A “home” can mean different things to different people. For the owner, a property may have emotional value, but for buyers, this is non-existent. An appraiser is trained to see the real value of a property by considering many different factors that are not immediately apparent to both sides.
Real estate appraisers establish a specific valuation process during their appraisal to determine how much a home is really worth.
During the appraisal process, appraisers take a look at comps. In real estate, this refers to comparable sales or “comparables”. Comps are usually determined by nearby properties that have sold within the last year and have similar attributes.
How Real Estate Appraisers Determine A Homes Value
It is the real estate appraiser’s job to come up with the most accurate estimate of the property’s current market value. In order to do this, they analyze recent comparable sales in the area. It can be difficult to even define which sales to include, what attributes to consider, and what area should be analyzed.
It’s easy to say any “recent” sale, but appraisers still have to define how recent a sale should be. Some experts think sales that happen within 90 days could be included, while others think it should be fewer than that. And as always with real estate, location matters. Proximity is another key component of comps. Comps can refer to other properties within a 1-mile radius, for example.
The neighborhood is another factor appraisers look at. Recent sales may be in close proximity, but belong in entirely different neighborhoods which make a huge difference when determining their value.
Whether a nearby property is, in fact, comparable raises a lot of questions. Real estate’s value can be determined by factors such as region, community, school system, interior features, and exterior features. This is why finding comps is much harder than people believe.
Keep in mind that only sold properties may be used in an appraisal and determination of a property’s value. This is because they represent amounts actually agreed upon for properties. Appraisers look for data from real estate publications, public records, buyers, sellers, fellow appraisers, etc.
While it can be hard to find comps, experienced appraisers can use these differences between properties to set a more accurate estimate. It allows them to compare and make suitable adjustments, which is how they arrive at the property’s real value.
Adjustments in Real Estate Comps Sales Price
Appraisers often have to deal with comparables that are not very similar to the subject property. This is why they go through the adjustment process to compensate for the differences among the properties.
For example, if the subject property is a four-bedroom house, the appraiser will ideally look for a comparable house with the same number of bedrooms. But if the subject property and the comparable house are similar in all aspects except the number of bedrooms, then the appraiser can lower the price of the subject property (if it has fewer numbers than its comparable property) to accommodate the fact that it has fewer bedrooms.
In laymans terms, if the home being appraised has fewer bedrooms, and is of the same quality build, than a previously sold house, then the appraiser can lower their appraisal based on fewer bedrooms.
Likewise, the price of the subject property can also increase if it turns out to be superior to the comps.
The appraiser may look at factors such as the number of bedrooms, number of bathrooms, construction age, square footage, upgrades, amenities, location, and the property’s general condition. The key is to select properties that most closely match the subject property.
The price will keep getting adjusted as more factors are included in the calculation. Running comps is one of the best tools to determine a property’s value—but the most accurate comps are only done by experienced realtors and appraisers who have access to the complete MLS listings. Appraisers also take into account the buyer’s preferences.
Where to Find Comps
There are four websites that dominate web traffic when it comes to real estate searches: Zillow, Trulia, Redfin, and Realtor.com. These tools can be used to evaluate a home.
Zillow is currently the leading player when it comes to online house values. With a feature called a “Zestimate”, users can check the automated estimate based on public records and sales comps. Trulia is similar to Zillow.
Redfin is another online brokerage website that has online property valuation tools. Realtor.com is a website that allows users to search for their home’s worth by showing what houses sold for in their area.
There are also paid services that can help find comps for appraisal, such as Home Smart Reports and RealQuest.com Home Smart Reports offers a pay house value engine that includes property information, nearby sales with a map, and a neighborhood summary. It also features more advanced reports such as risk analysis and statistical charts.
RealQuest.com is a service that provides members with tons of useful data on a given property such as comps and comparable sales reports.
Sources:
https://en.wikipedia.org/wiki/Real_estate_appraisal
https://www.masterpassiveincome.com/real-estate-comps
https://www.doughroller.net/smart-spending/home-comps-matter-how-run-them/
https://www.bankrate.com/finance/real-estate/comps.aspx
https://www.biggerpockets.com/rei/real-estate-comps-house-value/
