When There’s No Comparison

Desk office and Graph analysis spreadsheet

If you’ve been a part of the appraisal world for long, you’ve had this experience. You’ve just submitted a completed report that you feel pretty good about. Soon afterward, however, you are contacted by an underwriter requesting that you look at some additional “comps” for use in your report. What do you do?

Let’s briefly make a distinction between a sale and a comparable. However well-intentioned these people may be, most of them don’t really know what it means for a property to be considered a comp. They may send you several sales in the area of properties they think are comparable, but for whatever reason, really aren’t comparable to the property you’ve just appraised.

If a property isn’t comparable, don’t include it in your report as a comparable. It is, after all, the appraiser that determines the scope of work. I do, however, sometimes like to include a paragraph or two about the property they sent me, saying something along the lines of, “The client requested that I include the property at this address, and here are the reasons why I do not feel it is comparable.” It’s important that you stick to your principles here. Even including a property in your report as a comparable and then listing the places it may not compare creates a confusing dichotomy that is best avoided, if possible. In short, do your work the way you feel good about. There’s no harm in including another property in your report if it really is comparable; but don’t feel pressured to include something you don’t feel right about.

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 

6 thoughts on “When There’s No Comparison”

  1. Pingback: When There’s No Comparison - Appraisal Buzz

  2. Your best offense, is a great defense.

    As an example, we all define the neighborhood to collect various sales, but upon completion of your research, and after selection of your narrowed and focused true comps, are you offering additional clarification to your client? Meaning, if all of your comps are of equal bedroom counts, if they are all within say 5,000 to 10,000 lot sizes, if their ages fall within 5 years of each other, etc., are you offering a narrowed analysis so your client can get a better picture as to why you did what you did? By addressing the issue up front, and narrowly defining your used pool of data, any sale provided to you that is outside is explained away by your comments already in the report. If there are outliner sales that fit into your narrowed analysis, consider listing all of them and indicate they were already considered and ruled out.

    Under the same reasoning (offense is defense), I would hope most appraisers by now have detailed explanations in their reports relating to such things as the collateral underwriter. Meaning, are you explaining to your clients in the original report what they can and can’t do relating to sales that might be triggered under their CU review? Are you telling your clients the following? Considering both lenders and lender agents acting on lenders behalf are prohibited from distributing the CU print report or the submission summary report (SSR), making demands of, or providing instruction to AMCs/appraisers based solely on the CU automated output, or using CU to interfere with the independent judgment of the appraiser?

    Again, offense is a good defense. Are you providing guidance within your original report relating to any future reconsideration of value requests? Are you defining the terms, or are you letting them define them for you? Are you putting in code words in the report, and asking your clients to reference these words prior to asking for that ROV (will verify they actually read that section)? Are you explaining in detail, how singular properties by themselves will be compared to the greater collection of data for the subjects given market area? Are you explaining that singular properties will be weighted accordingly, and will thus often times have limited to no impact in moving the subjects overall market value?

    If your not defining the terms in advance, then you will be chasing your tail as you allow your client to define the rules.

    Seek the truth, find the truth, detail the truth, make sure others read the report to get the truth, and when they do, hold them to the truth.

  3. When I was a trainee, more than twenty years ago, I used to wonder why the older, certified members of the appraisal community were just . . . mad. Mad, all the time. I don’t wonder about that anymore. The basic premise of our business is that, the appraiser will be respected for their ability to define the security and extract the market’s reaction to it. But, sales is a tough business. And, when all of the talent, within the sales industry, hits a road block, their immediate response is to blame anything that will take the negative attention off of themselves. Cue the appraiser, who is too slow; too conservative; too white; too male; too dogmatic; too trained in the perspective of contributory value. I have to say: kudos for getting them to offer to pay you for the additional work. My perspective would be completely different if that offer were made, at the time their issue was defined. I would be a little more agreeable. Loading sales, instead of comparable data is something I like to do when their is a heightened intensity on the appraisal, itself. But, there is the component of potentially misleading the reader. That’s the rub, for me. The reader is not this half-conscious, newbie who got dragged in, off the street to define and manage risk. But, some of them do their best to present their request in that manner.

    They can’t have it both ways. They can’t play stupid in every, other aspect of the appraisal and the level of comprehension it takes to understand the basic premise of cause and effect, while simultaneously stating: the following sales were provided by the sales department; please state why these sales were not considered. I am sure there are counter points that AMCs and underwriters would make, on this subject. But, they seem to lack to knowledge or respect that is takes to explain themselves. I say knowledge in that, when pressed they say: ‘Well, that’s just what the SSRs stated. You have to play the game.’ I recently delivered a report for a patio home, in a development where, you can almost define the year built of the house, based on how large the lot is. Nearly a half acre: that would be one of the first homes built. Patio lots so small you can’t play catch? Brand new. Four of the six comps in my report bracketed the lot size of the Subject. The stip requested two more, with smaller lots. So. Six of Eight, just to bracket the lot? Okay. But, only because those sales were present, in the development. Both of the extra sales had much less relevance to the Subject’s GLA and room count and were well outside the range of value, defined by the original data set. The good news: loan closed. More concerning: I told my client: I won’t be able to do that all the time; it won’t be possible. Can you tell me what triggered the request? Crickets. And, I mean silence after multiple requests.

    My point is that, while they asked me to grid data that I knew was not comparable, I did so, to illustrate a point. I believe my point is always made more clearly, when I grid the data in question. The data they think will change the value by $30,000 but sold for less than the Subject’s contract price. The sale that is located ten miles away, on acreage, or water. The point is driven home by putting the data in the grid. I’d like to see another header on the top of that page. Or, another format for the grid used in revision requests – just so that it is clearly understood to be different data. It just seems to be more accessible than reading words in an addendum. I’m pretty sure any appraiser, in any market can understand why I think that: most people don’t read the comments in the first place. Is that because they know they won’t understand it? Or, just don’t care what the appraiser’s perspective is, when the computer says . . .

  4. No need to make the process more complicated that it has to be. Follow FNMA guidelines which state that the comparables are to be those sales most similar to the subject, locationally and physically, and the most recent. Most ROVs are an attempt to meet a purchase agreement price and typically provide sales which are less comparable to the subject than those sales already included in the report. It usually takes about 20 minutes to address the ROV and the sales provided in a reply in the addendum. Just list each sale and briefly state why it is not considered as comparable to the sales included in the original analysis.

  5. Probably the biggest section of my report is the “Comparable Search Criteria” section. I write it in Word and transfer it to my software when I’m satisfied; I’ve said what needs to be said. I find it’s easier to add photos to a Word document than try to add them to the Addendum page in Total.

    Using the neighborhood boundaries defined on page one and initial parameters of GLA, AGE, Site Size, bedroom count maybe, basement, no basement, HOA, no HOA; essentially the parameters that make the most sense. As I add parameters to our MLS search page, our MLS provides an immediate sales and listings count. I adapt from there, adding or removing parameters to give me a reasonable number of sales to begin the process. I sort by closed date and copy and paste the entire list of properties into my Word document. If there are not enough sales to work with, I tell why and what was needed to get a reasonable number.

    With the list in Word, I begin picking away at sales that aren’t “truly” comparable and writing why they were not selected. The ones I choose to use, I add and explain why. I hope to explain away large numbers of “potentially comparable” sales quickly and whittle the list down to a manageable amount. The ones that seem the most reasonable get put on the grid, and I move on.

    It’s possible that as the opinion of value begins to show on the sales grid, there is an outlier among my chosen “comps.” After “oh, I see why moment,” I add a few lines of commentary to the Search Criteria section, explaining why I took it off the grid. Again, as I say, the section is probably the longest part of my addendum, but when I’m done with it, every reader knows what I did to get these sales. And my ROV rate is “knock on wood” insignificant.

  6. I try not to get into arguments as to if a sale is comparable or not. The only real deal breaker for comparable is a different highest and best use. Can you compare Bill Gate’s house to my house? Yes, it is superior to my house I’m sure, so in that sense it tells me something about the value of my house and therefore could be comparable. It’s just not a strong comparable because he lives in a different state and my house could fit in his foyer. Rather than say something is not comparable, just explain why the comparable sales you have selected are stronger indicators of value for the subject. Maybe they need fewer adjustments, maybe they possibly need more adjustments but the adjustments are more quantifiable and less subjective. Maybe the comparable sales you selected fit into the competitive market better locational or in terms of features, amenities, and condition.

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