What are comparable sales? USPAP was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property, business and mass appraisal. This topic contains information on selection of comparable sales, including: The appraiser is responsible for determining which comparables are the best and most appropriate for the assignment. Find out what the comparable sales do. All Appraisal Reports should contain sufficient supporting documentation with all pertinent information reported so that the appraiser’s logic, reasoning, judgment, and analysis in arriving at a conclusion demonstrates a credible assignment result. To perform this analysis, the Generally speaking, comps that have sold most recently and are most similar in location and physical characteristics to the subject property are selected for further analysis. Did appraiser’s research reveal any prior sales or transfers for the comparables in the past year from the effective date of the appraisal? But FHA, in the Data Delivery Guide below says …one year from the effective date of the appraisal…”. Center, Apps Comparables that are significantly different from the subject property may be acceptable; however, the appraiser must describe the differences, consider these factors in the market value, and provide an explanation justifying the use of the comparable(s). & Technology, News & Skip to Content. Using this model for a conventional loan involves four general appraisal requirements. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. The table below is a general guideline for resales. Having Issues with Seeing this Page Correctly? Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales. Two of the three appraisal guidelines require the appraiser to take a photo of the comparables. Below is a quick synopsis of the procedural steps and a brief description of This is a direct result of the housing crisis that erupted in 2007 – 2008. version of a page. appraisal of a one-unit property or a one-unit property with an accessory unit. 36.76 Million Page Views. We recommend that you use the latest version of FireFox or Chrome. In March 2014, Fannie Mae issued a Lender Letter entitled, “Property and Appraisal Requirements for Properties Located in Small Towns and Rural Areas.” Appraisal Tools, Processes, ... definitions, and more effective than use of arbitrary distance guidelines. The term sales comparison approach refers to a real estate appraisal method that compares one property to comparables or other recently sold properties in the area with similar characteristics. The VA appraisal is one of the critical pivot points in the loan process. Ryan Lundquist is a certified residential appraiser in the Sacramento area. Fannie Mae requires at least three closed sales be included in the sales comparison approach. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. Why you should care? Launch Using MLS photographs for comparable sales… In its September 2017 Bulletin, Freddie Mac updated its appraisal requirements.One change worth noting is the use of MLS photographs for comparable sales. information from other Fannie Mae published sources. The sales comparison approach is the foundation for the real estate professional's CMA, Comparative Market Analysis.It is a process used to determine the current market value of a property based on recent sales of comparable properties in the area. The appraiser must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it. Comparable sales should have similar physical and legal characteristics when compared to the subject property. If the buyer’s appraiser submits a low appraisal, the seller has the option to lower the sales price. In order to know or at least evaluate the price of a property, Austin real estate appraisers compare and evaluate recent sales and listings from within the market. If you still have Technical Support questions, Fannie Mae expects the appraiser to account for all factors that affect value when completing the analysis. (For additional information, see B4-1.3-03, Neighborhood Section of the Appraisal Report. Part of HuffPost Home & Living. For appraisals that are required to be UAD compliant, the appraiser must identify the sale type as REO sale or Short sale, as appropriate. If a property is located in an area in which there is a shortage of truly comparable sales, either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use as comparable sales, properties that are not truly comparable to the subject property. However, the concept of comps and exactly how and when an appraiser uses them can be confusing. Once adjustment percentages get very large, the appraiser should determine if the sale used is truly comparable. The best way to know what a home is worth, the argument goes, is to compare it to a similar home that has recently changed hands. Facts, figures, value estimates, property types, location, guidelines and forms all require your close attention. (For specific information regarding comparable sale adjustments, see B4-1.3-09, Adjustments to Comparable Sales, and for information regarding financing types, see Fannie Mae and Freddie Mac Uniform Appraisal Dataset Specification, Appendix D: Field-Specific Standardization Requirements ). Clarifications based on Ask Poli® insights: updating the Guide based on common questions pertaining to non-occupant borrowers. Date of t… feel free to email. In this scenario, it is acceptable for the appraiser to verify the transaction of the comparable sale by viewing a copy of the settlement statement from the builder’s file. In no instance may the appraiser create comparable sales by combining vacant land sales with the contract purchase price of a home (improvements only). When you have an appraisal done on a home, the appraiser looks at more than just the subject home (the home for sale). In an ideal world, appraisers would find comparables on the same street or within the same subdivision as the subject. While these transactions cannot be used to meet the required minimum three closed comparables, these transactions, which are often completed as part of a construction-to-permanent loan transaction, may be included as additional support with appropriate commentary. Read your copy of the home appraisal, then consider whether you can offer the single most persuasive item: new comps. Ryan runs the Sacramento Appraisal Blog, which is a top-ranking appraisal blog in the United States. All rights reserved. In markets where few sales have recently occurred, comparables may be from similar or competing neighborhoods located some distance from the subject property. The appraiser must also provide an explanation as to why he or she used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject neighborhood. Visit Selling and Servicing Guide Communications and Forms. This comparison should help demonstrate market acceptance of new developments and the properties within them. Those requirements can make it hard to find other new construction comparables. Therefore, there may be a shortage (or absence) of recent truly comparable sales in the immediate vicinity of a subject property that is in a rural location. Did appraiser’s research reveal any prior sales or transfers for the subject in the past year from the effective date of the appraisal? Contributors control their own work and posted freely to our site. notices and more. However, there is no simple formula an appraiser can apply, and in some cases, appropriate comps for a particular home don't exist within that timeframe. The appraiser is required to follow HUD/FHA guidance and comply with the Uniform Standards of Professional Appraisal Practice Comparables sales provided on the attached grid with all pertinent data included. & Insights, Pricing & A “comp,” in the real estate world, is a point of comparison. Fannie Mae is not suggesting that appraisers use Census Block Groups to define comparable search areas, but ... of the 20 comparables that are provided by CU for most appraisals. Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales. HUD Guideline Changes for Comparables. The portal will securely transmit discrepancies, findings, and other feedback messages to users based on FHA’s requirements. As so often happens in the wild and wacky world, people who either write or re-write ‘new’ policies and procedures based on source documents, often don’t correctly read or comprehend what those source docs say. Coming up with a value for the property lies at the heart of this, and that part of the appraisal process relies heavily on something you cannot control -- what others have paid for nearby houses like yours. The appraiser must also provide an explanation as to why he or she used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject neighborhood. To meet the requirement that the appraiser utilize one comparable sale from inside the subject subdivision or project, the appraiser may need to rely solely on the builder of the property he or she is appraising, as this data may not yet be available through typical data sources (for example, public records or multiple listing services). Concise narrative explaining the reason the comparables provided are superior to those selected by the appraiser. But it is not uncommon for a lender/client to shop the loan around and the loan that was going to Fannie Mae ends up going FHA. Most of the time a lender/client will order the appraisal as a Fannie Mae, or Freddie Mac or FHA. Section 195.062(1), Florida Statutes, states the following:“The department shall prepare and maintain a current manual of instructions for property appraisers and Appraisal adjustments and guidelines for home resales. If you can’t find recent sales within the immediate neighborhood in the past 6 months, you may expand your search to other neighborhoods or go back further in time—even if doing so is outside the lender’s guidelines. I know this particular argument may be viewed as grasping at straws but it is real. If you are out there in a free market to purchase or sell your house, you will likely hear the term “comps” or comparables used more than once. Some banks are less strict than others so this could be a reason the appraiser is having a hard time. These characteristics include, but are not limited to, site, room count, gross living area, style, and condition. This post was published on the now-closed HuffPost Contributor platform. However, appraisers must justify their use of distressed and foreclosed properties as comparables. The appraiser must select one comparable sale from the subject subdivision or project and one comparable sale from outside the subject subdivision or project. Overview of FHA Appraisal Guidelines for 2020. Comparables: A valuation technique in which a recently sold asset is used to determine the value of a similar asset. ... Appraisals Adjustment Guidelines. HUD further stipulated that when a new appraisal is ordered, the servicer cannot use the original HUD appraisal to underwrite the loan and that there must be written justification for the new appraisal. Comparables (or comps) is a real estate appraisal term referring to properties with characteristics that are similar to a subject property whose value is being sought. Evaluating a residential appraisal is an important step in the loan process. But it is not uncommon for a lender/client to shop the loan around and the loan that was going to Fannie Mae ends up going FHA. 1. Guidelines for Before and After Appraisals Performing a Before and After appraisal is a process that follows a set of consecutive procedures, which must be executed in order for the process to have a successful conclusion. promulgation of these real property appraisal guidelines, as well as the scope of their legislatively intended use. Generally, if there are The subject and all comparables must be appropriately identified. 3. Another factor to consider when determining if REO sales are appropriate comparables is the level of foreclosure activity in the neighborhood. The transmittal letter should include: 1. If you are in the market to sell, or perhaps buy a home, you will soon come face-to-face with comparables, or “comps” as they are known. He also looks at comparable sales. Additionally, the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale. For example, it may be appropriate for the appraiser to use a nine month old sale with a time adjustment rather than a one month old sale that requires multiple adjustments. This requirement is time consuming, unproductive, dangerous to appraisers not to mention the undue stress it causes to property owners. That’s not always possible. Clear statement of the real property interest appraised 6. Guidelines in the Selling Guide are indicative of conduct that is suggested and preferred but can be deviated from with the proper explanation. A brief description of the subject property 5. In the vast majority of residential appraisal assignments, the number one tool an appraiser relies on when valuing a home is comparable sales (comps), which refer to recent sales of nearby homes that are similar, or comparable, to the home that's the subject of an appraisal. Unacceptable to leave blank, research must have been completed. Comps are regarded as the single-best tool in determining a home’s value since they compare criteria from similar, recently sold properties in a neighborhood, such as sale price, age of house, size, and square footage. If the seller refuses, that’s when a buyer might contest the appraisal. 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