“Why is an appraiser asking me about an old comp?” In the course of my work, I have elicited that question from quite a few agents and brokers. One agent said, “I thought you guys could only use comps going back 6 months.” Another replied back to me: “Please, why you would use a comp from 2.5 years ago when there have been many[,] many sales in this development just in the last year?” When I told her why, she replied: “How interesting. Thank you for clarifying.”
Since this question keeps popping up, I thought it might be helpful to address it with a blog post.
The appraisal report is not for lending: The overwhelming majority of appraisal reports are written for a lending institution due to a sale or refinance—certainly over 90% and most likely approaching 99.9%. So, it’s understandable why an agent might be skeptical about an appraiser querying them about a sale they closed over a year ago or, sometimes, a few years ago. Is this appraiser clown going to screw up someone’s deal by using a dated comp?
No. Sometimes the report is not for lending and the effective date of value is not contemporary but is a point in the past. Examples:
- Estate Tax: When a family member with property passes away an appraisal report with a valuation date as of the date of death is often needed. Sometimes years might pass by before this legal requirement is understood by the family and an appraisal report is ordered.
- Legal Disputes: Problems can arise between neighbors that is brought to litigation. If someone is attempting to prove damages to their property multiple values may be needed: one contemporary and one prior to the start of the problem. A good example of this is a view encroachment by a neighbor. Views often add a considerable amount to a property’s total value and when a neighbor blocks a scenic view lawsuits can fly!
The appraisal report is for lending, but the property is complicated: The ideal appraisal report, for a lending job, would contain three sales that have closed within the last 90 days and those sales would match each and every attribute of the subject be they physical or locational. The real world is seldom ideal, and the property the appraiser is working on might have some unusual physical attributes or complicating factors. These factors might include:
- A home with an owned solar system in a market where very few sales have solar.
- An unusually large or unusually small house.
- A home that is lakefront or riverfront.
- A home on acreage in an area where few similar sales have occurred.
- A home with some adverse locational influence like a cell tower, power lines, or a large water tank behind it.
- A home in a small prestigious subdivision that has had few recent sales.
- A home on a city lot that is divisible.
- A home that is a borderline tear down.
There are many other reasons, but the above suffices to show how complicated things can get. The only way to figure out how much that cell tower looming over the backyard is affecting the subject’s value is to pull similar comps, even if they are dated, and examine the conditions of their sale. For one report I recently completed, a PGE power transmission tower was on the site. (The home was on about 20 acres.) I carefully followed all major power transmission lines within a radius that took in tens of miles. I finally found one property that had a transmission tower on it and phoned the agent. Even though the sale was five years old she had a vivid recollection of it—not surprising because it was an unusual sale for her—and we discussed the impact on value.
Keep in mind too, a report may have more than three comparables; sometimes a fourth, fifth, or even sixth comparable might be used to tighten the report and the developed opinion of value. (I’ve had to use nine comps on occasion.) A home selling right next door to the subject is about as good as it gets when it comes to bracketing location and might merit inclusion in a report even if it did sell more than a year ago.
An appraiser can account for time: Appraisers have a variety of analytical tools at their disposal and can adjust for time once the proper data analysis is performed. I frequently have to grid older sales since I specialize in the valuation of complicated properties. It is amazing how often a much older sale will line up with a sale that occurred just a few weeks ago once the proper adjustment is made. Doing this has allowed me to demonstrate with verifiable market data that a certain aspect of the subject really does not have a significant impact on value. This has prevented me from accidentally under-appraising a property—something the seller (and their agent) often appreciates!
It’s never good when an appraiser makes a wild guess about something. Data, even older data, can make all the difference in the world. So, if I, or another appraiser, reach out to you about an older sale, rest assured, we have a valid reason for doing so and your recollections might even help save a fellow agent’s deal!