Welcome to the first of a six -part blog series which shows how residential appraisers value real estate using comparable sales. I will take the methods we use and break them down into simple terms using real life examples.
Who should be reading this series? This information might benefit anyone interested in home values but I am writing it for you the real estate agent located in Eastern MA with MLS-PIN access, and with two specific needs in mind;
- a real estate agent doing a CMA to get a potential home value for a listing appointment;
- a real estate agent with a pending sale who is meeting the real estate appraiser.
In both cases being knowledgeable and learning to apply the techniques will give you certain advantages that can help you to be more successful and effective at serving your clients.
This series might also benefit you if you have ever;
- Bought or refinanced a home and want an understanding as to how the sales comparison portion of your appraisal works;
- Checked your home’s assessed value;
- searched for a Zestimate or any other of automated “free home value estimator”.
The 5 steps in the Sales Comparison approach are as follows
1) Study the market then select sales and listings most comparable to the subject (the residence being appraised).
2) Collect and verifydata for each property e.g.; listing and sale prices and dates, physical and locational characteristics plus any special relevant conditions.
3) Analyze and compare each comp with the subject. Consider the time of the sale, location, physical characteristics and conditions of the sale.
4) Adjust the sales price of each comp up or down for any key differences that impact value and/or marketability. Adjustments are derived from the market using matched pairs, regression analysis and other techniques (hang in there this will be to be demystified in part 5).
5) Reconcile the “adjusted sales price” of the comps into one indicated value for the subject.
If you are a real estate agent with a pending sale who is meeting a real estate appraiser, how important is it to for you to know the steps appraisers use? I always “comp out” my subject property but I respect and am interested in the broker’s opinion. My usual experience is that the broker provides “comps” are unusable for reasons that will become clear. you will be able to provide good quality comparables for use in your appraiser package.
If you are a real estate agent doing a CMA for a listing appointment, how important is it for you to close the appointment and leave with listing in hand? You will be able to not only determine and support the correct listing value for your presentation, but will also be able to cut a competitor’s CMA comps to shreds.
This 6 part series will be as follows:
2) Selecting Comparables- Finding an initial value range. How to select truly comparable properties. MLS filtering and research tips, tricks and techniques. The importance of bracketing. Forget price per square foot, why you just have to let this truly awful and misleading indicator go (don’t tell your competition why).
3) Data Verification- GIGO Time saving research methods and shortcut. the most valuable free websites. reading and understanding assessor’s field cards. What to do after discovering non-comps because they failed verification (hint- toss them).
4) Sales Comparisons- Not all differences are valuable in your market. what are the key characteristics that impact value? Understanding the cost vs. the market value of improvements. How to explain this to your clients.
5) Comparable Adjustments- Matched pairs, sequential percentage adjustment, lump sum dollar adjustments, regression analysis, depreciated cost of new.
6) Reconciliation of Comps- Why you never simply average the comps, and how to do a weighted average.
Do not worry if these terms are unfamiliar or seem math-scary. appraisers have our own lexicon just like any profession. The purpose of this series is to demystify and simplify what is going on under the hood of a sales comparison approach to value. And to provide a simple method you can use for your CMAs and appraiser meetings.
See you on Monday 3/31/14 for Part 2 – Selecting Comparable
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