definition, do not represent market value. Am I off base with this point? It is my opinion that the 1004 MC is intended to show what is happening in the market place, and is not intended to indicate the market value of a property or an indication of value for a property. An example is the sale of a bank owned property that has been through foreclosure and has been listed in MLS at a price. My determination of market value (for this or any other property) has nothing to do with the sale price, but rather, its market value, correct? So, in my search for sales, only sales that are true market sales can be used, correct? I have been told that these bank & short sales are the ones to use because they are what is taking place in the market. I disagree and call their attention to the DEFINITION OF MARKET VALUE as preprinted in every report and further that NO MODIFICATIONS ARE PERMITTED.
Who is correct? These are very trying times for appraisers. Thanks for all that you do for us in the trenches. You are the man!!!
David Bramuchi David@BramuchiAppraisals.com
Dear David,
The definition of Market Value that is printed on the URAR pertains to the value of the subject property and not to the comparable sales. You must consider everything that is going on in the market area, which includes such things as future development, employment trends, etc., etc. Therefore you must consider all known sales and listings, both present and historical. Most clients require that you display at least three comparable sales in the report. These are supposed to be the best comparables in your opinion. The USPAP says that it is solely up to the appraiser to determine which comparables to select, what adjustments to make, and how much weight each should be given. Short sales and REOs affect each market area differently. A big consideration is whether they are competing with the subject property and if so, what effect this competition will have on the value of the subject property. The 1004MC/72 is another matter. This requires additional factual information that Fannie Mae, Freddie Mac and others ask as part of their scope of work requirements to help them make underwriting decisions. How much weight you give this data is still up to you.
H2
484) Condo vs SFR
05/03/09
Dear H2,
In my neighborhood, there are many multi-families that have been converted to condos. I actually have a single family, but there are very few other single family comps in my neighborhood. Though it is technically a single family, it is attached on both sides and is really more comparable to a condo. My question is, would an appraiser ever use other condos in the neighborhood as comps? Or, since it is technically a single family, would they only look at other single families? Thanks much for your help!
Michelle O'Meara michelle112575@hotmail.com
Dear Michelle,
According to the Uniform Standards of Professional Appraisal Practice (USPAP), the final decision as to what are the best comparable sales to use and what weight to give them, as well as what adjustments to make, is always up to the appraiser. From your description, your home is a "townhouse" style single family residence. A condo is actually not a "style" at all, but rather, a form of ownership. The fact that adjacent townhouses are condos may significantly affect their value, and render them unsuitable as comparables to your home in fee simple ownership, despite their similar appearance to your home. That is something the appraiser would have to research, consider and comment on in their appraisal. It is a rare neighborhood where you cannot find any single family house sales (except in Moscow, Russia). I suggest that you expand the area where you are searching for comparable sales.
H2
In my neighborhood, there are many multi-families that have been converted to condos. I actually have a single family, but there are very few other single family comps in my neighborhood. Though it is technically a single family, it is attached on both sides and is really more comparable to a condo. My question is, would an appraiser ever use other condos in the neighborhood as comps? Or, since it is technically a single family, would they only look at other single families? Thanks much for your help!
Michelle O'Meara michelle112575@hotmail.com
Dear Michelle,
According to the Uniform Standards of Professional Appraisal Practice (USPAP), the final decision as to what are the best comparable sales to use and what weight to give them, as well as what adjustments to make, is always up to the appraiser. From your description, your home is a "townhouse" style single family residence. A condo is actually not a "style" at all, but rather, a form of ownership. The fact that adjacent townhouses are condos may significantly affect their value, and render them unsuitable as comparables to your home in fee simple ownership, despite their similar appearance to your home. That is something the appraiser would have to research, consider and comment on in their appraisal. It is a rare neighborhood where you cannot find any single family house sales (except in Moscow, Russia). I suggest that you expand the area where you are searching for comparable sales.
H2
483) Comparable Sales
05/02/09
Dear H2,
For refinance purpose, how am I supposed to choose comparable sales that fit the USPAP guidelines where 95 percent of the homes in the neighborhood are non arms-lengh transactions? It's impossible to find comps within 3 months in our market area that are not distress sales. Please advise. Thank you.
Amy angiel99@yahoo.com
Dear Amy,
The USPAP says it is up to the appraiser, not anyone else, to determine which comparable sales provide the best indication of the value of the subject property. The USPAP says nothing about what period of time they should be in, where they should be located, and whether or not they are foreclosure or REO sales, etc. It is a rare property where no comparable sales are available. The appraiser selects the best ones, adjusts them if possible based on market data, and uses them to provide an indication of the value of the subject property. The lender/client cannot dictate which comparable sales are to be used. However, they can require an explanation as to why you selected the ones you did.
H2
For refinance purpose, how am I supposed to choose comparable sales that fit the USPAP guidelines where 95 percent of the homes in the neighborhood are non arms-lengh transactions? It's impossible to find comps within 3 months in our market area that are not distress sales. Please advise. Thank you.
Amy angiel99@yahoo.com
Dear Amy,
The USPAP says it is up to the appraiser, not anyone else, to determine which comparable sales provide the best indication of the value of the subject property. The USPAP says nothing about what period of time they should be in, where they should be located, and whether or not they are foreclosure or REO sales, etc. It is a rare property where no comparable sales are available. The appraiser selects the best ones, adjusts them if possible based on market data, and uses them to provide an indication of the value of the subject property. The lender/client cannot dictate which comparable sales are to be used. However, they can require an explanation as to why you selected the ones you did.
H2
478) Comps in Neighborhood
04/18/09
Dear H2,
When doing a residential appraisal in a gated community or any development, do you have to include at least 1 comparable sale from another development or could all the sales come from the subject development?
JOHN LYNCH johnkantonrealty@comcast.net
Dear John,
The USPAP says it is up to the appraiser to select which comparable sales to use in an appraisal. When possible, using data from the same development is common.
H2
When doing a residential appraisal in a gated community or any development, do you have to include at least 1 comparable sale from another development or could all the sales come from the subject development?
JOHN LYNCH johnkantonrealty@comcast.net
Dear John,
The USPAP says it is up to the appraiser to select which comparable sales to use in an appraisal. When possible, using data from the same development is common.
H2
477) Comps on 1004MC
04/15/09
Dear H2,
How should both sections of the 1004MC be filled out in relation to condos? I have a lender that has rejected the form as I have filled it out. They are requesting the the top portion be filled out to reflect all comps in the neighborhood and the bottom filled out to reflect only the comparables from the specific development. Is this correct?
Marlene Deason marlenepacheco@sbcglobal.net
Dear Marlene,
Yes - the lender is correct. Of course, even in the upper section of the form, only sales that are comparable to (competitive with) the subject property should be use.
H2
How should both sections of the 1004MC be filled out in relation to condos? I have a lender that has rejected the form as I have filled it out. They are requesting the the top portion be filled out to reflect all comps in the neighborhood and the bottom filled out to reflect only the comparables from the specific development. Is this correct?
Marlene Deason marlenepacheco@sbcglobal.net
Dear Marlene,
Yes - the lender is correct. Of course, even in the upper section of the form, only sales that are comparable to (competitive with) the subject property should be use.
H2
472) Inter Family Sales
04/01/09
Dear H2,
Can an appraiser use a comp that is a family to family transaction that falls within the value range of subject and other similar comps in the neighborhood?
Bernice Rice-Baker bhrb@cox.net
Dear Bernice,
Only the appraiser can determine which comparable sales are the best indicators of the value of the property being appraised. If you think this is the best comparable, you should use it. However, sales that are not arms-length transactions are rarely good comparable sales. First of all you must disclose what the relationship between the buyer and seller is and then try to explain why you think the transaction was at market value rather than some special deal.
H2
Can an appraiser use a comp that is a family to family transaction that falls within the value range of subject and other similar comps in the neighborhood?
Bernice Rice-Baker bhrb@cox.net
Dear Bernice,
Only the appraiser can determine which comparable sales are the best indicators of the value of the property being appraised. If you think this is the best comparable, you should use it. However, sales that are not arms-length transactions are rarely good comparable sales. First of all you must disclose what the relationship between the buyer and seller is and then try to explain why you think the transaction was at market value rather than some special deal.
H2
455) Verifying Comps
02/18/09
Dear H2,
If there are several homes in the subject's market area which are similar to the subject in all respects, but one of them is a lot lower in selling price than the others, should you use the lower one as a comp, even if you cannot determine the reason for the lower sale price?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
In my opinion you should not reject what appears to be a good comparable sale just because you could not determine why it seems to have sold for less than you expected in the market. Remember that the USPAP requires that you try to verify comparable sales by contacting the buyer, seller, broker or attorney. Perhaps they can enlighten you about why the sale was seemingly below market.
H2
If there are several homes in the subject's market area which are similar to the subject in all respects, but one of them is a lot lower in selling price than the others, should you use the lower one as a comp, even if you cannot determine the reason for the lower sale price?
Larry Bauer lbauer@cfl.rr.com
Dear Larry,
In my opinion you should not reject what appears to be a good comparable sale just because you could not determine why it seems to have sold for less than you expected in the market. Remember that the USPAP requires that you try to verify comparable sales by contacting the buyer, seller, broker or attorney. Perhaps they can enlighten you about why the sale was seemingly below market.
H2
444) Comparable Sales History
01/09/09
Dear H2,
For comparable sales history, how far back are we required to report prior sales? I know that for the subject, it is a 3 year history. However I am confused on how far we are supposed to go back for sales history on comparables.
Lee Jennings silkv@aol.com
Dear Lee,
There is no USPAP requirement for a history of the sales of comparables. It is part of the Fannie Mae scope of work which is printed on the URAR and other Fannie Mae forms. They require a history going back 1 year from the most recent sale of the comparable property.
H2
For comparable sales history, how far back are we required to report prior sales? I know that for the subject, it is a 3 year history. However I am confused on how far we are supposed to go back for sales history on comparables.
Lee Jennings silkv@aol.com
Dear Lee,
There is no USPAP requirement for a history of the sales of comparables. It is part of the Fannie Mae scope of work which is printed on the URAR and other Fannie Mae forms. They require a history going back 1 year from the most recent sale of the comparable property.
H2
427) Reusing Comps
11/01/08
Dear Henry,
I know USPAP requires a new appraisal if the client wants to change the lender. Can we still use the same comps and same date it was signed? Are there any other requirements to protect ourselves?
Thank you! Your information is a great resource.
Nancy Crossley crosstateappraisal@comcast.net
Dear Nancy,
The USPAP does not prohibit the reuse of any material from a previous appraisal in a new appraisal as long as none of it was confidential.
A new appraisal does require a new scope of work dialogue with the client. You should have a record of this discussion in your permanent field notes.
H2
I know USPAP requires a new appraisal if the client wants to change the lender. Can we still use the same comps and same date it was signed? Are there any other requirements to protect ourselves?
Thank you! Your information is a great resource.
Nancy Crossley crosstateappraisal@comcast.net
Dear Nancy,
The USPAP does not prohibit the reuse of any material from a previous appraisal in a new appraisal as long as none of it was confidential.
A new appraisal does require a new scope of work dialogue with the client. You should have a record of this discussion in your permanent field notes.
H2
421) Assemblage
10/11/08
Hello Henry -
Is ever appropriate to combine two seperate sales transactions into a single unit selling price to be utilized as a comparable? The seperate sales occured about seven months apart, had two independent non-related sellers and were sperately negotiated transactions. In this case, the buyer was assembling the parcels for development.
During the review process, I was told by the reviewer that I should combine all the data from the two transactions and utilize it as one comp. I've never believed this was appropriate - but if it is acceptable practice, I'd like to know. I requested that the reviewer provide me with documentation from a text that would support this as appropriate and so far he has not.
Name withheld by request
Dear Friend:
There are no USPAP or any other rules I am aware of that cover this subject. You have to use good common sense. You need to use the best comparable sales that are available. In addition to the problem of there being two separate sales at two separate times, you have to deal with the fact that they were not typical transactions as their purpose was to produce an assemblage. It seems to me that the reviewer was out of line providing you with this type of instruction as part of the review process.
H2
Is ever appropriate to combine two seperate sales transactions into a single unit selling price to be utilized as a comparable? The seperate sales occured about seven months apart, had two independent non-related sellers and were sperately negotiated transactions. In this case, the buyer was assembling the parcels for development.
During the review process, I was told by the reviewer that I should combine all the data from the two transactions and utilize it as one comp. I've never believed this was appropriate - but if it is acceptable practice, I'd like to know. I requested that the reviewer provide me with documentation from a text that would support this as appropriate and so far he has not.
Name withheld by request
Dear Friend:
There are no USPAP or any other rules I am aware of that cover this subject. You have to use good common sense. You need to use the best comparable sales that are available. In addition to the problem of there being two separate sales at two separate times, you have to deal with the fact that they were not typical transactions as their purpose was to produce an assemblage. It seems to me that the reviewer was out of line providing you with this type of instruction as part of the review process.
H2
411) Builder's ProForma
09/18/08
Dear H2,
I am reviewing an appraisal report where the appraisal problem is the retrospective value of a group of a few hundred serviced, ready to-build SFD residential subdivision lots. In addition to the direct comparative approach used by the appraiser, he also provides a summary of the builder's pro-forma and uses this as support for his lot value conclusion.
He does not say if any of the components in the pro-forma are reasonable; he simply uses the lot value conclusion to say that it supports his conclusion based on the aforementioned comparable sales. I question whether the proforma can be relied upon as a recognized method in which to value residential lots. The proforma refers to sale price revenue from the completed homes, building costs, profit etc.
What do you think?
Steve Mullins s.mullins@sympatico.ca
Dear Steve,
An appraiser may consider almost any information they wish in their analysis. However, I don't think that these proforma statements could be used as comparable sales.
H2
I am reviewing an appraisal report where the appraisal problem is the retrospective value of a group of a few hundred serviced, ready to-build SFD residential subdivision lots. In addition to the direct comparative approach used by the appraiser, he also provides a summary of the builder's pro-forma and uses this as support for his lot value conclusion.
He does not say if any of the components in the pro-forma are reasonable; he simply uses the lot value conclusion to say that it supports his conclusion based on the aforementioned comparable sales. I question whether the proforma can be relied upon as a recognized method in which to value residential lots. The proforma refers to sale price revenue from the completed homes, building costs, profit etc.
What do you think?
Steve Mullins s.mullins@sympatico.ca
Dear Steve,
An appraiser may consider almost any information they wish in their analysis. However, I don't think that these proforma statements could be used as comparable sales.
H2
408) Marijuana smoke
09/15/08
Dear H2,
I am doing an appraisal on a former drug house. This home was used to grow marijuana. My question is in regard to the potential impact of the odor that remains in the home. Is it considered similar to cigarette smoke? If so, are you aware of any long term effects from the odor or any stigma about the home being a former marijuana growers' house?
Thomas E. Adams II tom@appraisertom.com
Dear Thomas,
These are the problems you will need to solve: First, is it a stigmatized house? That depends on your market area. Meth houses are almost always stigmatized. I am less sure about whether marijuana smoke is a significant enough issue to cause stigmatization. As far as the smoke itself goes, there are companies that will come in and remove the odor. They are the same ones that clean up houses after a fire. The main problem I see is how do you get comparable sales to back up whatever adjustment you are going to make.
H2
I am doing an appraisal on a former drug house. This home was used to grow marijuana. My question is in regard to the potential impact of the odor that remains in the home. Is it considered similar to cigarette smoke? If so, are you aware of any long term effects from the odor or any stigma about the home being a former marijuana growers' house?
Thomas E. Adams II tom@appraisertom.com
Dear Thomas,
These are the problems you will need to solve: First, is it a stigmatized house? That depends on your market area. Meth houses are almost always stigmatized. I am less sure about whether marijuana smoke is a significant enough issue to cause stigmatization. As far as the smoke itself goes, there are companies that will come in and remove the odor. They are the same ones that clean up houses after a fire. The main problem I see is how do you get comparable sales to back up whatever adjustment you are going to make.
H2
395) REO Comps
08/26/08
Dear Henry,
When is it proper to use bank sales of foreclosed properties as comparables in an appraisal?
Alix Armand amaapp@bellsouth.net
Dear Alix,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use.
However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
When is it proper to use bank sales of foreclosed properties as comparables in an appraisal?
Alix Armand amaapp@bellsouth.net
Dear Alix,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use.
However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
390) Additional Comps
08/21/08
Dear Henry,
It appears that review appraisals are becoming a norm in the current market; however it appears that the reviewer is often not in the same state and therefore not familar with the market that the subject property is in. With that said, how should I rebut a review that requires sales that are not comparable just because they are closer to the subject?
Example: subject is custom home on an acre with lot minimum 36k/unit sales. The reviewer required 3 tract built homes on 5k/unit sites just because they were closer than other one acre custom homes (which were still under 2 miles from the subject) GRRRR!! Is there not a requirement for reviewers to be competent in the market where they are reviewing?
adele lindquist adelelindquist@yahoo.com
Dear Adele,
While it is understandably annoying to you as a professional with expertise in your market to be "second guessed" in this manner, I would not take it personally.
There is nothing wrong with a review appraiser asking the appraiser to consider additional comparable sales suggested by the reviewer. The correct thing for you to do is to consider the proposed additional comps, and then give them as much weight as you believe is appropriate. If, after considering these additional comparable sales, you want to change your appraised value it is permitted by the USPAP. It is not a new appraisal if you do not change the effective date of the appraisal. If the effective date is changed, however, that make it a new appraisal.
H2
It appears that review appraisals are becoming a norm in the current market; however it appears that the reviewer is often not in the same state and therefore not familar with the market that the subject property is in. With that said, how should I rebut a review that requires sales that are not comparable just because they are closer to the subject?
Example: subject is custom home on an acre with lot minimum 36k/unit sales. The reviewer required 3 tract built homes on 5k/unit sites just because they were closer than other one acre custom homes (which were still under 2 miles from the subject) GRRRR!! Is there not a requirement for reviewers to be competent in the market where they are reviewing?
adele lindquist adelelindquist@yahoo.com
Dear Adele,
While it is understandably annoying to you as a professional with expertise in your market to be "second guessed" in this manner, I would not take it personally.
There is nothing wrong with a review appraiser asking the appraiser to consider additional comparable sales suggested by the reviewer. The correct thing for you to do is to consider the proposed additional comps, and then give them as much weight as you believe is appropriate. If, after considering these additional comparable sales, you want to change your appraised value it is permitted by the USPAP. It is not a new appraisal if you do not change the effective date of the appraisal. If the effective date is changed, however, that make it a new appraisal.
H2
382) REO Comps
08/11/08
Dear H2,
I recently had a conversation with an appraiser who insisted that a bank owned sale (REO) was not a market sale as it is not an arms' length transaction. I am not referring to when the bank takes the property back, but when it sells it, meaning it has been actively marketed on the open MLS to the general public. Is it or is not considered an acceptable comparable?
Jessica Christopher Jzchristopher@aol.com
Dear Jessica,
I know of nothing the prohibits you from using a bank owned property as a comparable sale. The question is how much weight, if any, should you give to it. That depends upon the market in which the subject property and the comparable sales are located. On one hand, if all the sales in the market area are bank owned properties, it would be appropriate to give a lot of weight to bank owned comparable sales. On the other hand, if it is just an isolated sale in a market area where most of the sales are not of bank owned properties, then you would give it little or no weigh. In many declining markets, things fall somewhere between these two extremes and it is up to the appraiser to decide how much weight to give a bank owned comparable sales.
H2
I recently had a conversation with an appraiser who insisted that a bank owned sale (REO) was not a market sale as it is not an arms' length transaction. I am not referring to when the bank takes the property back, but when it sells it, meaning it has been actively marketed on the open MLS to the general public. Is it or is not considered an acceptable comparable?
Jessica Christopher Jzchristopher@aol.com
Dear Jessica,
I know of nothing the prohibits you from using a bank owned property as a comparable sale. The question is how much weight, if any, should you give to it. That depends upon the market in which the subject property and the comparable sales are located. On one hand, if all the sales in the market area are bank owned properties, it would be appropriate to give a lot of weight to bank owned comparable sales. On the other hand, if it is just an isolated sale in a market area where most of the sales are not of bank owned properties, then you would give it little or no weigh. In many declining markets, things fall somewhere between these two extremes and it is up to the appraiser to decide how much weight to give a bank owned comparable sales.
H2
362) Unverified Comps
07/15/08
Dear H2,
I am doing an appraisal on a residential purchase and the seller is offering the following assistance: 3% of purchase ($7,155.00) to a "down payment assistance program" plus a $300 administrative fee. The seller is also to pay $6,045 towards closing costs including points and prepaid expenses such as heating oil. I had another contract with very similar assistance in the contract with almost the same wording yesterday. Both of these are FHA loans. My question is what do I do with these terms of sale in the sales grid? The local MLS provider does not list seller assistance figures and getting a Realtor to answer any questions about former sales is nearly impossible, so knowing if there was any assistance on comparable sales is usually not possible. Thanks for any help on this.
John Shaffer johnshaffer@hughes.net
Dear John,
When you find a comparable sale you should always verify it. Just using the MLS data is not good appraisal practice. The traditional way to verify a comp is to contact the buyer, seller, Realtor and closing attorney. You are also required to have a signed copy of the sales contract, which often contains information about the special conditions of sale.
When you are appraising in a market where the FHA assistance program is being commonly used, you have to be especially careful about the comps you use. This program has a very high rate of foreclosure. When you find that there have been rebates or special seller assistance you need to make a downward adjustment to each comparable sale where these conditions existed.
I would not use a sale in this type of market that I could not verify, as the possibility of coming up with a value over market value is high when you use unverified sales.
H2
I am doing an appraisal on a residential purchase and the seller is offering the following assistance: 3% of purchase ($7,155.00) to a "down payment assistance program" plus a $300 administrative fee. The seller is also to pay $6,045 towards closing costs including points and prepaid expenses such as heating oil. I had another contract with very similar assistance in the contract with almost the same wording yesterday. Both of these are FHA loans. My question is what do I do with these terms of sale in the sales grid? The local MLS provider does not list seller assistance figures and getting a Realtor to answer any questions about former sales is nearly impossible, so knowing if there was any assistance on comparable sales is usually not possible. Thanks for any help on this.
John Shaffer johnshaffer@hughes.net
Dear John,
When you find a comparable sale you should always verify it. Just using the MLS data is not good appraisal practice. The traditional way to verify a comp is to contact the buyer, seller, Realtor and closing attorney. You are also required to have a signed copy of the sales contract, which often contains information about the special conditions of sale.
When you are appraising in a market where the FHA assistance program is being commonly used, you have to be especially careful about the comps you use. This program has a very high rate of foreclosure. When you find that there have been rebates or special seller assistance you need to make a downward adjustment to each comparable sale where these conditions existed.
I would not use a sale in this type of market that I could not verify, as the possibility of coming up with a value over market value is high when you use unverified sales.
H2
359) REO Comps
07/12/08
Dear Henry,
Great info, I love reading your questions & answers!!
With regard to foreclosure and REO properties being used as comps, how are adjustments for the lower price being calculated? I feel that they do not attract the same type of buyer as a conventional sale. However, sometimes the only comparable sales available are foreclosure & REO properties.
Nancy
Dear Nancy,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use. However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
Great info, I love reading your questions & answers!!
With regard to foreclosure and REO properties being used as comps, how are adjustments for the lower price being calculated? I feel that they do not attract the same type of buyer as a conventional sale. However, sometimes the only comparable sales available are foreclosure & REO properties.
Nancy
Dear Nancy,
If the only sales in your market area are REO sales then they are the market and these are the sales you will have to use. However, in most markets there are also non REO sales you can find, and these should be considered too.
H2
325) Illegal Uses
05/23/08
Good morning Henry,
I am being assigned an appraisal for a multi-family for Private Mortgage Insurance (PMI ). The lender requests an "as is " appraisal. In my initial research, the subject is listed on public records as a 2 family dwelling.
In contacting the owner to set up my appointment, I am told it is a 3 family dwelling. Checking the prior MLS listing when subject was purchased
it is noted as a 2 family style with "finished apartment on third floor." This is typical for the area, but not legal. I will check with the building department when I go to do the inspection to see if there is a permit that changed its use to a 3 family. If not, do I appraise the subject as a 2 family with an accesory apartment and note that the 3rd unit is not a legal use, or do I appraise as a 3 family unit, as it is being used, but note legality issue of third unit.
Thank you
Joe Violetta joseph_a_violetta@sbcglobal.net
Dear Joe,
This is a very tricky problem. These residences with ancillary third floor dwelling units are very common, especially in cities near universities, such as New Haven where I live. Step one is to ask the client what they want you to do. If they say to appraise it as a three family, then I would describe it as such. However, you must report in the appraisal the investigation you made just as in your question. Keep in mind that your highest and best use analysis (which is required) must be for a legal use. However, for your value estimate, you can consider the present use, but you will need to include an opinion as to how long you think that use will be permitted and how the market reacts to houses like this. The best comparable sales are other 2 family houses with an illegal third family dwelling unit as well.
H2
I am being assigned an appraisal for a multi-family for Private Mortgage Insurance (PMI ). The lender requests an "as is " appraisal. In my initial research, the subject is listed on public records as a 2 family dwelling.
In contacting the owner to set up my appointment, I am told it is a 3 family dwelling. Checking the prior MLS listing when subject was purchased
it is noted as a 2 family style with "finished apartment on third floor." This is typical for the area, but not legal. I will check with the building department when I go to do the inspection to see if there is a permit that changed its use to a 3 family. If not, do I appraise the subject as a 2 family with an accesory apartment and note that the 3rd unit is not a legal use, or do I appraise as a 3 family unit, as it is being used, but note legality issue of third unit.
Thank you
Joe Violetta joseph_a_violetta@sbcglobal.net
Dear Joe,
This is a very tricky problem. These residences with ancillary third floor dwelling units are very common, especially in cities near universities, such as New Haven where I live. Step one is to ask the client what they want you to do. If they say to appraise it as a three family, then I would describe it as such. However, you must report in the appraisal the investigation you made just as in your question. Keep in mind that your highest and best use analysis (which is required) must be for a legal use. However, for your value estimate, you can consider the present use, but you will need to include an opinion as to how long you think that use will be permitted and how the market reacts to houses like this. The best comparable sales are other 2 family houses with an illegal third family dwelling unit as well.
H2
315) Comparables from Files
05/11/08
Dear Henry --
I am appraising several condo conversions in the same building, in an area where there are very few. The only conversions suitable as comps are in another building that I did the appraisals for. Is it in violation of USPAP to use my own work as comps?
NWBR
Dear Friend,
The only data you can't use from you own appraisals is information about the subject property that you were given in confidence by the owners or client. In real life, this is quite rare.
If in doubt, you should ask the original client for permission, or see if the data is actually confidential and not also obtainable from an MLS service, assessor's records, etc. If the information is in the public domain, it is not confidential.
H2
I am appraising several condo conversions in the same building, in an area where there are very few. The only conversions suitable as comps are in another building that I did the appraisals for. Is it in violation of USPAP to use my own work as comps?
NWBR
Dear Friend,
The only data you can't use from you own appraisals is information about the subject property that you were given in confidence by the owners or client. In real life, this is quite rare.
If in doubt, you should ask the original client for permission, or see if the data is actually confidential and not also obtainable from an MLS service, assessor's records, etc. If the information is in the public domain, it is not confidential.
H2
314) Comparable Sales
05/10/08
Dear Henry,
I am in the process of completing home appraisals for a bank for a "revocable Trust and Conservatorship. Is it appropriate to use "bank owned" sales or should I exceed the 1 mile limit in order to find concventional or FHA sales. Most of the "bank owned homes" are selling for cash at a much lower price. Bank owned homes are usually foreclosurers and are considered "stress sales".
CHARLES HARVEY CHJRASSOCIATE@AOL.COM
P.S. Again, thanks for all of the information you provide in your publications and your books!
Dear Charles,
I believe it is best to use both "bank owned sales" and regular sales when they both exist in your market area. Who gave you the "1 mile limit?" I believe it is up to the appraiser to look wherever they believe the best comparable sales are located. It is not appropriate for the client to tell the appraiser where to look or what kind of comparable sales to use. While a radius of 1 mile might be preferred if there were a lot of good comps, it is not a hard and fast rule by any means.
H2
I am in the process of completing home appraisals for a bank for a "revocable Trust and Conservatorship. Is it appropriate to use "bank owned" sales or should I exceed the 1 mile limit in order to find concventional or FHA sales. Most of the "bank owned homes" are selling for cash at a much lower price. Bank owned homes are usually foreclosurers and are considered "stress sales".
CHARLES HARVEY CHJRASSOCIATE@AOL.COM
P.S. Again, thanks for all of the information you provide in your publications and your books!
Dear Charles,
I believe it is best to use both "bank owned sales" and regular sales when they both exist in your market area. Who gave you the "1 mile limit?" I believe it is up to the appraiser to look wherever they believe the best comparable sales are located. It is not appropriate for the client to tell the appraiser where to look or what kind of comparable sales to use. While a radius of 1 mile might be preferred if there were a lot of good comps, it is not a hard and fast rule by any means.
H2
308) Extra Comps
05/04/08
Dear Henry,
Recently I have been asked to provide two additional comparables & two current or pending listings. Seven comps in my opinion is ridiculous! I have been providing them at an additional fee; however, should I really just ask them to get another appraisal?
-Kiersten kiergerow@hotmail.com
Dear Kiersten,
As part of the scope of work discussion, the client may ask for as many comparable sales as they are willing to pay for. If they change the number after the scope of work has been established, you have the right to adjust your fee. That said, it is up to you to decide which comparable sales give the best indication of the value of the subject property and how much weight you will give the additional comparable sales (which may be none). Finally, only you can decide when too much work is not worth the fee.
H2
Recently I have been asked to provide two additional comparables & two current or pending listings. Seven comps in my opinion is ridiculous! I have been providing them at an additional fee; however, should I really just ask them to get another appraisal?
-Kiersten kiergerow@hotmail.com
Dear Kiersten,
As part of the scope of work discussion, the client may ask for as many comparable sales as they are willing to pay for. If they change the number after the scope of work has been established, you have the right to adjust your fee. That said, it is up to you to decide which comparable sales give the best indication of the value of the subject property and how much weight you will give the additional comparable sales (which may be none). Finally, only you can decide when too much work is not worth the fee.
H2
294) Comparable Sales & Listings
04/07/08
Dear Henry,
Whenever I had a tough question, you have always come up with an appropriate answer! OK, here's another one...
In today's changing market place, I have a large client that now requires us to use comps under 90 days old and within 1 mile. If not, they want a comment on why. I feel this is just good practice. If these "rules" are not met, they also request the use of a "pending" or "active" listing to validate the current value estimate in this changing market place. The issue comes when they also require these "pending" and/or "active" listings be used in the value estimate of the subject. My contention is that the prices in these listings are not the sold price, which may vary from the listing price and is usually unknown. Until the deal is closed, it is not a "sold" price. What is your take on this?
Thanks,
Larry Kowitt AppraisalOne@aol.com
Dear Larry,
It is well established that as part of the scope of work, the lender or client can request that you gather and consider any data you both agree upon. The USPAP says it is up to you to select the data you use to make a credible appraisal and how much weight you put on each comparable. It is a fine line but not unreasonable. The client may not tell you what comparable not to consider, use or report.
H2
Whenever I had a tough question, you have always come up with an appropriate answer! OK, here's another one...
In today's changing market place, I have a large client that now requires us to use comps under 90 days old and within 1 mile. If not, they want a comment on why. I feel this is just good practice. If these "rules" are not met, they also request the use of a "pending" or "active" listing to validate the current value estimate in this changing market place. The issue comes when they also require these "pending" and/or "active" listings be used in the value estimate of the subject. My contention is that the prices in these listings are not the sold price, which may vary from the listing price and is usually unknown. Until the deal is closed, it is not a "sold" price. What is your take on this?
Thanks,
Larry Kowitt AppraisalOne@aol.com
Dear Larry,
It is well established that as part of the scope of work, the lender or client can request that you gather and consider any data you both agree upon. The USPAP says it is up to you to select the data you use to make a credible appraisal and how much weight you put on each comparable. It is a fine line but not unreasonable. The client may not tell you what comparable not to consider, use or report.
H2
272) Adjustments
03/16/08
Dear Henry:
If you have one comparable with a concession and the other comparables have none, is the amount of that comparable's concession deducted from the sold price of all comparables? Another appraiser told me the adjustment has to be to all comparables, whether or not they have a seller concession.
Your website is very helpful, thanks for all the information.
Name Withheld by Request
Dear Friend,
Each comparable sale is adjusted separately, relative to the subject -- NOT to each other.
H2
If you have one comparable with a concession and the other comparables have none, is the amount of that comparable's concession deducted from the sold price of all comparables? Another appraiser told me the adjustment has to be to all comparables, whether or not they have a seller concession.
Your website is very helpful, thanks for all the information.
Name Withheld by Request
Dear Friend,
Each comparable sale is adjusted separately, relative to the subject -- NOT to each other.
H2
245) Updated Value Opinion
02/18/08
Dear H2,
I did an appraisal about 3 months ago, and now the cleint is asking for a recertification of value (on form 1004d). It appears that the value has gone down.
My question is when i do the 1004D, do i just let them know the value has gone down? Or do i need to provide new comps?
anthony gonzalez anthony10998@sbcglobal.net
Dear Anthony,
Whenever you are asked for a new value opinion, the USPAP requires that you make a new appraisal. However, you can incorporate any parts of your old appraisal you wish, including the comps, as long as you believe they are the best comps available as of the date of your new appraisal.
H2
I did an appraisal about 3 months ago, and now the cleint is asking for a recertification of value (on form 1004d). It appears that the value has gone down.
My question is when i do the 1004D, do i just let them know the value has gone down? Or do i need to provide new comps?
anthony gonzalez anthony10998@sbcglobal.net
Dear Anthony,
Whenever you are asked for a new value opinion, the USPAP requires that you make a new appraisal. However, you can incorporate any parts of your old appraisal you wish, including the comps, as long as you believe they are the best comps available as of the date of your new appraisal.
H2
212) Value Trends & Over-Improvements
01/16/08
Dear Henry,
I suppose I have two questions in one. I am working on a house that is good quality, they have added a detached garage ( that could be converted into living area), and they have an upgraded poolhouse with a bathroom, kitchen, etc . and a covered deck, along with a patio. I cannot find any comps with these things, other than the inground pool. Do you think this could be an over-improvement? Also, this neghborhood is not declining but it is not increasing either: one comp sold in June of 2006 for $ 550,000 and just resold for $ 550, 000.
How would you address that issue, if at all?
Victoria victoria28@cox.net
Dear Victoria,
Over-improvements are always a problem. I would not make an adjustment for the over improvements unless I had some basis to make the adjustment like you seem to have had for the pool adjustment.
The neighborhood value trend should be based on more than one resale. In many places the best evidence about value trends can be found in the MLS system that covers the market area.
H2
I suppose I have two questions in one. I am working on a house that is good quality, they have added a detached garage ( that could be converted into living area), and they have an upgraded poolhouse with a bathroom, kitchen, etc . and a covered deck, along with a patio. I cannot find any comps with these things, other than the inground pool. Do you think this could be an over-improvement? Also, this neghborhood is not declining but it is not increasing either: one comp sold in June of 2006 for $ 550,000 and just resold for $ 550, 000.
How would you address that issue, if at all?
Victoria victoria28@cox.net
Dear Victoria,
Over-improvements are always a problem. I would not make an adjustment for the over improvements unless I had some basis to make the adjustment like you seem to have had for the pool adjustment.
The neighborhood value trend should be based on more than one resale. In many places the best evidence about value trends can be found in the MLS system that covers the market area.
H2
207) One Family or Four
01/11/08
Dear Henry,
I am appraising a property that has very large living area on a relatively small lot. It was used as a 4-unit mutifamily and has been converetd to single family. Legal description stll shows a multifamily but the request is for single family. Can I use multifamily comps for single family? If I use mixed comps to get the value, having diclosing all facts, do I violate USPAP or Fannie Mae guidelines?
GENE geneshiao@earthlink.net
Dear Gene,
First, as part of the scope of work discussion, determine if the client wants the property appraised as a single family or four family dwelling. Then use only comps for the use you are appraising. Unless you determine that the Highest and Best use is a reconversion to a four family, you would value it as a single family dwelling using single family comps.
H2
I am appraising a property that has very large living area on a relatively small lot. It was used as a 4-unit mutifamily and has been converetd to single family. Legal description stll shows a multifamily but the request is for single family. Can I use multifamily comps for single family? If I use mixed comps to get the value, having diclosing all facts, do I violate USPAP or Fannie Mae guidelines?
GENE geneshiao@earthlink.net
Dear Gene,
First, as part of the scope of work discussion, determine if the client wants the property appraised as a single family or four family dwelling. Then use only comps for the use you are appraising. Unless you determine that the Highest and Best use is a reconversion to a four family, you would value it as a single family dwelling using single family comps.
H2
163) REO Comps
11/24/07
Hi Henry,
First let me take a moment to thank you for all of your help in growing my career in appraising. I own most of your books and i have learned so much through them.
My question pertains to appraisals that are reo's. When appraising a subject that is an reo sale for john q. Public which are the right comparables to use?
Andrea veit andiee22@aol.com
Dear Andrea,
If all the sales in the market area are reo sales then i would only use reo sales comparables. However, usually both kinds of sales exist in a market area. In this case i would use both kinds of sales.
Keep in mind your appraisal is of market value.
H2
P.s. i am glad that you have found my books so useful.
[editor's note: for all of henry's books, check out our distributor: www.formsandworms.com]
First let me take a moment to thank you for all of your help in growing my career in appraising. I own most of your books and i have learned so much through them.
My question pertains to appraisals that are reo's. When appraising a subject that is an reo sale for john q. Public which are the right comparables to use?
Andrea veit andiee22@aol.com
Dear Andrea,
If all the sales in the market area are reo sales then i would only use reo sales comparables. However, usually both kinds of sales exist in a market area. In this case i would use both kinds of sales.
Keep in mind your appraisal is of market value.
H2
P.s. i am glad that you have found my books so useful.
[editor's note: for all of henry's books, check out our distributor: www.formsandworms.com]