What does the appraiser do when there are no comps?

What does the appraiser do when there are no comparables A concerned agent called me the other day worried about what would happen if the appraiser could not find comps for a house that she was selling. I assured her that even though it looked like there were no comps, there probably were if you looked a little more. This provided a good opportunity to explain the process of how appraisers find comparable sales (“comps”), so I thought I would share with you what I told her.

Ideally sales comparables (“comps”) would have sold within 90 days, be within 1 mile of the subject, and fall within the 15% net, 25% gross, and 10% line item adjustment range suggested by lenders, however this is not always possible. I have never had an appraisal where I could not find comps, however with that being said, they may not have been the comps the lender would have liked. Short of making comps up (which I have heard does happen, just check your state appraisal licensing board) you have to work with what you’ve got. Let’s take a look at how an appraiser might handle these criteria when the sales aren’t perfect, and it looks like there are no comps available. Keep in mind that attempting to meet one criteria may cause you to fall short on another one.

Time of Sale- Lenders would like for comps to have sold within 90 days of the date of the appraisal because they will accurately reflect current market conditions. When no recent sales have occurred within the immediate neighborhood/subdivision you have two choices, either go back in time or go to another area that is considered similar to the subject. If you go back in time you will need to decide if there has been a change in the market from the date of the older sale to the current date, and if there has been then an adjustment will need to be made. A stable real estate market would probably  not require and adjustment, however if there has been either appreciation or deprecation in home values then an adjustment is necessary.

Distance of Comparable Sales- In a perfect world the comparables used in the report would come from within the subject’s subdivision or immediate neighborhood. These sales will typically be the most similar and mirror the value trends the subject property is experiencing. When there are no sales within the immediate neighborhood then it is acceptable to expand search guidelines to other nearby areas that are similar to the subject, even if they exceed the lenders distance recommendations. Similar schools, municipalities, and access to jobs and transportation are all criteria that an appraiser will look for. In a situation like this the best question to ask is “what neighborhoods would a potential buyer look in if there were no homes available for sale in this one”? As long as the appraiser explains their reasons for choosing sales outside of the neighborhood the underwriter will usually accept it.

Percentage Guidelines- Whenever there are differences in amenities and features between two homes that a buyer is willing to pay for, then an adjustment must be made to reflect this. Lenders recommend that the net amount of these adjustments not exceed 15% of the sales price of the comp and that gross adjustments not exceed 25%. In addition, each individual line item adjustment should not exceed 10% of the sale price. A good rule of thumb is that the larger the adjustments the less comparable the sale is. Some of the major adjustments that are typically made to sales include differences in gross living area (square footage), land area, age, and additional features like swimming pools, fireplaces, fences, barns and other amenities. Sometimes the only sales available have different features than the subject, but you must still use them because they are the best available.

So you can see that even though you may think there are no comps there really are. They may not be the most ideal sales, so you must adjust for the differences and then reconcile a final value, hopefully emphasizing those sales requiring the least adjustments. Do you have any other questions about what appraisers do when there are no comps? Leave me a message and we can talk about it.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

Comments

  1. Well, I’ve gone and built a dome home in rural TN. Now that I’m looking to pay back my construction lender, the bank I was relying on is changing their tune. There are no domes nearby. How can this property be appraised?

    • A dome home is definitely unique so it is important to obtain comps that reflect a similar style. If dome home’s are not available an attempt should at least be made to use comps that have a unique style, whatever it is. It may even be necessary to expand search parameters regarding time of sale and distance. Of course, you have to take into consideration the underwriters requirements. They may not want to use anything but a dome home and if that is the case then you may not be able to obtain financing.

  2. Christy Sanchez says:

    Does buying a property in a gated community with HOA gives it more value when it comes to the appraiser?

    • It depends on if these features are perceived as adding value. This is why it is preferable to use sales within the same development so this is already taken into consideration and adjustments don’t need to be made for these features. By comparing sales from within the HOA to those not it is possible to determine the value differences between them so that an adjustment can be made if a sale outside of the development is used.

  3. I have a question, We are wanting to list our house, our agent is saying she thinks 189,900 is a good place to start. We got an apparsisal which is all wrong including my sq ft. I walked and measured our house and we got 1404 not including the attached garage, he only has 1347 sq ft, We have major updates entire kitchen with granite 2 full baths 1 with granite and 4 bedrooms, fully finished basement with an egress window ,including many addmenties .. new roof etc.. not one area of this house was not touched and updated! The city is schedule to come out to update their info because it has not been updated since Who knows when and does not reflect all the updates! Our Apperisal came in @ 150,000,, way under.. And I am waiting to know if we r the only house listed with all amenities and updates why would we list for so low? I feel as if I am short changing myself by listing for 170,000, but in the same token I don’t want to over price either btw my city is only about a mile wide and only 3 other homes sold way under like 130,000 with little to no updates. So I am a little confused on what to ask when listing.

    • It sounds like there is some difference of opinion between you and the appraiser. I would recommend you call them and ask any questions you may have. I would not be too worried about the square footage difference as it is only about 57 sf ft, which could be a result of rounding. You may want to ask if they took into consideration the updating of the home.

  4. David Russell says:

    Hi, so I’m trying to sell my home because where I live in Waco the market is booming. The problem is that I had my house appraised, and the price was very low. My house is 2548 Sq. Ft. on 3/4 acres. Now while they were looking for comps they told me that they couldn’t even find our home because there have been no sales in our area for years, except for the home across the street which sold for $417,000. Now granted it’s 500 Sq. Ft. bigger. But our yard is bigger, and we have a view over a valley. They sold theirs for $133 per Sq. Ft. So we thought we should get somewhere around there. But the appraiser has said that $115 per Sq. Ft. may be too much. The problem I see with this is that she used sale prices from 2 to 5 years ago because of the lack of sales. Waco’s housing market didn’t take off until last year when Magnolia (Fix’er Upper) became huge. So I don’t understand how she’s using prices from houses that sold before Waco became a desirable place to live. Because I can’t sell unless I can get the right price. Thanks!

    • David, it sounds like the issue here is finding recent comps that reflect the current economic conditions of the area, including the new popularity of the area. Whenever appraisers use older says they must consider where the market has changed, and if it has then we need to make adjustments to reflect this. If the market has gotten better and this is reflected in the sales then it is possible to calculate an appreciation rate to apply to the older sales. While I am not familiar with the Waco market I would think that there may be some newer sales that have occurred but that may be a little further away from the subject. While sales within the subject subdivision are preferable it is not a requirement. As long as the sales are located in a similarly competitive market area then that should be acceptable.

  5. I have a question about comps – We are considering a modified two story home that has 2,030 square feet. It only has a partial basement (about 225 sq ft) which is included in the total square feet. We like the house a lot, but feel it is overpriced. Our realtor insists that it isn’t and did a market analysis, but all the comps he used were larger and had more updates than the house we are looking at. He said that there are higher value homes on the road and that is why it has more value. I don’t understand it because I found 5 homes on the same street that have sold within the past year (same time frame he looked at) for far below the price this house is listed at. The realtor said that I can only compare the home to other modified 2 stories or other 2 stories though despite the house being smaller and lacking many updates. According to the realtor the other two stories on neighboring streets are comps while the houses I found on the same street are varying types of split levels and despite being similar in size and bedroom/bathroom count, these are not comparable. Is this true? Can comps only be houses with the same floor plan? Thanks!!

    • Some of what the agent said is true but keep in mind that the agent’s commission is based on the sale price of the home. The higher the sale price, the higher the commission. I’m not saying that the agent is looking at it this way but you do ask some very good questions. I wonder why the agent is not including the sales you mention in their market analysis. When doing a comparison of the home with others, the best case scenario would be to have several sales that were identical, however, this is not always possible. The best way to do a comparison is to use the bracketing method where you use sales that are bigger, smaller, and approximately equal. It is a good idea to use sales that have similar updates and amenities as well. If you are really interested in this house and want to make sure you get it at the right price you can get a pre purchase appraisal to make sure the asking price is reasonable. Another approach would be to make the contract contingent on the home appraising for the contract price. That way if the appraisal comes in low you have a way out or and can use it as leverage to renegotiate.

  6. Kellie Eck says:

    Hey Tom,

    Thank you for the blog post. I do have a question/concern if you can help. I purchased a home in 2007, right before the housing bubble bursting. I paid $238,000 for a 3 bedroom, 2 bathroom home with 1700 sq ft. This was about $140 a sq ft. This home is custom built in a neighborhood with 25 lots, 11 of those lots with custom homes like mine. Since the market went down, the developer couldn’t sell anymore lots so he sold them to a volume home builder. The remaining 14 lots now have these cookie cutter volume homes. These homes sold for about $100 a sq ft at the time, and now, recent ones being resold, are going for about $95-99 sq ft. I am trying to sell my home for $195,000 which is about $114 a sq ft and I am being told that it’s too much, as the comps for my home are these volume homes since none of the custom homes have been sold in about 5 to 6 years so there are no recent comps with those. It’s so very hard for me to believe that my home is being compared to cheaply made volume homes that all look the same. How can I find the true value of my home when there is really nothing to compare it to?

    • I can see where this would be a difficult situation. This appraisal is going to require more work in order to find and use comps that are equal in construction quality to yours. I would suggest that you point out to the appraiser exactly what you have told me about the newer homes being of inferior quality. It may be possible for them to verify this information through the local MLS. They may have to go outside of the neighborhood in order to find some recent sales of homes similar in quality. Another idea is to look back at older sales in your neighborhood when there may have been sales of both the older higher quality homes as well as the newer lower quality homes and see if any price difference exists. I would point out to the appraiser the items within your home that exhibit higher construction quality so they can compare it to the sales that they use in their report. Hope this helps, good luck.

    • Robert L says:

      I have a 4449sq. Ft. Home with an attached 2 car carport with a 12x 30 attached suite with a full bath, closet an it’s own central heat pump, and hot water heater. My home is custom built with 5 bedrooms, 3 1/2 baths., a family room, and craft room with sink, sunroom, breakfast room, formal dining room, setting room, foyer, large laundry with storage, 2 closets, place for freezer, and sink, grand room with custom wood burning fireplace. It has two master suites downstairs, hardwood floors, carpet in 3 bedrooms upstairs and family room, ceramic tile in all bathrooms, 3 juzzia tub 2 with jets (not builders grade),large kitchen with island, two pantries. All cabinets have pull out drawers )no digging in cabinets), island has a sink with garbage disposal, kitchen also has a triple bowl sink with garbage disposal in center sink, instant hot water on sink, central vac with dustpans through home, foyer and grandroom has 20 ft. ceilings with foyer light having a keyed source to let light fixture down to clean and change bulbs. Home has floored walk out attic storage, roof is 40 year arch. Shingles and U.S. only 4 years old. Home is on 5.7 acres with a deep well with a new 1 1/2 horse power motor. It has a lawn sprinkler system. Home has large wrap around porch on front, breakfast porch , breezeway connecting to carport, It has 28 wood custom build columns with vinyl railing on both front porch and breakfast porch. Columns and all outside doors just painted.and back porch and patio. It is built with excellent materials. It is located 8 1/2 miles from the Ross Clark Circle in Dothan, Al.
      I am getting ready to list it due to husband passing away and wanting to downsize. The home is 17 years old and is in excellent condition. All bedrooms are large with walk-in closets most with built-ins. This is a one-of-a-kind custom built home. We had an appraisal company for 25 years. There are no sells in area this size or quality. How would you make adjustment from quality of home (you would have to go to upscale subdivision) to country location?
      The 5.7 acres sets back off road and has pasture, creek that runs through it, part wooded, I have a drive that has crush an run and a bricked sided bridge with a bricked courtyard. It also has a good size storage/ pump house. Home is mostly brick with vinyl gables and vinyl under porches. My daughter works for a realtor company and thinks location will effect value by $125,000. Do you think this much difference just due to location? I love it here! It is so peaceful! To me, if you want to live in a subdivision or someone that wants to live in country also effects value. Can you give me your opinion?

      • It sounds like your home is no cookie cutter! I’m not sure that there is an easy answer to your question since your home is so unique. Whenever I do an appraisal on a unique property limited sales it seems like the sales comparables are quite varied, meaning that I might have some on acreage tracts and some on subdivision size lots and the different property amenities will vary. In a situation like this, it will be necessary to go far and wide to track down similar sales since there may not be any nearby. This might make it necessary to apply a location adjustment. In addition, it might be necessary to go back in time and use older sales, which may make it necessary to apply a time adjustment. Since I do not live in your area it is difficult to say whether the location value difference you mention is realistic. I would highly recommend speaking with a local appraiser who knows the area and has access to sale records. I would recommend reading my blog on how to choose the best appraiser.

      • Hi Tom.

        I bought a 10.5 acre lot in 2000 which is mountain property. Everything is very accessible, paved, etc. Concrete driveway. 3.3 miles to major highway, 30 minutes to international airport. I spent two years researching and three years building my dream home, finished in 2004. 3,400 square feet, all finished. 25 X 29 garage. 3 bedrooms, 3 full baths. Plenty of room in finished lower level to partition out two additional bedrooms. Lower level kitchen roughed-in. It sits at 1,750 feet and has a spectacular panoramic view of the Shenandoah Valley, looking out about 40 miles with views of the Shenandoah River and spectacular sunsets, walking distance to the Appalachian Trail. I have in-floor hot water radiant heating in 5 zones (including oversized 2-car garage) installed as a training exercise by engineers at Rehau, the German manufacturer of pex tubing for radiant heating. The house is built with SIPS panels which provide incredible strength and extreme energy efficiency. (SIPS panel homes have survived earthquakes and tornadoes unscathed when stick-built houses around them were destroyed. They have been specified by the National Science Foundation for research facilities in the Antarctic due to their strength, durability and energy efficiency.) Everything about the house is first rate. All high grade Andersen doors and windows. Solar operated Velux skylights, ventilating with light-blocking motorized shades. Recent upgrades, due to a hailstorm claim, $55,000 was paid by insurance for a new roof with transferable lifetime warranty, new leaf-guard gutters with transferable lifetime warranty, new skylights with 20 year warranty. In 2007 the insurance company commissioned an appraisal to determine replacement cost for the structure and it came in at $733K. Adjusting for inflation, cost today would be $902K. Land is currently assessed at $215K. Based on this, the value would appear to be $1.1M. I built the house for about $600K out of pocket in 2004 (not including the land), but I was the GC and didn’t get paid. Two years ago my wife and I decided to retire in Italy and so, although I didn’t build the house to sell, we are now selling it. I had it listed for $795K since March. One interested buyer had an appraisal done and it came in at $620K, which seemed ridiculous, and I lost the sale. I have now reduced the price to $749K. “Comps” don’t really exist. Every home on this 11 mile mountain road is absolutely unique. They range in price from $300K to $1.5M. We probably have the best view of any and I don’t think any others have features like the SIPS or radiant in-floor heating. Any suggestions on getting an appraisal closer to the real value?

        • The market has definitely changed since you bought the home and since the 2007 insurance appraisal. Seems like your home is very custom built which can make it difficult to nail an accurate value. Unless someone can pay cash anyone buying the home will most likely need an appraisal and it is important that your list price reflects current market value taking into consideration what other “similar” homes have sold for and are currently listed at. It may be necessary to exceed recommended guidelines regarding distance and time of sale in order to locate some similar sales. Have you considered getting a pre-listing appraisal? It will give you a good indication of what has sold recently and what is available for sale (your competition). Insurable cost is not always a good indication of market value and that is what a pre-listing appraisal will give you.

  7. Hey Tom! Question for you. We are trying to build a home but are coming up road block after road block in the loan/appraisal process. Our appraiser, appraised our 2663 square foot home 3 1/2 bath (3090/4 1/2 bath if you count the partially finished walkout basement…I have heard a million different things on that, and still don’t understand why it’s allowed sometimes and not allowed other times.) for 259,000. 41,000 dollars less than we had hoped, therefore making so we can’t secure the loan amount we need to build.

    The comparable homes he used are no where near what our home is going to be. Square footage, bedrooms, bathrooms and acreage. All very different. (we have 5 acres) We were told there just were no comparable homes. So I feel like we are getting punished because no one is selling their homes in that area, or have sold them within the last several months. It is a very hard location to get into. No one sells because they like it there, and it’s mostly farmed. Our appraiser also dinged us because he said the growth is slow, which I find insane, because it’s in the country. It’s not supposed to be over developed. that is why we want to move there! Anyway, you say in this article that there are always comparable homes, but what if there truly is not?! Finding this process incredibly frustrating and we haven’t even started building yet. We are thinking about going to a different bank with different appraisers. Not sure if that will even help. Thanks for your opinion ahead of time.

    • Sorry for the delay, I was a little under the weather. I think one of the most important things to remember when considering available comps is that sometimes we have to relax guidelines. There will be areas like you are discussing, where sales do not occur very often, or you have to go further away. Most of the time banks have guidelines related to these types of things and if they are not willing to allow appraisers to relax the requirements then there will be problems in finding comps. I always suggest using a bank or lender that is from the area or knows that these types of problems exist in the area they lend in. Appraisers can always look a little further away or go further back in time but it will do no good if the bank will not accept it. Hope this helps explain the situation.

  8. Hi Tom,
    I’m trying to purchase a 3 unit investment property in Akron OH. It’s 2 structures on one parcel of land. It has a duplex with a free standing single family home behind it. My offer was accepted. After the inspection was done, My mortgage broker then tells me the layout of the property is “unique” and comps can’t be found to satisfy HUD guidelines. Errrg! Sounds absurd. Do the layouts of comparable properties have to be exact?? I have a lot of time and now money in this and would hate for this deal to go south. Any guidance would be appreciated. Sincerely Curtis

    • Curtis, when you say layout are you describing the room layout in the duplex and single family structure or are you describing the fact that the property has the duplex and single family home on one lot? When doing an appraisal we DO NOT have to pick sales that have identical floor plans, of course, that would be great but it is not a requirement. If it is the other situation where there is a problem with the duplex and home being on the same lot that could be a problem. It might be that it could be looked at as a tri-plex or maybe divide the property up and split it based on where the structures are. That way you can do two appraisals, one of the duplex and one of the single family home. Hope this helps.

      • Sorry I wasn’t clear. Yes, the issue is that the 2 separate structures on one parcel in this configuration is apparently uncommon. There are plenty of large converted homes into 3 units, and of course plenty of duplex’s, but very few sales comps out there with one structure a duplex and the other a separate house. Are you saying they can do 2 separate appraisals for the duplex and the SFH even though it’s on the same parcel and come up with an accurate value?

        • You are dealing with two types of property here, a duplex and a single family home. These cannot be included on the same form. I would think the best way to handle it would be to resurvey the lot into two parcels, each one having their own structure (duplex and single family home). When you have two separate parcels you can then do an appraisal on each property.

  9. I built a metal exterior house three years on a balloon note mortgage that reconfigures every 5 years. I recently went to lock in my rate and everything was a go until we got to the comps. Tue lender said we had to have at least 2 comps that were same kind if house as we built. Our house is unique so there aren’t any around that have been for sale or sold in any timeky fashion. Any advice?

    • Just curious, but are you using the same lender? If so then I would think they know what the house is like and if the house truly is unique then I’m sure the previous appraisal probably did not have similar construction comps. With that being said, I think this is a bank-specific underwriting guideline and not really an appraisal issue. An appraiser can only use the best comps they can find and sometimes we are not able to locate exact matches regarding construction type. A good example of his is log homes. This type of home does not sell often and it is sometimes necessary to use regular homes as comps and factor the marketability of the home into the final value reconciliation. Maybe the appraiser could make some detailed comments within the report stating that other homes of this type of construction have not sold recently. Most of the time this is sufficient.

  10. Lisa Leftwich says:

    Hi, I have a huge problem. I live in the middle of a very exclusive town. I am surrounded by $490,000 – $600,000 homes. The story goes that the farmer sold his entire hundreds of acres of farm land to the developer, but asked the developer to just leave him two acres for himself and his family. I live in the old farmer’s house. On this two acre parcel are two duplex homes. (two homes on one parcel) I live in one and rent the other duplex. The whole town is an upscale, highly educated, professional, yuppie town. There are no other parcels with two homes. In 2003 I paid $340,000. Now, I want to refinance the remainder of $240,000 because it is a predatory loan. My rate is 7.5%. I want to lower my rate. I have been approved by six lenders, until the Six appraisers have told their lenders that it impossible to appraise. Help! Help!

    • I think this is more of lender underwriting issue but I’ll try to offer up a suggestion. If the loan is still with the same lender as when you purchased the property you may want to ask them to get the appraiser who did it before. Because he is familiar with the home he may know where to look for comps. If that doesn’t work the only thing I can suggest is to possibly subdivide the property into two parcels so that they can be appraised independently of one another. It is easier to find sales of individual homes compared to those with two houses. I hope these suggestions are helpful. Good luck!

  11. Natalie burgett says:

    We are trying to buy a house near San Antonio and the appraiser came out yesterday to look at property. She came back to say it will not appraise and wants to see what comps the sellers realtor used to come up with the asking price. When we looked at the property we knew it was way above market value and have got him down 50,000. The sellers realtor told ours that he came up with the asking price and is waiting on an appraisal before coming down anymore. Our realtor showed us comps in the area and though it is hard to find them because of the acreage and square feet there is some. Why didn’t the appraiser do an appraisal even if it came in under their asking price? Why come back and just say it won’t appraise? We the buyer know it was refinaced back in 2011 for 183000, with 2 mobile homes and a 1100 square ft house. Now the mobiles are gone but he wanted 289000 for it when first listed. Like I said he won’t come down more until he had proof,. What can we do? We are the mercy of the appraiser.

    • I think the appraiser is getting involved in the loan officer’s decision more than she should. She probably feels like she is doing them a favor by letting them know it probably will not appraise for the contract amount. The appraiser’s job is to do the appraisal and then let the loan officer make the decision. If you are paying for an appraisal you have every right to get it whether it appraises for the contract amount or not. If the appraisal is done and it comes in below the contract amount then you can renegotiate the price. You may want to speak with your loan officer and let them know you want the appraiser to proceed with the appraisal so you can move forward with the process. Hope this helps.

  12. Nancy Lane says:

    I’m having a situation where the property that I am looking to buy is up for appraisal and they are having difficulty finding comps in that area. This house has newly been redone and updated. They put the bedrooms in the basement that is finish and the appraiser has said that because they bedrooms are in the basement he can’t appraise it because its not what the banks want because it would be hard to resell. Do have any advise on how I can proceed and get a proper appraisal and approval for the loan?

    • It sounds like this is a bank requirement. A basement home may not be common in your area like it is in mine. If it is not common then the bank may indeed be concerned about the homes marketability if they have to take it back in foreclosure. If this is the case you may want to use a bank that is more familiar with your area. In my area value is given to basement areas and the banks realize this and will accept homes with a basement.

  13. Hellstrom:
    I have a situation were there is no real comps for my home. We talked to 5 realtor and none of them could really give us a true vale on the house. We put it on the market for $129,000. Figured it was worth a try. Going against the realtor who told us that it wouldn’t sell for more than 120k. We sold it a couple of weeks ago for $131,000. We had three offers in one day. Since I bought it there has been a big boom in the neighborhood with new restaurants and activities centers. The main problem is no house have sold in the neighborhood in 5 years. Every house on the block was bought by investors thinking a bigger company was going to buy the land. That never happened so the investors rented out the homes hoping for the best. Me and my wife are kind of freaking out that our house will be under valued because no homes have sold. Any advise?

    • Comparables do not necessarily have to come from the immediate neighborhood. They can come from another similar area that a buyer for your home might also look at. These neighborhoods typically have similar quality homes built around the same time and usually in the same school system. You can also look at what other similar homes are listed at to get an idea of what the top end of the range looks like too. Noticing their days on market can give you an idea if they are overpriced. The ones that are typically have longer than typical days on market. Hope this helps out.

  14. Hi, we are selling our home in California. It’s a 5 bedroom 4 bath attached townhouse in California and it was newly built/finished last October. We have to sell due to a relocation. Every realtor is like “there are no comps” well duh. Surrounding us is all houses! We are the townhouse version of a prestigious housing development across the street, gated, and as such we are about $150,000 cheaper than the houses. We signed with a listing agent who said they are “worried” about getting comps for the appraisal. We have many nice features — we are a corner unit, upgrades, a 5th bedroom etc. Why can’t they just comp with homes and deduct for the fact it’s not a house but attached? I have not yet listed my house and not sure what price. We need to be competitive and sell fast. We are maybe going to lose our down payment. Obviously, there are no comps because there’s very few townhomes and ours is new construction. In our development, since it’s so new, no one has sold yet. What should we do?

    • Based on your description I think you would be a good candidate for a pre-listing appraisal. By getting an appraisal you would be getting a realistic value upfront in order to list it competitively. This would address the limited comps available and even though the appraisal could not be used by the mortgage company for the buyer you could let them know what comps were included in the report in case their appraiser was having a hard time finding any. Hope this helps.

  15. Kim White says:

    Hi, Tom –

    We have a beautiful 16 acre mixed pasture/woods family property with one house on it: 4BR/3BA, two bonus rooms, and office, approximately 3000sf. We have enjoyed the property for horses. We are in metro Atlanta, but are in a very modest area of our county. Even though homes within 5-10 miles are selling for large amounts, they are all in a subdivision. We might have the last piece of acreage in the county. We have a sales contract for a very good price, but their appraiser has basically given up. He says there are absolutely no comps. Even if one could find a comparable home on 16 acres somewhere in the county, those neighborhoods would command a much higher value than ours. What is there to do??

    • Sometimes lenders place strict guidelines on what comps the appraiser can use. It sounds like they may have to go further away or further back in time to find something that compares to your property. Some banks are less strict than others so this could be a reason the appraiser is having a hard time. Sometimes it is necessary to use sales from neighborhoods that command a higher value but if there are true location differences the appraiser can make a location adjustment. This won’t be “cookie cutter” appraisal but it will depend on the underwriter guidelines as to how far away and how far back in time the appraiser is allowed to go.

  16. E. Phill says:

    Hi Tom,

    I wanted your take on this situation. I am in the lending business. We have a potential loan on a condo in a Hasidic community in NY. We have done various loans within this community, on different property types through the years. But in this small (say <100 units) condo community, there are no public resales. The properties transfer within the community without public listings. Several appraisers have refused the assignment due to lack of sales. I am aware that public records can be researched to find transfers, but there is no surety the transfer prices are at market equivalent rates, and individual unit characteristics are difficult to verify. Condo comps outside this community (non-religious oriented) are somewhat dissimilar. Wouldn't the use of three comps outside this community question not properly reflect the market conditions within this Hasidic community? I am out of ideas on this one. What would you do?

    Good blog btw, like your answers.

    • This is a new one for me but I’ll give it a try. I think you are right in suggesting that using sales outside of this development may not properly reflect market value from within the development. It might be helpful to speak with someone with the homeowners association who may have additional information about sales within the development. Since this is such a unique development I think it would be important to use sales from within. It sounds like the potential buyers for these condos would be limited to those of the Hasidic faith, therefore they are driving the values. With that being said the sales prices for these units are specific to this development and condo sales from outside should not be used. You say you are unsure whether the transfers prices are at market equivalent rates, by this do you mean what is recorded or the actual price? If there are mortgages on the sales I’m sure the sale price can be verified with the lender and/or public recording.

      Property condition can be verified by either speaking to the buyer or seller and if the appraiser explains why they are calling the buyer/seller may understand the situation and provide the information to assist the appraiser so they can provide the most accurate appraisal possible.

      Hope this sheds a little light on this very interesting situation.

  17. Steve Mcq says:

    I have a question I was hoping you might be able to help me with. My fiancee and I are looking to purchase a piece of Lake Michigan lakefront land this fall and intend to build a moderately sized round home on the property. We will be paying cash for the property and home, but we then intend to seek “delayed financing” or a “cash out refi” so that we can move to a more typical 30-year mortgage payment schedule. We have been advised that doing it this way has the benefit of the bank not being involved in the permitting/land assessment, etc, which will allow us to move more quickly, which is the goal.

    Our concern, however, is that I know in order to do the “delayed financing”, banks will look for “comparables” in order to confirm the value of the property/home. Because the home we are looking to build is a bit unique in that it is round, I am hoping to better understand the risks. If those comparables do not exist, and therefor we could not get financing, that would be problematic. Also, I am hoping to understand how directly comparables need to mirror the design of a home – does the comparable need to be very similar, or can it be a very differently designed home that is used to assess value? If direct comparables cannot be found, is a loan impossible? Or would you expand the search to less similar properties? Or might it just result in a more conservative appraisal of the property? That would be less concerning than getting no lon at all.

    Would you be able to help me determine whether it is likely that comparables could be found? Or help me understand what happens if direct comparables do not exist in a given area?

    Here’s some details about the property we envision:
    – At least 1 acre
    – Ideally some Lake Michigan frontage, or a Lake Michigan view
    – Maximum land cost approx. $300,000
    – Home (maximum cost around $110,000 to build)
    – 2-3 bedroom (including a loft bedroom)
    – 900-1600 sq ft
    – Stick-framed building style
    – Permanent foundation
    – Round, with a large skylight. See a few images below of homes from the same builder we plan to use:
    http://www.smilingwoodsyurts.com/files/7114/1825/4197/E.-WA.jpg
    http://www.smilingwoodsyurts.com/files/1814/1688/1835/VA.jpg
    http://tinyhouselistings.com/wp-content/uploads/2012/02/smiling-wood-yurts-10.jpg
    https://s-media-cache-ak0.pinimg.com/564x/fe/9d/55/fe9d55b0eea92a530c402f774f4ffbe7.jpg

    I thank you very sincerely for taking the time to assist us with this question.

    Warmly,
    Steve

    • The appraiser’s goal from the start is to find comparables that are the most similar to the subject property and that have sold most recently. This is not always possible and when this is the case we have to start expanding search parameters. We may need to look further away or further back in time for sales. In addition, if homes with a similar architectural style are not available we may need to find other unique properties that would possibly have the same appeal. Appraisers are able to expand the search parameters if necessary but banks may not want to except an appraisal if this is done, so it comes down to whether the bank’s underwriting guidelines would allow this. I think I would explain this to the bank you are going to use to see if they would allow it. If they know this upfront then they can tell you if it is wise to proceed.

      I’m not sure what the market is like in your area so you might want to look up an appraiser in your area to see if this type of structure is common or if they know of any sales in the area you are in. Hope this helps.

  18. ruth glasberg says:

    Im so confused about the price of my parents house ,Ive researched and had a caravan as well as an evaluation and I dont understand how you can compare a bungalow to a split level,why a water view isnt worth anything ,why granite and bamboo flooring isn’t worth more than just making it more sellable when everyone says kitchens and baths raise the price of a home ,I feel like im being screwed by every person I speak to ,there are no homes like my mothers with the quality of hersand a view but just outside of her 7500 person town there are 350,00-500,000 homes .one agent said as long as its the same area its considered within consideration and another said it.s not because its not municipal water and sewage like my moms house is

    • It sounds like your mothers home is in an area that is a challenge to value. When you say you had an evaluation done did you mean an appraisal or something that an agent did such as a CMA? If you have not gotten an appraisal I would highly recommend getting one. An appraiser will be aware of the what areas they can pull comps from. Generally speaking, the improvements you mention that your mom’s home has should contribute some value, however the exact amount will depend on the local market. If your mom’s home is heads and shoulders above everything else then it might be possible that it is over improved, however since I do not know your market that may or may not be the case. I think your best bet would be to talk to a local appraiser. Good luck.

  19. Hi Tom,

    I’m hoping you can help. My husband and I are trying to buy our first home in Denver. We found the perfect place, but it is a very unique property. Built in 1910, it has an earth-ship style appearance, though it is a traditional block home. We recently found out that the sellers have been trying to sell it for years, but no one will lend because there are zero comps. The current owners were only able to buy it bc of a seller financed deal. The house is in an up and coming neighborhood, which has seen a huge increase in sales this last year. You would think because Denver is currently the countries most competitive real estate market, a lender might see the value in a 9400 sq ft lot + beautiful home. Even though it’s unique? Anyway, I’m hoping you might have some insight or suggestions for us. Thank you!

    • I have heard numerous stories recently about similar situations. Banks have certain underwriting guidelines they go by and to be honest I think they steer away from unique properties. They are concerned about how easy it will be to sell a property in case they have to foreclose on it. If they see that a property may be hard to sell I think that makes them shy away from it. Banks like appraisers to use at least one comp that is similar to the subject property and since it is so unique there doesn’t seem to be any. I’ve always thought that local banks may be more willing to lend on something like this so you might want to try that. Good luck.

  20. Gayle batger says:

    Hi
    We started a small home construction business in a fast growing but very small town. We are selling our first newly constructed house as a FSBO. There are currently very few comps in our area. The house is very high end and we thought the appraisal might be an issue for the buyer. Luckily a cash buyer appeared and we working out the deal. We want to build another house just like this in the same town and we’re hoping that this sale would help with the comps when we are ready to sell house number 2. My question is will a sale that isn’t on the MLS affect future comps?

    • Hi Gayle and thanks for the great question. A FSBO sale can be used in an appraisal. You’ll want to let the appraiser know about the sale and provide any information they need to verify the sale. The FSBO sale will be analyzed along with all other sales in the area. An appraisal is never based only on one sale so the appraiser will also have to take into consideration the sale price and specifics of all other sales of similar homes.

      • Gayle batger says:

        Thanks for the reply. Do you think it would be worth getting it on the MLS to make sure an appraiser sees it?

        • Yes Gayle, that would probably guarantee that they would see it. Just make sure that the listing states what type of sale it was and the particulars on financing so the appraiser will know.

  21. I have tried multiple banks even banks out of state. Every time they go to do the appraisal it comes back the same and I find out that it is from the same appraiser. I keep spending money on all these appraisals and not getting anywhere. I just don’t know how to get around this appraiser. It’s becoming very disappointing.

  22. Dear Tom,

    Thank you for your blog. I learned quite a bit. I have a dilemma with getting my home refinanced. My home is 1000sq ft and my garage is 2000sq ft. on 12.5 acres. it is vinyl sided. I have been told my the appraiser in my area that there are no comps. I asked what I can do to make my house more comparable. He said to add a porch. I spent $3000 to add a porch on front. I then asked the appraiser to please come appraise the home. He said it is still not comparable. I asked what to do next. he said I need to brick at least half of the home. I said I am trying to refinance to lower my interest from 5.75 to 3.75 not add more money to my payments. He told me that if he appraised it the only comp would be a mobile home. I said its a slab foundation stick built home. He told me so sorry he cannot appraise it.

    How do I get an appraisal if the only appraiser in the area wont appraise it? Any help would be greatly appreciated.

    Thank you,
    Eric

    • Eric, I don’t know where your home is but I would check with the bank to see if they have another appraiser that can go to your area. The advice he gave you is questionable and I would get another opinion.

  23. Dear Tom,

    Excellent blog.

    I am an attorney in California and I have a good friend who is a certified appraiser. I am also doing my trainee appraisal studies. This question regards the use of FSBOs as comps. Ultimately, the question is: When, and under what conditions, is it acceptable to use an FSBO as a comparable?

    I am helping my friend investigate an unfortunate situation. The property is a quadruplex located on the outskirts of Bakersfield, California. The quadruplex consists of a front house with two units and two detached units behind the main house.

    She performed a refi appraisal in March of 2008. As a quadruplex, it was an income property. She presented comparable income properties with comparable rents with respect to her income analysis. She also provided three comparables with respect to market value. Because of the uniqueness of the property, there were few comparables in the market area. Notably, these properties appeared to be converted agricultural homes built in the 1920s. Due to the lack of comparables, two of her three market value comps were FSBOs. She noted this in her Summary Appraisal Report (old USPAP verbiage) and noted the lack of viable comps in MLS.

    Her market value, supported by her income analysis and costs analysis, brought the value in at $330,000. On this, the borrowers took a loan for $214,000.

    By April 2011, the property became distressed and was in foreclosure. The property appears to have been purchased in foreclosure. I scoured the public records and could find no evidence of a reconveyance, but there was a grant deed. So, I do not know if the “buyer” purchased, or was deeded the property and continued to carry the loan.

    A few months later, in January 2012, an appraisal review was ordered. The reviewer, who did not note an effective date on the review (as required per USPAP 3-5, pre 2016-2017 USPAP) brought the value in at $200,000. His appraisal review made the blanket statement that FSBOs “are not arm’s length transactions.” Further, one of my friend’s comps was subsequently rezoned. This, however, was subsequent to both her effective date, completion of the appraisal and well after the refinance. Notwithstanding, the lender put her on the “do not use” list and the BREA – while not disciplining – fined her $1,000 for errors regarding highest and best use.

    I got onto this matter recently. My investigation revealed that the review appraiser failed to disclose that two of the three of his comps were distress sales that formerly sold for $380,000 and $460,000 respectively. The review appraiser’s third comp was passed between two family trusts and it is suspect whether it was an arm’s length transaction. The review appraiser just took the distress sale data and failed to look at the entire history.

    Either way, this situation caused my friend some serious grief. I am putting together an investigative package for possible reconsideration to the BREA and demand that she be removed from the do not use list. Her value opinion was solid and bracketed. However, I am looking for an authority regarding the use of FSBOs as comps. I have scoured the treatises (to wit, The Appraisal of Real Estate, 14th Ed.), but cannot find anything definitive.

    In my opinion, the appraisal review – which was totally non-compliant with USPAP – was a sham used to undervalue. I suspect a “flopping” scheme was underway. The people involved with this particular property are prolific house flippers. I managed to get ahold of the realtor who is the kingpin behind this and he – thinking he was talking to a prospective buyer – immediately solicited me to engage in flipping, while touting undervaluing to get the bank to reach “the magic number” to short-sale.

    Any thoughts you have would be greatly appreciated. Thanks!

    • Thanks Anthony. Sorry to hear about your friends dilemma. Regarding using FSBO sales I have this to say. As long as all of the information pertinent to the sale can be verified I have not problem using them. Appraisers need to verify the financing terms to make sure they are market rate and also make sure the sale was not subject to below market motivations such as between family members, etc.

  24. Jennifer S says:

    I guess I have question that probably doesn’t have an answer. our house was in what probably should have been condemmed condition (it actually rained inside the house)with a garage, storm shelter, storage building and hen house that all most certainly should have been condemned as they were falling or had fallen in on themselves in 07 for 10 under appraisal of 115. After several years and well more than twice the purchase price in renovation we have restored it to what it was always meant to be. Garage is functional and finished to match the interior of the house, Hen house was expanded and finished to match the house and serves as a rec room, additional storage was tied into deck and completely finished, obviously all utilities were completely upgraded or installed for the first time ever, drives sidewalks landscaping in all customer wood and natural stone throughout with upgraded animeties. Though we own several acres around it is in the middle of a medium sized city and I have never heard of a comp in this area. (6 once existed in the county 3 demoed, 1 landmark, 1 hasn’t changed hands in over 100 years and ours). We have been waiting on a refi appraisal for more than a week and I am beginning to worry. I know there isn’t a comp. Raw land prices have gone from $.50 a square foot to between $3 and $4 on either side and lots the size of the one the house sits on sell several times a year. For lack of better option can that be used to help determine appraised value?

    • If you are asking if the raw land comp can be used the answer is partially yes. In an appraisal assignment part of the process is the cost approach. In this approach we must determine the value of the land the house sits on. If the property you speak of has sold then it can be used to come up with land value. We also need to have improved sales to complete the sales comparison approach so there may still be a problem with comps.

  25. I’m in the process of purchasing a home which will be an RD loan. The appraisal is complete and we are waiting on the report. I am concerned about the surrounding comps, the home is a new build on the outskirts of a small town with older much smaller homes. The closest recent sale is $85k but we have offered $99k on the house.
    My question is, how much does the appraiser consider the comp prices? If the house is a newer build would it be possible to appraise that much more ($10k+) than the comps or will it be appraised right at the same price as these comps?
    Thanks for your help!

    • Anna, you ask a great question. In some areas like you describe an appraiser has to work with what they’ve got. With that being said, if we have to use homes that are older than the one we are appraising we can always make age and condition adjustments to the comps if that is warranted. In addition, the appraiser may need to look further for new construction comps. By using the comps older in age as well as some newer construction homes and the cost approach the appraiser can get a idea of the value of your home.

  26. Peter Nemzek says:

    Hi Tom:
    We’re wanting some comps for a modular on a permanent foundation on 1-1/4 acres of land in a semi-rural area of Ulster County, NY. The VA finance person says there simply aren’t any in the ‘area’ that the appraiser wants to consider. This is a 2001 meticulously maintained piece of property with an A+ inspection report and our offer has been accepted. We can’t move ahead with VA financing because of this comp/appraisal situation. What else can we do?

    • VA appraisals and loans have more stringent guidelines than conventional loans. It is always possible that the appraiser they are using may not have the best data source for sales. You may want to ask the lender if they can assign it to the next appraiser on their list to see if they have more experience or better data sources. Good luck!

  27. Kalyn Sever says:

    Tom, our appraiser was the ONLY appraiser available in our small, rural community. It has been 4 weeks, and she is telling our lender she cannot find ANY comps. We live in the Texas panhandle, and she has expanded her search to Oklahoma. She claims the reason she can’t find comparables is because it is a high-end manufactured home on 6 acres with some outbuildings – she says the comps MUST be manufactured homes and MUST be on 6+acres in order to qualify, and she has the buyer scared that they won’t be able to sell unless they find a cash buyer since there isn’t a single comp. Any advice, or do we beed to walk away?

    • It is quite possible that there are limited sales due to the unique nature of the property. With properties like this it may be necessary to relax the comparable search guidelines in order to find older sales that may be further away. With that being said, the bank may be including some additional guidelines that the appraiser cannot get around. This may be something you want to consider because if you had to sell it down the road you may run into the same problems. This is not uncommon for rural areas.

  28. Bradly Ferrell says:

    Hello Tom,
    What about a “no comp” situation with a commercial property?
    We are currently trying to purchase and old skating ring to renovate into a church.
    The lender is telling us they cannot get an appraiser to take the job because there are no comps in the area.
    This is true as far as the building type. It is a metal building nearly 40 years old on approx 3 acres…a skating ring 🙂

    The bank has offered a possible solution, but it just baffles me that the appraisal industry does not have provisions in place for these no comp situations.
    What you outline in the previous posts is at least a way around difficult scenarios, do they apply to commercial properties and is there anything further you could add to our specific issue.
    All skate…all skate 🙂

    • Sorry to hear of your dilemma Bradley. Doing commercial work is a little different than residential but I will try to offer some suggestions. There are 3 approaches to value, those being the cost approach, sales comparison, approach and the income approach. The income approach is very prominent in commercial real estate since the building can be rented. The cost approach is another valid approach that can be used as long as you have good cost data, which most appraisers do. If there is a lack of sales comparables then more emphasis can be put on the other approaches, especially the income approach. The appraiser would need to research what other similar buildings rent for but that should be relatively easy. Hope this helps. By the way, what area is this property in? If it is in my area I may be able to refer you to a commercial appraiser I know.

      • Bradly Ferrell says:

        We are in the Nashville, TN area.
        Thank you for that insight, that is actually very helpful.
        Stay tuned!

        • Good luck. I have to believe that there is some appraiser in your area than can help. I’m sending you the website address for an appraiser I know up that way and hope he may be able to help you. His name is James Atwood and his website is: http://www.appraisertechnology.com/

          • Bradly Ferrell says:

            Thank you Tom!
            We will contact Mr. Atwood should the lender fail to come up with a solution on their end.
            We appreciate your help very much.
            God bless friend!

  29. Hello!
    I am purchasing a home and it underappraised by $65,000 from the sale price. The comps were very skewed, all have adjustments of over 25%. There was only one recent comp in the area and it was a cash deal. The other two were from a much more rual area 25 miles away from the home we are buying. Because the house under appraised, the lender won’t approve our loan. We appealed the apprisal. What else can be done?? This is a very unique property. It is a fully renovated house built in 1924 in a historic district. These types of homes dont come on the market very often in this area.

    • It sounds like the property is either rural or in an area that has low sales activity. In these types of areas it’s sometimes necessary to exceed normal guidelines that we try to adhere to, such as distance and adjustment percentages. Were you able to supply additional sales that support the value? If you could do this the appraiser can look over them and see if they are truly comparable and if so may be able to include them in the appraisal. If not then this may be a situation where you can use the appraisal as a negotiation tool. If the home is not worth what it is under contract for then maybe the sellers would be willing to lower the price. IF it is overpriced then I am sure that it will continue to stay on the market for a long time. I would be curious how they came up with the list price. It is important to remember that cost does not equal value, so if they spent a lot of money renovating the home, it may not be realistic to expect to get all of that out of it. I hope my thoughts help in some way.

  30. Crystal says:

    I know this is an old post but I’m hoping you’ll see this!

    What happens when a high end home is in a small county and there’s no other recent sales of a high end home. Can an appraiser pull comps from a near by county?

    • Hey Crystal, I wanted to thank you for reading my blog and answer your question. Ideally sales comparables will have occurred very recently and be in close proximity to the subject property because these sales would provide the best indication of value if they are similar to the subject. We know this is not always possible so whenever this is the case we must start expanding our search parameters further away and further back it time. Even though a sale is further away it can still provide a good indication of value if it is in a similar market area and if the typical buyer for the subject property would also look at that area as well. This can also be true for older sales as they can provide a reliable indication of value if the market has been stable. I hope this has been helpful and answers your question.

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