If you are in the market for buying or selling a home, the first question that typically comes to mind is: What’s a fair asking price?
Am I asking (or offering) too much? Not enough? Often times, a life-changing investment decision depends heavily on these simple, yet critical questions.
A qualified, designated appraiser has the knowledge and experience to guide you in making a well-informed – and perhaps most importantly – unbiased decision on both sides of the deal.
One of the most common, traditional approaches for valuing nearly any type of real estate involves analyzing sales of comparable properties, or “comps.” Appraisers use a more critical, objective method for selecting and analyzing comps than what most realtors or consumers themselves employ.
A realtor’s opinion of the market value of a property, in many instances, comes with an inherent risk of bias, as their primary interests are to earn the listing and sell the property. A consumer, meanwhile, tends to have an emotional connection and may have an unrealistic view of their property’s value; only considering the highest sales, which may not be among the “comparable” sales.
Many buyers and sellers don’t realize the layers of complexity behind a true sales comparison analysis. Believe me, there’s more to it than a quick Zillow.com search of your neighborhood. Rather, it involves a thorough comparison of the subject property to equally desirable substitute properties that have recently sold, are actively listed for sale, are pending sale, etc.
The economic principle of “substitution” is its premise. That is, a prudent market participant (buyer, seller, landlord, etc.) will not pay more for a property than the cost of purchasing an equally desirable substitute property.
Appraisers look at various “elements of comparison,” or individual components of a property, and analyze factors recognized by the market to be value-influencing; factors that are often overlooked or information that’s simply unavailable with cursory, informal online searches by untrained individuals.
Elements of the comparison include:Analyzing a minimum of three comparable sales and adjusting for differences to the subject, will establish an “adjusted” market value trend for the subject property. This trend produces a market-indicated range for which the subject property should sell as of the effective date of the appraisal.
In Part 2 of our series on sales comparisons we’ll go into greater detail about what we do with the information and how we make adjustments based on differences among the comps analyzed.
In the meantime, keep in mind that real estate investments require acute knowledge to the real estate market, whether buying or selling. Do not be burdened with the risk of paying above, or selling below, market value. Work with a designated member of the Appraisal Institute, who has the knowledge and experience necessary to ensure proper guidance.
Have an appraisal question? Contact J. Chris Tricomi at Tricomi & Associates by email or by calling 330-394-9999.