Most everything that a typical real estate buyer would look for in a home needs to be weighed by the appraisers. This includes everything from neighborhood marketing time, to proximity to flood zone, to zoning and school districts. The major factors used in developing an opinion of market value of a home are comparable sales, or comps as it’s known by appraisers, and listings. (For more on comps click here.)
The appraiser searches the subject’s market area for homes that are physically and locationally similar to the subject property that is being valuated. Once comps are selected, the appraiser adjusts for differences so a true cash value is represented in the comps adjusted sales prices. Model matches and homes that are just like the subject make for ideal comps. But what happens when there aren’t model matches?
The appraiser is prepared for this. Their report is more difficult to conduct without model matches as comps, but not impossible. The appraisal has an arsenal of qualitative and quantitative measurement tools that can paint a picture of the property’s market value without looking at comparable properties.
Here is a list of tools the appraiser may use to develop their opinion on the property’s value:
Use the next best available data. This includes square footage, age, school district, or other features and characteristics as similar to the subject as possible. For example, if the subject is a tri-level and there are no tri-level homes in area, the appraiser will use other split level homes as comps and adjust accordingly.
Expand the search radius to find more relevant sales data. If an appraiser can’t find any comparable properties in the immediate neighborhood, and similar neighborhoods exist in the subject’s market area, appraisers can use sales and listings from that similar neighborhood. They just need to make sure not to leave the market area, as they may lack important indicators of value subject as having the same school districts, neighborhoods, road access, etc.
Use historical data and dated sales that are representative of the subject. Previous sales are a great indicator of property value. Unfortunately, they come with a shelf life, but that doesn’t mean they are useless. Historical sales data can be used as long as the fact that they are dated is factored into the value that was given.
Support the work file with similar comparable listings and listings under contact. This includes similar comparable listings that identify with the subject in design, curb appeal and characteristics. If a value is given to the subject, the listings will offer additional support and give more transparency on how the final indicator of value was derived. If the listing is for $200,000, and contact price is $195,000, your subject appraises for $195,000. The contact comparable supports the value the appraiser gave.
It is also important to provide plenty of commentary explaining all steps taken, since the data being used are older sales, homes unlike the subject or a far distance away. It doesn’t happen often, but you have to sometimes be creative. It is important to make sure you have channeled every route, and exhausted every resource before using data that is unlike the subject.; it’s all about research after all.
For more information, visit www.MarylandAppraisal.com.