Appraisal Blog

Comparable Sales -how are they chosen?

Good question. To answer this, I ask another question. Why are they chosen? Why even have them in the report? Well, it has to do with the very basics of defining value.

After all , what is value? Let's take a bottle of water. Many would pay maybe 70 cents for a nice cold one in the middle of the summer. I probably would not pay more than $1.25. I don't VALUE it that much. But, I think that the VALUE for a bottle of water will be much greater if I found myself stuck for a week in a hurricane ravaged island with no other source. How much would I pay then? $2.00? $4.00? 

I think you would agree that the situation in which we are it makes a difference. In this case, the difference was the lack of supply, and the overwhelming demand I have for water. Another example - look at the enormous VALUE increase of Michael Jackson memorabilia after his death as opposed to when he was still living. Just phenomenal. What changed? Well - there is no more Michael Jackson "moon-walking" around. The supply is gone.

OK. So. We get the idea. So, the thing about houses is - they generally can't be moved. Once they are built - there they are (unless you are Superman). And, as every real estate agent will tell you, location, location, location is the meat and potatoes of marketing your house and eventually the determinant of your sales price.

In the market place, the VALUE of your house is determined mostly by the constant tug of supply and demand in and around your neighborhood. The best way to find out what the average buyer is willing to VALUE your house at is to obtain what buyers have typically paid for similar houses in your area in the recent past. So, ideally, we want to analyze identical homes to the home we are appraising that have sold last month across the street or next door. Unfortunately, this is the real world, and there are differences between homes, some have pools, some are bigger, some are newer, and some might have been foreclosed on and are in need of repair.

So which ones do we choose? The answer lies with, of course, the subject (the house we are appraising) and the market forces in the area. In some markets, there is a huge difference in sales price between a 2 bedroom versus a 3 bedroom home, while in others, there is no value difference at all. Pools can actually be a detraction in some markets where there has been constant shifts in land causing problems, and in other markets they are greatly VALUED. Remeber the water analogy - suppy, demand. What is the demand for? Living area, garage, granite counters, extra bathrooms? This can be different in each market. That is why it is so important to choose comparable sales that are close by - they share the same market forces. We also want to choose homes with as many similar physical aspects as compared with the subject as possible.

I may think that my water softner system and new tankless water heater that I installed last week is what makes my home the best on my street, but average Joe homebuyer may really not care.

If you don't rember anything else about his blog, remember the words of the American writer and satirist Mark Twain, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."

So, you're watering your lawn, and a notice a car drive by slowly, the driver looking at your house. Suddenly, he / she takes out a digital camera and snaps a photo of your home - and drives off quickly without a word.

What was that - a drive-by shooting?

If you ever witness this strange behavior, don't automatically run for the shotgun. It may be an appraiser just doing his job. Appraisers sometimes are required to take photos of homes that have sold recently to place in the appraisal report. Taking pictures of homes from a public street is perfectly permissable, even if you are not an appraiser. It is understandable to be concerned, and by all means you have the right to investigate. If a property owner is visible when I am taking pictures, I usually get out of my car and explain to them the situation, and they are more than happy to comply. One homeowner even wanted to pose in front of her house!

Many appraisers have a heavy workload and don't want to take the time to do this, which saves time but may result in a city wide chase scene. I prefer to take the time.

When I was freed from the fetters of college, and was clamped to the iron chains of the outside world (little did I know), my father had mercy on me and hired me to manage his clinic. My greatest teachers were my parents, especially my mother, who had managed his family practice since the beginning of time. I observed how she responded to cranky patients, problematic employees, indifferent insurance companies, and egotistical sales peope, and arrogant clients. She was firm, yet listened. She was tough, but relenting. She could be sharp as a knife, and as merciful as only a mother could be. And she had the patience of Job. I knew that these skills took years of develpment, and knew that I had a long way to go.

One of the main traits that I was able to garner from my 8 years of servitude was that through all the trials and tribulations, my parents always exhibited professional respect to every person. Never did arguments turn into insults. Never did they allow a frustrating situation make them exhibit extreme irrational behavior. Through all of the years I worked there, never did I hear yelling or the use of foul language. The style of leadership exhibited from my parents radiated to all in the workplace - employees, patients, sales people, etc.  so that over time, those that entered our medical practice knew the atmosphere and what to expect of every person. They would receive human dignity and respect. They would recieve it through our words, our ears, and our actions. It did not mean that they would get what they wanted; my mom was no push over! But it meant that she would take the time to speak with them, listen to them, and explain things, even if they did not want to hear it.

In the end, my father had a successful practice that he was able to sell for a good chunk of change, and now is enjoying his retirement. The doctor that took the practice over nearly ran it into the ground within a year. That is another story, but I saw the way he treated his employees and everyone else, and I could tell why no one wanted to work with him. He lacked the ability to give respect to those around him.

Learning this trait has been invaluable to me as I deal with borrowers, real estate agents, mortgage brokers, appraisal management companies, builders, and buyers and sellers. Every once in a while, our office gets "The Call" about the appraisal that didn't make the purchase price. Actually, it is a barrage of calls from all parties involved in the transaction, so we get hit from every angle. "Don't you know what you are doing?", "I never have this problem with the other appraisers!", "You are blowing the whole deal!", "You really f------ me up and ruined months of work!" These are the more tame calls we have recieved. I haven't been perfect in all of my responses, but I always strive to do better. These are frustrated responses of people that more than likely have no understanding of the appraisal process. The may think that USPAP is a medical exam, and not the bible that we as appraisers must abide by for every single appraisal. Sometimes, you just can't communicate with them, and a polite silence and "thank you and goodbye" is the best policy. It takes practice. I takes patience (alot of it). It also takes a good amount of humility to listen, and admit that sometimes a mistake can be made (although the appraisal is usually double and triple checked, especially when it does not make the sales price). Many times these callers haven't even seen the appraisal report.

If you're frustrated, It's best to take a deep breathe, and collect your thoughts. Get all of the information before making judgement. Try to understand before being understood. Don't make rash judgements. In this way, you will be well informed, and will appear to everyone (especially yourself) as a professional, or at least a reasonable person.

So, in summary: Be respectful. Getting angry is fine, but don't call me names. Don't insult me. Don't be-little my profession. There is a big chance that I may know what I am talking about.