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When it comes to determining the value of a residential property, home appraisals play a crucial role. Appraisers consider various factors to arrive at an accurate appraisal value, and one of the key components in this process is the use of comparable sales, also known as "comps." In this blog post, we will delve into the role of comparable sales in home appraisals, exploring why they are essential and how they impact the final valuation.

What Are Comparable Sales?
Comparable sales are recently sold properties that share similar characteristics with the subject property being appraised. These properties are used as benchmarks to assess the value of the subject property. Appraisers carefully select comps based on factors such as location, size, age, condition, and other relevant features to ensure accurate comparisons.

Determining Market Value:
The primary objective of an appraisal is to determine the market value of a property, which is the price a willing buyer would pay and a willing seller would accept in an open market. Comparable sales provide valuable insights into the current market conditions and help establish a baseline for determining the market value of the subject property.

Key Factors in Choosing Comparable Sales:
When selecting comparable sales, appraisers consider several factors:

Proximity: Properties located within the same neighborhood or immediate vicinity are preferred as comps since they are likely to share similar market dynamics and neighborhood influences.

Similar Property Types: Appraisers look for properties with similar characteristics, such as property type (single-family home, townhouse, condo), square footage, number of bedrooms and bathrooms, and overall layout.

Sale Date: The sales of comparable properties should be recent, typically within the past six months. Market conditions can change, so using recent sales ensures the most accurate reflection of the current market value.

Condition: Comparable properties should be similar in terms of overall condition, renovations, and upgrades. If the subject property requires extensive repairs or has unique features, appraisers adjust the values accordingly to reflect these differences.

Analyzing Comparable Sales:
Once the appraiser has identified a set of suitable comps, they analyze the sales data and adjust for any variations in features or conditions. This analysis helps them arrive at an estimated value for the subject property. Adjustments may be made based on factors such as square footage, number of rooms, upgrades, or any other differences that impact the property's value.

The Impact of Comparable Sales on Appraisal Value:
Comparable sales heavily influence the final appraisal value. Appraisers assign greater weight to comps that are most similar to the subject property, ensuring that the valuation is based on the most relevant market data available. The sales prices of the comps are used as a benchmark for determining the fair market value of the subject property.

Comparable sales play a vital role in home appraisals, providing valuable market data and a basis for determining the fair market value of a property. By carefully selecting and analyzing comparable sales, appraisers ensure that the final appraisal reflects the current market conditions and accurately assesses the value of the subject property. Understanding the role of comparable sales can help homeowners, buyers, and sellers appreciate the importance of this factor in the appraisal process, promoting transparency and confidence in real estate transactions.

Posted in:General and tagged: Real Estate Appraisal
Posted by Nick Hughes on May 24th, 2023 9:38 AMLeave a Comment

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Automated Valuation Models (AVMs) have become increasingly popular in recent years as a quick and convenient way to estimate the value of real estate. ClearAVM is marketed as one of the more accurate AVMs available, but in reality, it may not be as reliable as advertised.

As a licensed professional appraiser, I have seen firsthand the limitations of ClearAVM and other AVMs. In fact, a colleague of mine recently had a ClearAVM done out of curiosity on their own property, and the results were shocking.

ClearAVM used comparable sales that were nothing like the subject property. The main characteristic of comparison that ClearAVM appears to have used was the presence of an in-ground pool. However, none of the comparable sales were on the subject's lake or any lake for that matter. It doesn't even take a trained professional to know that lake frontage is usually the most important contributor to value for a property on a lake. Furthermore, ClearAVM indicated that the subject property was a modular home, which is not accurate as it is a normal stick-built home. These are not minor issues that don't affect value. Imagine if you were relying on ClearAVM to decide on listing your lake home and they suggested a list price significantly lower than market value?   These issues highlight a significant limitation of AVMs - they often lack the context and nuance that only a licensed appraiser can provide.

The limitations of ClearAVM go beyond the lack of context and nuance. ClearAVM and other AVMs are entirely computer-based and do not involve a human appraiser physically visiting the property or analyzing the local market trends. This can lead to inaccuracies in the estimate, especially in areas with complex or unique properties or in neighborhoods with rapidly changing market conditions.

Furthermore, AVMs like ClearAVM rely on publicly available data such as recent sales and property characteristics to make their estimates. However, they do not take into account factors that may affect a property's value but are not publicly available, such as the condition of the property, any recent renovations or upgrades, or the neighborhood.

Finally, while ClearAVM and other AVMs may be convenient tools for estimating a property's value, they should not be relied upon as a substitute for a professional appraisal completed by a licensed appraiser. The limitations and inaccuracies of AVMs like ClearAVM can lead to costly mistakes and legal complications. Again, imagine relying on ClearAVM to come up with a list price for your home on a lake, and it used comparable sales that seriously undervalued your home. The loss of potential proceeds could add up to hundreds of thousands of dollars. It's particularly concerning that AVMs are increasingly being used by banks and lenders to make lending decisions, as this could have far-reaching consequences for both consumers and the economy. Without accurate and reliable valuations, there's a risk of undervaluation or overinflated property values, higher rates of default and foreclosure, and instability in the real estate market. If you want an accurate valuation of your property, it's best to hire a licensed appraiser who can provide a thorough analysis of the property, local market trends, and other relevant factors.