Finding your Property Value by Making Adjustments to Values in Comps
Comparable properties are properties that are similar to the property being appraised and are used to make adjustments to the market value of the subject property. Appraisers consider factors like ownership interest, market conditions, location, and traffic patterns when making their adjustments, and at least three recently sold and similar properties should be used when determining the current value of a property. The blog post also covers types of comparable properties, adjustments made to comparable properties, and techniques used for valuing a property.
Comparable properties are properties that are similar to the property being appraised and used to determine the market value of the original property. They should be as close as possible in a physical location, size, type, and age, and must have been recently sold. Appraisers must consider factors like ownership interest, market conditions, location, and traffic patterns when making their adjustments.
Adjustments come up from comparisons between differences witnessed from our subject’s description and those from comparable properties. The sales comparison approach in real estate uses sales data of similar properties to determine the market value of a property. At least three recently sold and similar properties should be used by the appraiser when determining the current value of a property.
Some allowable discrepancies include an extra bath or color paint among other insignificant descriptions. While evaluating the value of the subject property, price adjustments are made according to the features of the comparable property. If the subject property lacks a given feature found in the comparable property, then it is adjusted downwards according to the value attributed to that feature. Consequently, if the property comes with a valuable feature not found in the comparable property, then its value is adjusted upwards accordingly until a final figure is arrived at after comparing at least three recently sold and similar properties.
Comps involve two types of properties: the subject property (the property being appraised) and the comparable property (the property being used for comparison).
If the subject property is a two-bedroom house in a certain neighborhood, the comparable property should also be a two-bedroom house in a similar neighborhood. The appraiser should also consider the condition of the comparable property and make adjustments for any differences. The comparable property should be comparable to the subject property in terms of features, amenities, and other characteristics.
Special features of the subject property should be taken into consideration, such as a lakefront dock or in-ground pool. The appraiser should adjust the value of the comparable property accordingly. Additionally, the appraiser should review special market conditions in regards to the local economy, demand for certain types of properties, or any other factors that could influence the value of the property.
When making adjustments to the value of the comparable property, the appraiser should be careful to ensure that the adjustments are reasonable and based on actual data. The appraiser should also use the most recent sales data when making adjustments to the market value of the subject property. This will ensure that the appraiser is able to accurately determine the market value of the property.
For a simple overview, read Quick Guide to Track Your Home’s Value in 3 Steps.
Location is one of the most important factors to consider when making adjustments to comparable properties. Depending on the area, certain features, such as proximity to a certain school district or access to public transportation, can significantly increase or decrease a property’s value. The appraiser must assess the location and any features or amenities that come with it in order to adjust the value of the comparable property accordingly.
Neighborhoods often influence adjustments based on if one of the comps is in a more established neighborhood in contrast to a less desirable area. The same goes for busy streets and heavy traffic locations, which would have to be adjusted downward in value should the comparable be situated on a quiet, peaceful street.
The size or square footage of a property is another essential factor to consider when making adjustments to comparable properties. The appraiser should also consider any additional features or amenities that come with the size of the property when making adjustments. For instance, an extra bedroom or bathroom in the comp would deem a higher value. The layout is just as important as the size. If the comparable property has an open floor plan or a more efficient use of space, then it should be adjusted upwards in value.
Understanding the square footage of your home is important for numerous reasons, so check out How To Measure Your Homes Square Footage.
The appraiser should also consider any additional features, upgrades or amenities that come with the property. A pool or patio on the comparable property would make it of higher value than the subject property.
If the comparable property is older or in worse condition than the subject property, then it should be adjusted downwards in value accordingly. Conversely, if the comparable property has an updated kitchen or a more modern layout, then it should be adjusted upwards in value. The same goes for it one of the properties is better maintained than the other.
Key Takeaways:
The sales comparison approach depends on recent sales data of similar real estate properties as the one being appraised
This approach forms part of comparative market analysis for appraisal professionals
A comparable property should be as close as possible in physical location and sold recently
Adjustments come up from comparisons between differences witnessed from our subject’s description and those from comparable properties
Appraisers must consider factors like ownership interest, market conditions, location, and traffic patterns when making their adjustments
Trend analysis is a technique that identifies and uses trends to adjust property values based on the desirability of certain characteristics and amenities. An appraiser can look through different property characteristics and market conditions to find relationships between sales prices if there are no obvious trends present. If an appraiser cannot find a lot of similar properties sold recently, they can use this analysis to formulate an approximate value using overall trends.
Relative comparison is another technique available for valuing a property. Qualitative analysis and relative comparison use quality ratings to compare the subjected property with comparable properties and decide if each is superior (+), inferior (-), or equal to (=) the property in question. Real estate agents are quite knowledgeable about what buyers are looking for and what features they want.
In conclusion, while quantitative analysis may be objective, it may not always be efficient in expressing valuation adjustments due to inefficiencies in the real estate market. In contrast, qualitative analyses such as trend analysis can be used when obvious trends are not present by using overall trends from different property characteristics and market conditions while relative comparison techniques that use quality ratings provide a means for comparing properties by deciding if they're superior (+), inferior (-), or equal (=) compared with other properties.
In conclusion, comparable properties are essential for determining the market value of a property through the sales comparison approach. Appraisers must consider different factors, such as location, size, features, and condition, and make reasonable adjustments based on actual data. They can use trend analysis and relative comparison techniques if they cannot find enough comparable properties to formulate an approximate value. Real estate agents can also provide valuable insights into what buyers are looking for in a property.
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