Home Appraisal Comps

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retiredjg
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Home Appraisal Comps

Post by retiredjg »

Here's another question about home buying. Must be the season - there are a lot of these questions lately.

When a home is appraised, it is compared against "comps" - other nearby homes of similar size, age, etc. Let's say one of the comps sold for $100k, but the seller paid $5k toward the buyer's closing costs. Or another comp sold for $100k but there was a $10k credit to the buyer for repairs.

Are these comps considered or reported to have been sold for $100k or $95k and $90k?


A related question - from the buyer's perspective, is it better to buy at $200k with $10k credited toward repairs or is it better to rewrite the original contract and buy at $190K? Or is there actually any difference?
livesoft
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Re: Home Appraisal Comps

Post by livesoft »

I would think from the buyer's perspective that the lowest sales price will give one the lowest property taxes. So $190K is better than $200K on the sales contract.
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pshonore
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Re: Home Appraisal Comps

Post by pshonore »

retiredjg wrote:Here's another question about home buying. Must be the season - there are a lot of these questions lately.

When a home is appraised, it is compared against "comps" - other nearby homes of similar size, age, etc. Let's say one of the comps sold for $100k, but the seller paid $5k toward the buyer's closing costs. Or another comp sold for $100k but there was a $10k credit to the buyer for repairs.

Are these comps considered or reported to have been sold for $100k or $95k and $90k?

A related question - from the buyer's perspective, is it better to buy at $200k with $10k credited toward repairs or is it better to rewrite the original contract and buy at $190K? Or is there actually any difference?
An appraisal should be done three ways: replacement cost, income approach, and comparative market analysis. Granted, almost all residential appraisals concentate on the CMA but skipping the others is taking shortcuts. Also, the adjustments you mention are not usually part of the public record and be can difficult to track down.

On the related question - Not sure it makes much difference to the buyer providing he's meeting loan to value ratios. Makes more difference to seller who is paying commission and transfer taxes, etc based on contract price
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jfn111
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Re: Home Appraisal Comps

Post by jfn111 »

When I'm looking in our MLS system it shows the sales price and the down payment. Since the State has certain title transfer taxes the selling price has to be accurate. The only thing that gets hidden is the Sellers contribution to buyers closing costs. I'll often ask for the seller to contribute 2% to the closing costs.
The house will still be recorded as selling for X but the buyers are really paying X-2%.
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retiredjg
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Re: Home Appraisal Comps

Post by retiredjg »

Does anyone know what an appraiser uses for data? Public records? MLS? Either or both?

Thanks for your responses - a couple of things were mentioned that I had not thought of.
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retiredjg
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Re: Home Appraisal Comps

Post by retiredjg »

jfn111 wrote:When I'm looking in our MLS system it shows the sales price and the down payment. Since the State has certain title transfer taxes the selling price has to be accurate. The only thing that gets hidden is the Sellers contribution to buyers closing costs. I'll often ask for the seller to contribute 2% to the closing costs.
The house will still be recorded as selling for X but the buyers are really paying X-2%.
When you say "I'll often ask..." what position are you in? Agent? Buyer? I'm not sure I understand the purpose of doing this.
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jfn111
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Re: Home Appraisal Comps

Post by jfn111 »

retiredjg wrote:
jfn111 wrote:When I'm looking in our MLS system it shows the sales price and the down payment. Since the State has certain title transfer taxes the selling price has to be accurate. The only thing that gets hidden is the Sellers contribution to buyers closing costs. I'll often ask for the seller to contribute 2% to the closing costs.
The house will still be recorded as selling for X but the buyers are really paying X-2%.
When you say "I'll often ask..." what position are you in? Agent? Buyer? I'm not sure I understand the purpose of doing this.
I'm an Agent so when I say ask I'm referring to negotiating for my buyers. Generally an appraiser will use Comps taken from MLS to help determine value. I was just suggesting that the sales prices, in MLS, are accurate for tax purposes but sometimes the buyers actually pay less then the posted price.
Another example- in a recent sale I asked the sellers to through in the washer, dryer, stove, refrigerator, riding lawn mower and snowblower. When the appraiser looks at the sale he/she only sees the selling price not the $7-10 grand worth of extras that made the deal. :moneybag
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Re: Home Appraisal Comps

Post by LeeMKE »

Does anyone know what an appraiser uses for data? Public records? MLS? Either or both?
Appraisers in most communities subscribe to a database that collects Tax and MLS records, and adds in appraiser notes of what terms they found that affect value. It is pretty common for the appraisers to know about contract terms to pay for repairs, etc. so that would be taken into account on their appraisals. The banks require that the terms be included so they have as much accuracy as possible.
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Re: Home Appraisal Comps

Post by zed »

jfn111 wrote:
retiredjg wrote:
jfn111 wrote:When I'm looking in our MLS system it shows the sales price and the down payment. Since the State has certain title transfer taxes the selling price has to be accurate. The only thing that gets hidden is the Sellers contribution to buyers closing costs. I'll often ask for the seller to contribute 2% to the closing costs.
The house will still be recorded as selling for X but the buyers are really paying X-2%.
When you say "I'll often ask..." what position are you in? Agent? Buyer? I'm not sure I understand the purpose of doing this.
I'm an Agent so when I say ask I'm referring to negotiating for my buyers. Generally an appraiser will use Comps taken from MLS to help determine value. I was just suggesting that the sales prices, in MLS, are accurate for tax purposes but sometimes the buyers actually pay less then the posted price.
Another example- in a recent sale I asked the sellers to through in the washer, dryer, stove, refrigerator, riding lawn mower and snowblower. When the appraiser looks at the sale he/she only sees the selling price not the $7-10 grand worth of extras that made the deal. :moneybag
Including personal property in a real estate transaction has been and continues to be problematic. For instance doing so is a violation of Fannie and Freddie underwriting guidelines. If/when F/F finds a loan in noncompliance they can and do demand that the lender take back the note. It's not unheard of for the lender to then turn around and sue the agent, broker and/or appraiser, especially in instances where the mortgage is in default.

full disclosure: I'm not a real estate expert but I did participate in a continuing education course on how to identify real estate fraud ... and yes, it was at the Holiday Inn Express :)
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retiredjg
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Re: Home Appraisal Comps

Post by retiredjg »

jfn111 wrote:Generally an appraiser will use Comps taken from MLS to help determine value. I was just suggesting that the sales prices, in MLS, are accurate for tax purposes but sometimes the buyers actually pay less then the posted price.
That is pretty much the answer to the question I was asking. Thanks.
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Re: Home Appraisal Comps

Post by grabiner »

My own appraisal report lists the data source as MRIS (Metropolitan Real Information Systems), which is the database used by Realtors to make property lists for easy comparisons; I used MRIS listings in making my own comparisons of the places I was considering. The appraiser also verified data with the tax records.

However, it's still possible for errors to creep in. The appraiser copied the wrong number (presumably from the MRIS sheet) for the condo fee on an identical unit in the same building as my condo. (This didn't affect the appraised value, as the appraiser's notes said that no price adjustment was made for the fee difference; it's pretty clear that two units in the same building should not have an adjustment there.)
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Re: Home Appraisal Comps

Post by afan »

Given the errors in appraising a house, I suspect the value of the sorts of negotiations discussed here are lost in the noise. The appraised value is an estimate, with limited accuracy. You would love for it to be within 10% of the sale price. You hardly expect it to be within 1-2%. If someone were negotiating discounts and give backs worth 10 or 15 percent of the price of the house then you could distort the value of comps. But I doubt that happens very often.
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jfn111
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Re: Home Appraisal Comps

Post by jfn111 »

afan wrote:Given the errors in appraising a house, I suspect the value of the sorts of negotiations discussed here are lost in the noise. The appraised value is an estimate, with limited accuracy. You would love for it to be within 10% of the sale price. You hardly expect it to be within 1-2%. If someone were negotiating discounts and give backs worth 10 or 15 percent of the price of the house then you could distort the value of comps. But I doubt that happens very often.
Your absolutely correct. No appraisal is going to be perfect and all most people care about is that the property appraises for more then the loan.
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