If you have ever sold a home you have heard your Realtor tell you about the comps in the neighborhood. This is how real estate agents determine the price of your home. But with falling prices and slow moving sales the job of an appraiser to determine the local comps, or comperative prices, is getting much harder.
Real estate is local, that has been a mantra here even as we try to write about national real estate trends and issues. While macro economical issues affect the general market, the pricing of homes just one street apart for essentially the same sized home can be miles apart.
The need for a great appraiser with lots of local knowledge is more important than ever. Take my home for example. The subdivision I live in is very nice, not bragging but trying to set the stage.
Just behind us through a green belt and with road access more than a mile away, is another section of town where they built some larger homes that are not as nice. They are intermixed in an area that has gone rental and some section 8. And I am not being judgemental, that is the neighborhood we moved from into our present home.
If I was to sell right now, one of my biggest fears is a lazy appraiser or worse an appraiser who does not know the area. If they take comps from the closer homes my value would drop significantly and the future buyer might have a hard time borrowing in this tough market.
But if the appraiser understands my market well, they would know the comps come off of the road we are on and our home would be a deal. So going into the listing of a home I know that any potential sale will be in the hands of whichever appraiser the buyers lender hires.
For a real estate agent or appraiser to truly deliver exceptional service, the lesson is they have to know the market especially well in these tough times. Otherwise there will be lots of work for few sales until lending restrictions lighten up.
The niche for boutique or specialized agencies that specialize in a market will be even more valuable. I have met with one agency recently that serves only one community. Landfall Realty is a community owned real estate office that serves the Country Club of Landfall in Wilmington, North Carolina. They sell only properties in Landfall and every agent knows every detail on the homes in the community. There is no lost knowledge and they are able to serve their clients well because they are the experts. No one else comes close.
That is a lesson for appraisers and agents, become the expert in a section of your community. You will be very successful in this market being very focused. If you try to do too much you run the risk of diluting your knowledge and your potential.
The bad news is that even appraisers and real estate agents are having a harder time discerning a home’s worth. The old rule of thumb, that houses appreciated 3 to 5 percent annually, no longer applies, although there are areas where home values have remained stable.
“You can’t deal with national and even area statistics,” said Hal London, president of Key Appraisals, Park Ridge. “There are certain pockets of neighborhoods that are holding their own. Even in a given neighborhood, you can have different markets on the same street. The bottom line is you don’t know.” via the chicagotribune.com.
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{ 5 comments… read them below or add one }
Of course real estate is local, that is what makes every market unique. Every city, every town, every waterfront, riverfront etc…it's all local. Price is dictated by one main factor- COMPS…what has sold in that immediate area in the past 30 days.
The real estate market in Sedona has changed drastically.
http://www.sedonaarizonahomesforsale.com
Testing the comments on the new template.
“The old rule of thumb, that houses appreciated 3 to 5 percent annually, no longer applies”
Yet another misleading, and irresponsible statement by someone who does not understand the valuation process. While I agree that using section 8 housing is not a true comparable in its utility, an appraiser is obligated to use the most similar type of property available. SIMILAR being the key. Just because you do not happen to like the neighborhood, means nothing. That is a BIASED view. An appraiser values a property with an UNBIASED view. Homeonwers and realtors don’t like that- because they are all about MAKING money.
Their interest is purely profit, and not fact.
Comparable: the representing of one thing or person as similar to or like another; an examination of two or more items to establish similarity. SIMILAR, being the emphasis.
Forget about 30 days…if your house is a 4br 2 ba 2k sf .25 lot
and my comps are on the same block or a few streets away, almost exact in attributes- but 12 to 18 months old, guess what? They ARE the best comps to use. A time adjustment would be the way to reflect the increase or decrease in value. It is too bad most everyone including a lot of appraisers fail to understand the proper methodologies of valuation.
I know that with the recent HVCC implementation, one of the main complaints has been that appraisers from outside of the area are showing up to do local appraisals. Mainly becasue they were willing to do the job for cheap. Usually these are the inexperienced appraisers. What they oftentimes are unaware of is the work involved in adequately researching a property and neighborhood in which an appraiser is unfamiliar with. YES, a good appraiser can do a good job appraising a property in an area he is unfamiliar with if he puts the time and effort in and has the experience.Example: Recently a homeowner contacted me to do a second appraisal on his beach property (2 blocks away) in Venice beach. The big issue was his house was on a double lot with an R3 zoning. The appraiser that came out did not address this issue at all in his appraisal. By researching the data, (past/present) running some analytics, and interviewing local realtors, he could have adequately addressed this issue. He was an appraiser from the suburbs, only familiar with tract homes,in an appreciating market. "Sounds like a hook for a song"!
I work for some of the largest banks in the country. Guess what. the banks tell the appraisers what to do and the appraisers do it. If the appraiser doesn't, they wont have a job anymore. The banks are the boss. Many times, appraisers have limited ability to "pick the best comps," but we do the best that we can. I get a list of 20 to 48 items of exactly how to write my appraisal. If I do not follow one of the guidelines, I'll be questioned as to why I used or why I did not use the comparable sales. Not only this, I still have to follow all of the other guidelines by FHA and USPAP. This job is getting harder and harder. Why. too many bosses.