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Old 07-19-2012, 11:20 PM
 
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I have had two houses appraised in the past year and am confused as to how appraisers use comps to come up with an appraised value. In each case, the comps used appeared valid and price adjustments were given that seemed appropriate. Both subjects were nicer than the comps so the price of the comps were adjusted up. However, the appraised value was lower. In one case significantly lower.

How does an appraiser use the adjusted sales price of a comp to come up with an appraised value?
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Old 07-20-2012, 06:47 AM
 
Location: The Triad (NC)
26,859 posts, read 57,900,981 times
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Quote:
Originally Posted by NativeJr View Post
I have had two houses appraised in the past year and am confused as to how appraisers use comps to come up with an appraised value.

How does an appraiser use the adjusted sales price of a comp to come up with an appraised value?
The best I can figure it's some sort of VooDoo they use.
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Old 07-20-2012, 09:22 AM
 
3,029 posts, read 6,912,486 times
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Quote:
Originally Posted by NativeJr View Post
I have had two houses appraised in the past year and am confused as to how appraisers use comps to come up with an appraised value. In each case, the comps used appeared valid and price adjustments were given that seemed appropriate. Both subjects were nicer than the comps so the price of the comps were adjusted up. However, the appraised value was lower. In one case significantly lower.

How does an appraiser use the adjusted sales price of a comp to come up with an appraised value?
Last time I checked, there isn't an adjustment for "nicer". There are adjustments for factors such as location, size, no. of bedrooms, lot size, age, condition, etc.. According to every property owner I've ever spoken to, their house is always "nicer" or better than others in the neighborhood. Just wondering how you knew the subject was "nicer"; did you go inside the comps? Being too low for the property owner or buyer and too high for the lender is also common more often than not. The value of the subject should fall within the range indicated by the adjusted indicated values set by the comparables.
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Old 07-20-2012, 11:10 AM
 
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Actually, "nicer" was sloppy terminology on my part. I apologize. One of my appraised homes is a condo. Three out of the fours comps where in the same complex. I have been in all three. This is a mid-rise (three levels) and the comps are virtually identical with following exceptions. My unit is on the ground floor. Two of the comps are on the second floor, the third 3/4 below ground (grade). All have screened porches. I converted my screen porch into an enclosed patio/sun room.

My unit was listed at $175k. After four weeks on the market with lots of activity and several low offers ($150's), we reduced the price to $169,900. Three previous rejected offers came back with much better offers. We rejected an offer of $165,000 with $2000 in seller paid closing costs. We accepted an offer of $164,000 with $4000 in seller paid closing costs. The one we accepted wanted ot close quicker and was doing conventional financing with 20% down.

Two of the three comps sold in the past six month for $154k. The third (the basement unit) sold for $140K. The fourth comp was 0.9 of a mile away and sold for $198K.

The appraiser adjusted the value up (+) for the two comps that sold for $154. He gave +3000 for ground vs second floor (steps) and +1000 for the sun room vs screen porch. The sun room is a desired improvement. Thus, the adjusted values of those two units was $158K.

For the other comp in my complex, he gave a +5000 for quality for an adjusted value of $145k. The square footage of the forth comp was greater, so he gave a downward adjustment of $7k for an adjusted value of $192K.

He used the market comparison approach to appraise my unit at $156K.

I am simply trying to understand how he arrived at that value. It was not an average of the comps. He did not toss out the high and the low comps and then take an average. He did not use the most similar adjusted values. The only thing I can guess is that he tossed out the high and low then took an average of the actual sell price ($154k) versus the adjusted sales price ($158k).

The tax assesed value of my unit is $158K and is higher than all other comps! He indicated the market is stable in this area.

Since Jan 2010, 12 units have sold. Seven have been resales and five were foreclosures or otherwised distressed sales. The average price of all sales is approx. $152,500. The average price of the resales is $159,600. The average price of foreclosures is $142,500.


PS: With the other town house that was appraised...we did renovations right before the market went south. The renovations resulted in the appraisers words - "over remolded for the area (granite vs laminate, hardwood vs carpet)." She gave adjustments in price to the comps that arrived at a what I would have consider a reasonable value considering the market conditions. She then came up with an appraised value $15k below the adjusted value of comps and requested a tidewater appraisal (begging for someone to prove her wrong!). We had three full price contracts the that were terminated due to the low appraisal - 50% of contracted price. It finally sold for cash around the middle of the adjusted comps and $12k higher than the appraiser's value. The market conditions in this area were extremely bad. There had been no resales in this neighborhood in years - just foreclosures.

Last edited by NativeJr; 07-20-2012 at 12:26 PM..
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Old 07-20-2012, 02:18 PM
 
3,029 posts, read 6,912,486 times
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The fourth comp (which is not in your complex?), adjusts to a value well above the remaining sales and it appears that the appraiser has assigned it very little weight if any. You are confused about a value of $156K when the adjusted range of the 3 most comparable sales is between $145K and $158K?

It is not uncommon for an appraiser to basically throw out or assign little weight to any sale in the reconciliation of values which adjusts to a value indication well above the more predominant values indicated by the other comps. It would be nice for the appraiser to explain this however it's not really required.

Last edited by ETex2; 07-20-2012 at 02:44 PM..
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Old 07-20-2012, 04:51 PM
 
Location: Lexington, SC
4,281 posts, read 10,291,824 times
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Nat

You say:

The average price of the resales is $159,600. The average price of foreclosures is $142,500.

This says the average I can buy in there for is $150,500.00

The market conditions in this area were extremely bad. There had been no resales in this neighborhood in years - just foreclosures.

It sounds like a very troubled neighborhood.

You say you sold for $164K minus $4K so your bottom line was $160K. Based on you information, you sold for higher then I would have paid to live there.
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Old 07-20-2012, 04:52 PM
 
Location: Dallas TX
14,300 posts, read 20,557,796 times
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Not sure how your comps were done, but most importantly is having someone local and having someone who actually comes into the house and looks through each room.

The first time we had our house appraised, they didn't walk in the house, only used comps. Appraised it $100,000 less than we thought it was worth. We ended going with a local company and made a big difference. Person came inside, understood the market and appraised it much higher.
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Old 07-20-2012, 05:15 PM
 
265 posts, read 340,238 times
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Quote:
Originally Posted by accufitgolf View Post
Nat

You say:

The average price of the resales is $159,600. The average price of foreclosures is $142,500.

This says the average I can buy in there for is $150,500.00

The market conditions in this area were extremely bad. There had been no resales in this neighborhood in years - just foreclosures.

It sounds like a very troubled neighborhood.

You say you sold for $164K minus $4K so your bottom line was $160K. Based on you information, you sold for higher then I would have paid to live there.
You missed the part where I said I have had two houses appraised recently.

One is a condo lin a very desirable area in Atlanta across the street from Piedmont Park. The appraiser indicated the property values were stable in this area, the inventory was in balance, marketing time 3-6 months. We had four offers ranging from $140k to $165k and were under contract in a month. At the time, my unit was the only 2bd/2ba on the market in our complex. In the past two years, there have been 12 units sold. Five were either foreclosures or otherwised distressed sales.

The other is a town house in a very undesirable area in the outer, southeast suburbs of Atlanta.
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Old 07-20-2012, 05:28 PM
 
265 posts, read 340,238 times
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Quote:
Originally Posted by ETex2 View Post
The fourth comp (which is not in your complex?), adjusts to a value well above the remaining sales and it appears that the appraiser has assigned it very little weight if any. You are confused about a value of $156K when the adjusted range of the 3 most comparable sales is between $145K and $158K?

It is not uncommon for an appraiser to basically throw out or assign little weight to any sale in the reconciliation of values which adjusts to a value indication well above the more predominant values indicated by the other comps. It would be nice for the appraiser to explain this however it's not really required.
I get all of what you are saying. I thought maybe he gave little weight to the high and low values. But the adjusted value of the other two were both $158K. If the appraised value was $158k, I would have understood. Coming back $2k below the two most comparable sales is what I do not understand. The $145k was actually a foreclosure that was bought up by an investor and turned around and sold quickly (two weeks).

The buyer has actually agreed to pay $158K ($2K more than the appraised value). So, I am only down $2k from our original contract.

I am just trying to figure out how the appraiser came up with $156K.
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Old 07-21-2012, 12:31 AM
 
936 posts, read 1,749,302 times
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The appraiser is required, per USPAP, to explain the reconciliation in the report. After the adjusted sales prices are derived then the appraiser shouldn't just be picking a number out of the air without explaining the reason behind the reconciliation.

You mentioned having another appraisal where the appraised value came in much lower than the adjusted sales prices. If I understand what you are saying, then that appraisal is useless. Any factors that affect value should already have been adjusted on the comparables, so the adjusted sales prices should be good indicators of value. It's nonesensical to do all of the adjustments then choose a value that is outside of the range of adjusted sales prices.
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