Understanding The Appraisal Part 1: What is “Adjusted sale price of comparables”?

Understanding The Adjusted Sale Price of Comparables

I’m kicking off a short series to help readers of an appraisal report understand what they are looking at. It seems sometimes that the only two things that most people are concerned about with an appraisal are how fast can you get it to them and what is the final value?

While timeliness and value are important I believe that understanding the appraisal is just as important. One of my main goals is to help non-appraisers understand the appraisal process and part of that is knowing how to read an appraisal report.

I’ll start off this series by answering a question I got this week. My client wanted to know what the “Adjusted sale price of comparables” was.

For a little background, I would first like to start off by explaining a little about sales comparables in general. Sales comparables, or “comps” as most people call them, are recent sales of similar properties that the appraiser has chosen to compare with the subject property.

I’ve written in the past about how comps are chosen so I will not focus on that here. The important thing to remember is that comps should be alternative properties that a buyer would consider if the subject property were not available.

Even though comps are chosen for their similarity to the subject property, there are still some differences between them. Information about the comps is shown in the sales comparable grid so that they can be “compared” to the subject property.

In a perfect scenario, there would be three identical homes that have sold on the same street within 90 days and no adjustments would need to be made. Because we don’t live in a perfect world we must determine the value-related differences between the subject and sales.

This is where adjustments come into play. If you would like to read about how appraisers make adjustments you can check out a previous article I wrote.

After the appraiser has determined what the adjustment should be, these figures are entered into the sales grid form. When the comp is superior in a feature, a negative adjustment is made and when the comp is inferior a positive adjustment is made.

After all of the adjustments have been determined and entered into the form they are either added to or subtracted from the sale price of the home. The results of the addition and subtraction leave what is referred to as the “Adjusted Sale Price of the Comparables’.

The adjusted sale price reflects the market’s reaction to differences between the subject and sales and provides a more accurate range of value for the subject. From this adjusted sale price range, a final opinion of value is reconciled.

My previous article about how appraisers reconcile value will help you understand this better. To simplify it here, the appraiser emphasizes the sales that required the least adjustments in addition to taking into consideration the current supply and demand characteristics in the area.

Determining what the Adjusted Sale Price Range is for the comparables is a very important step in the appraisal process. It is this step that actually provides the appraiser insight into how the market sees a property similar to the subject and from which a market value estimate is derived.

Question

I hope this explanation of the “Adjusted Sale Price of Comparables” aids in your understanding of the appraisal report. Do you have any other questions about this topic? If so please leave a comment below or you can always connect with me offline. Thanks for reading.

Recent Speaking Engagements and a TV Interview

This week was pretty busy. In addition to a full load of appraisal inspections, I had the opportunity to speak to two groups of real estate agents. I discussed how appraisers choose comps for one group and then various appraisal topics for another group.

I was also interviewed by a local TV station regarding the crazy real estate market we are currently in. You can watch that here if you would like or click the image below.

If you need an appraiser to speak at your real estate sales meeting give me a call and we’ll set something up.

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