He says that high comps should be thrown out only if they don’t truly reflect fair market value. An institutional investor should not be disqualified as a comp just because they’re a fund or someone who is looking to lease or flip the property. Brenan says an unusually high cash sale would get thrown out if someone paid significantly higher than what others recently paid for surrounding properties without a good reason.
“If someone paid an extra $50,000 on a property because it’s the exact color they wanted,” says Brenan, “that would not be a realistic example of the market and shouldn’t be counted as a comparable property in the appraisal.”
On the other hand, appraisers shouldn’t be using foreclosures or REO properties as comps either, Brenan says. Still, a block full of short sales can’t just be ignored when gauging the marketplace.
“That (bad) sale in and of itself does not make a market, but it does play a role,” explains Brenan.
Brenan adds that appraisers should be looking at the most recent data available, but that might not necessarily include current events. Part of the tension has to do with the fact that appraisals represent a fixed point in time—what a house is worth on a particular day. It doesn’t always leave room for the greater economic trend.
“The appraiser is working off historical data,” Blefari says. “If it’s a cash deal, they should use it as a comp.”
Blefari emphasizes that the market has so much pent-up demand right now that it will drive prices higher through the end of the year and beyond. He says the recovery is completely genuine and appraisals need to reflect that.
Andrew King is an award-winning journalist with 15 years of experience with the Gannett newspaper company, appearing in The Journal News (Westchester, N.Y.), Asbury Park Press and USA Today. He also contributes to The Real Deal, TheLadders.com and TechPageOne.com.