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What Happens When an Appraiser Can't Find Comparable Sales?

by Administrator on Mar 24, 2015 Property Appraisal 4018 Views

Appraisers often find themselves in situations where there are few or no current comparable sales available to analyze.  They take assignments, on residential homes, commercial office buildings or vacant land parcels, and many times it's not all "sausages and roses."  One of the first things Appraisers do after accepting an assignment is complete their subject property research, inspect the subject property and begin looking for comparable sales.

Depending on the property type, location and market activity similar sales are usually easy to spot or it becomes painfully obvious that no sales are going to be a good match.  If there are a number of recent sales it's just a matter of determining which of them are the best or the most similar.  When you are comparing one house to another you want to find sales that are located in the same subdivision, constructed by the same builder and have similar size and interior quality.  It’s amazing how much of a difference there can be.  Things like flooring (vinyl versus marble), walls, ceilings, yard improvements / landscaping and garages can be considerably different. 

When you are appraising homes in a rural area or a small town you may find that you don't have homes for comparison with similar designs, the builders may all be different and even the ages may vary considerably.  You look through what is available and at times you will throw up your hands.  If it's a bank report with requirements for sales within the last 90 days within a mile of the subject you know it's time to call the bank and break out the provision that talks about limited data availability.

Appraisers generally try to solve the problem of having few or no sales by first widening their research area.  If there are other small towns located close by or neighborhoods farther than you would normally like to go, and they have similar socio-economic conditions it's possible that some sales from these areas may be used for comparison.  If widening the search area doesn't solve the problem then going back in time often does, so appraisers go back past 90 days and look at sales 180 days or even a year old.  In a slow land market for example you may have to go back even more.

Many consumers of appraisal services focus all of their attention on the differences between the subject property and the comparable sales, and they point to each and every difference in an attempt to call an appraisers conclusion into question.  There are times when less than perfect matches are the only matches, and there are other times when an appraiser has to conclude that there is insufficient data to use the sales approach. 

When it's clear to an appraiser that there is an insufficient quantity / quality of sales to use the sales approach he or she has to rely on the income approach and / or the cost approach.  This most often happens when the subject property is a special use or special purpose property.  Properties like churches, fitness centers, bowling alleys, hospitals and schools are built for a specific purpose and they have limited marketability.

When an appraiser can't find comparable sales they will usually try to look at a broader location or larger geographic area and if that doesn’t solve the problem they will usually look at older sales.  If the sales found are deemed not suitable an appraiser may opt to not use the sales approach and discuss the fact that the research was completed but no comparable sales were found.

Appraisers prefer to use the sales approach since it is the approach that most consumers of appraisal services readily understand and rely upon.  There are times however when an appraiser will use what is available and then are criticized with the argument that none of the sales are truly comparable. 

With many property types like commercial buildings and industrial buildings there is as much or more weight given to the income approach as the sales approach and thus a weak sales approach may not be a reason to call the entire appraisal into question. 

For more appraisal information contact Glenn Rigdon, MA, MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email at grigdon@cox.net or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/4538-What-Happens-When-an-Appraiser-Can-t-Find-Comparable-Sales.html

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