Saying “comps” is one thing, selecting them is quite another. Let’s confuse the public, maybe even some loan agents, shall we.
OK, “everybody” knows a comp is a sale, right? Most know that “recent” is king (at least if it is a “good” = “high” sale).
So, what really constitutes a “comp”? Comp is short for comparable. Apples and oranges come to mind - you can compare them, but your conclusion is likely to be along the lines of “they’re both fruits”. They don’t have much else in common.
The salesprice of a recent home was influenced by all kinds of features, conditions and circumstances specific to that home. Just because it sold recently doesn’t make it a comp. That’s where the appraiser comes in: the appraiser is trained, educated and unbiased in his/her determination of whether these features, conditions and circumstances are similar enough to the subject property to be comparable, i.e., similar enough to be relevant in the determination of subject’s value.
Our newspaper publishes some local R.E. statistics and sample “market glimpses” (my expression!). They are NOT saying “comparable” or hinting at appraising, AT ALL, so I’m not picking on them in that respect. In fact, I think their intentions are good (”oh, Lord, please don’t let me be misunderstood…”) but with all the frustrations regarding appraised values, both current and during the boom period, the public tends to consider themselves somewhat more knowledgeable than the appraiser who performed the appraisal, or just plain old want to prove the appraiser wrong - and that’s where we have the potential problem with these “market glimpses”.
An example of what I mean:
A home sold for $1,960,000.- (the newspaper’s “subject property”).
Other homes that sold recently:
#1) “Older Home” - $7,500,000.-.
#2) “Smaller Home” - $850,000.-.
If you’re Joe Public and want to refinance, obviously #1 is king.
If you’re Joe Public and want to buy, obviously #2 is king.
AGAIN, NOTE: these sales are NOT purported to be “comps”, but we’re in Joe Public’s shoes right now.
All three sales (including “subject”) are in different market areas of the same city and #1 even has a different ZIP code. And - #1 happens to be beachfront property… yet, it is heralded mainly as an “older” home! And, yes, #2 IS a “smaller” home (in fact, MUCH smaller!), but, again, in quite a different marketing area.
I hope and pray that Joe Public takes the three L’s of Real Estate to heart before going any further!!!
LOCATION, LOCATION, LOCATION.
