What is a comparable sale?

What is a comparable sale?

A sales package left for the appraiser is welcome. Most appraisers appreciate the agent’s insights into the sales they used as comparable choices when they priced the home for sale. This is particularly the case if the agent had some knowledge of pet odors or peculiarities with one of the sales that looked like an obvious choice. Occasionally now, with photography, the sale presented itself in much better light than it actually was in reality. The MLS is after all, part sales tool. This is one reason you will get calls, emails and texts from appraisers asking about a property that you sold, as photos do not always tell the truth. So, please provide your insights related to the sales you considered in arriving at the marketing price.

There have been a few instances lately however, that made me think it is a good idea to revisit what a comparable sale is from an appraisal perspective. First, we do not search by price. While buyers do use a price range in their search, appraisers cannot do that, or they end up appraising to a predetermined value to a large extent. Instead, we are looking for comparable attributes.

Examples that have been included in agent packages recently include:

• Subject property was a subdivision house that was not a common model for that subdivision, but there was one sale of the same model. Package included two sales that were on 2-4 acres about 5 miles from the subdivision. There were at least five sales within the subdivision that were reasonably similar to the subject that had occurred within the past six months. The model match was not in the package and only the highest sales in the subdivision were included.
• Condominium unit that had ample model matches, but all the recent model matches were lower sales prices than the ones that occurred between 9-12 months prior. Guess which ones were in the package?

Most people will want to buy as much as they can for as little as possible. If you have a budget for a new car of $25,000, it is unlikely you would be looking at BMW’s or Mercedes, whereas if you have a budget of $60,000 and want a German car, you are unlikely to be looking at VW Bugs. Is the VW Bug comparable with a BMW 5-Series? Not likely. Are they both German Cars? Of course. Would the buyer of a Bug choose a 5-Series if they were the same price? Most likely. Would the buyer of the 5-Series buy the Bug if they were the same price? Highly unlikely. You get the picture.

This is the same idea with comparable properties. A comparable property is one that is a substitute for another property. It is uncommon to have properties that are directly comparable since every house has something unique about it.

What does this mean when you provide sales to an appraiser? First, look for what the typical buyer for your property would truly look at as a substitution. When you do that, look at those sales in the same vein. Would the buyer of that sale look at your property as a reasonable substitution? Sometimes there is nothing even approaching comparable to your property. In this instance, look to what else has sold that has some element of similarity, such as location, or quality and size, and then try to find something that is obviously not as good as your property as well as something that is better. In that manner, at least you will know that the property should be worth more than one house and less than another. Appraisers will do this on those unique circumstances when there is truly no comparable property to choose from. The appraiser will look to what they think are logical potential alternatives, even if they appear dissimilar.

Remember, the appraiser is going to choose the sales they consider most comparable, but the package you provide can be extremely useful, and you may have information about possible comparable properties that does not show on the MLS. Expect the appraiser will independently verify that information, but give them something to start with. Our MLS lacks a scratch and sniff function, and there is some virtual staging that occurs at times in listings, so give us the information you have that is relevant.