Realtors? How do you really figure comps when... (contingent, appraisal, 5%)

[RedZin]

You've got a large neighborhood full of custom homes (think about 10 or more builders) and the homes vary in age from about 12-20 years old?

Assume the lots are all roughly the same size. How on earth can you figure good comps? Especially in the current market when you may only have had 1 sale in the entire (large) neighborhood in the past 6 months, and the nearest homes that might be of similar build quality are much newer?

[Silverfall]

1) You go back farther than 6 months and start to adjust for the decline in the real estate market.
2) You do into the closes comparable neighborhoods and use those homes as comps.
3) You use then newer comps and adjust for age.

Unless you are talking about a spec subdivision with 4 floor plans that are all the same, all comps need some kind of adjustment.

[MikeJaquish]

The goal is to find properties that are close enough comps to keep the adjustments within 5% to 8% of value.
A few weeks ago on a very difficult property to comp, the appraiser had to adjust by 15% on the comparable properties. The underwriter balked and required a field review by a second appraiser. The 2nd OK'd the first.

We got to closing OK. It was a little diversion from our typical cookie-cutter valuations in the tracts and semi-custom neighborhoods.

On properties like that, I tell my clients, "This is where pure science yields to art and opinion."
Bottom line, while there are procedures and practices, some properties require a skilled "artist."

[RedZin]

Thanks Mike! Thanks Silver!

I've wondered how anyone can come up with comps in neighborhoods where sales are really slow.

FYI, Mike, I'm thinking of Wessex here. Closest comparable n'hood is Weston Estates, but things are newer there, and just as sluggish.

I saw a sale pop up on the tax database under "Sales" while looking over the info on a new house in Wessex and it was in Weston Manor! Those houses are brand new. Only one resale ever, with one contingent that's a resale. I guess it's sort of a comp, with an adjustment for age?

[middle-aged mom]

New homes are not always worth more than older homes. It's the market reaction that determines if an adjustment for age, is necessary or not.

[chet everett]

So many factors are "adjusted" in true custom homes -- one man's Picassso is another's bird cage liner!

The "rules of thumb" about homes / neighborhoods that have "unique" features often are tossed out the window. Real estate agent that KNOWS THE DIRT can be invaluable. In "high end" developments the number of bedrooms is often the only thing that is even remotely useful in comps and even then if I know that one home with 6 bedrooms has three that are really unusable for other than "staff" while another with five bedrooms that becuase of size / appointments are ALL essentially "master suites" there is NO WAY I am going to not demand a detailed appraisal report and second review...

So much is going to come down to "questions of functionality" -- some enormous kitchen with obsolete appliances from another era is worth a fraction of what a smaller but better equipped kitchen that will resonate with a high end buyer.
Home with a fantasically well equipped three car garage is often better than some place with more parking spots but crummy access to storage in garage. The stock appraiser's calculations need to be supplemented with notes about desirable add-ons and higher quality features.

Heck, these things are ALSO at work in high rises and condos -- sure the sq ft might the same but when some smart unit on a high floor with a brand new high end kitchen that has views to die for is priced "by the pound" the same as some worn out drab unit that affords a 24x7 display of changing stoplight colors and the stink of bus fumes on a sq ft basis no competent lender will accept this ...