“Comps” – or recent comparable sales – give real estate practitioners and appraisers the information they need to price a home at fair-market value. Though comparable data are clear-cut to a professional, how many sellers understand the various tangibles and intangibles that inform these comparisons?
If the gap between seller perception and appraiser opinion is any indication, the answer is few. As a recent Quicken Loans Home Price Perception Index (HPPI) report shows, homeowner estimates averaged 2 percent higher than those of appraisers – a considerable margin in markets with ballooning home values, says Quicken Loans Chief Economist Bob Walters.
“It may not seem like homeowners assuming their home’s value is 2 percent higher than appraisers’ opinions is significant, but it could make a huge difference in metro areas with higher average home values,” Walters explains.
But this broad brush stroke doesn’t paint a clear picture of every metro area. In Phoenix, for example, which this summer marked the longest streak of year-over-year gains, seller perceptions are more closely aligned with those of professionals.
“In a market that is going up, there isn’t that much of a difference with seller opinions,” says REALTOR® Steffy Hristova of HomeSmart in Scottsdale, Ariz. “If the seller has time, the market is moving in the direction they desire. It is harder with sellers who are behind the market – the market moves, but they always think the market will be better tomorrow and it’s too early for them to sell now.”
In those instances of disconnect, the onus is on the agent to educate the seller. Hristova accomplishes this by helping sellers “visualize the data,” presented on one page if possible, and in some cases applying a simple, straightforward formula.
“I adjust the price according to the following schedule: if there are showings and no offers, 4 to 6 percent off; if there are low showings, 6 to 12 percent off; if there are drive-bys only, 12 or more percent off,” says Hristova.
Breaking down the factors that play a role can also be beneficial for the seller. Market activity generally determines the window, but comparable sales can stretch back one month to three months or more. Hristova gleans insight through resources supplied by her regional MLS and The Cromford Report, provider of residential real estate research and analysis in the Greater Phoenix Area.
“I review statistics from the MLS daily and from available and reliable research sources, study the market dynamics in the neighborhood and in the substitute market for the object property, and review the demand and supply numbers for the zip code and neighborhood and the sales trends,” Hristova explains.
Related: 4 Factors That Affect Home Prices
Square footage, a go-to data set for both real estate agents and appraisers, is also on Hristova’s radar. Sellers can expect their home to be evaluated against properties with similar square footage, as well as a like number of bedrooms and bathrooms. Real estate agents may take into account some of the more ambiguous features the appraiser may not consider, as well.
“I focus on the hidden gems of the object property – the ‘wow’ items, the unique design or special appeal of the property,” says Hristova. “It could be the floor plan, specific updates that are particularly attractive, landscaping features, undergrounding wiring, etc. I also analyze potential negatives – types of financing available, location within the neighborhood, proximity to noise, etc.”
And because no two sellers are alike, individual circumstances also warrant consideration. “Will they wait? Will they provide easy access? Will they be willing to repair items?” Hristova asks.
These and other facets, like age, location, lot size, workmanship and energy-efficiency, can all serve as means for comparison. Age, in particular, can be a key variable, because it can indicate the condition (or decrepitude) of the home. According to Trulia, comparables for age are typically pulled within a five-year range.
For sellers, bear in mind comparable data reflect the activities of both buyers and sellers, no matter which the market currently favors. And as Warren Buffett so eloquently sums up:
this is an awesome comprehensive article! How did you come up with your percentages on decreasing prices?
why not just pay for an appraisal when you put your home on the market. Now you know what it’s worth. Just silly trusting comps.
I’ve been an appraiser since ’89 with my SRA in ’91. The sad thing is that the majority of agents have little to no idea how an appraiser works or what constitutes a comp. They also have no idea how underwriters review reports or how appraisers have to write within those guidelines.
As for adjustments – that nonsense of adjusting based upon visits may work for an agent but it’s NA for appraisals. Adjustments are unique based upon the assignment.
Just remember this – a comp is a reasonable alternative purchase to the subject.. If the subject were unavailable, the comp would provide the same features and utility.
This isn’t rocket science….agents really need to sit a basic appraisal course.
Why is it Hank that appraisers think their word is “GOD”? You say you are not into rocket science and that agents need to sit in on an appraisal course. Really? Is that what you think? How about appraisers no longer exist? We really don’t need you! I don’t see appraisers determining value for items at Walmart or Target! Appraisals are a joke and you know it!!! Good Luck….