Section 1:Understanding Agent/Appraiser Comps

Clients being provided reliable residential property comparables, or comps, as they proceed through the process of choosing which one to purchase, may be the most important step in the home-buying process. It’s almost always the largest expenditure of their lives, so it’s imperative they understand how the property they’re considering compares value-wise with what similar homes for sale nearby cost or were sold for fairly recently—and why.

For sellers, comps are just as crucial in order for them to price their homes competitively. It is for you as the buyer or seller agent to provide reliable, current and detailed comps. While home appraisers create them as well for companies issuing mortgages, Pam Rosser Thistle, a REALTOR® with Berkshire Hathaway HomeServices Fox & Roach, REALTORS® in Philadelphia, explains that the comps agents put together and the ones from appraisers can be very dissimilar.

“This is a terrific topic, one that agents talk about often,” she says, “and why local appraisers, especially in a tight city market where the half-mile radius used loosely would provide an inaccurate comp. It’s important to stick close to the subject property (four to six blocks is ideal).

“The criteria I use is the same or a nearby neighborhood, with a similar type of street (quiet versus busy),” she explains. “Lot size and condition, and amenities are also considered. And of course timing, meaning closed within the last six months.”

With top-notch real estate photography a must because buyers will be viewing the listing on both portals and brokerage websites, there is a bigger picture that must be illustrated as well.

“Strictly online views of real estate photos shot and possibly enhanced specifically to market a property just don’t tell the whole story, and agents who depend solely on that can miss critical factors…tricky layouts, adverse conditions like dampness, unattractive property and tough topography, not to mention impacts from surroundings like traffic patterns, water courses, power lines, commercial buildings, etc.,” says REALTOR® Joni Usdan, with Coldwell Banker in Westport, Connecticut.

“In addition, taxes can seem inexplicably uneven lot to lot, and weight for proximity-to-town amenities can also be highly nuanced, as this is different in each town, and can change over time. For example, 20 to 30 years ago, walkability to a downtown was not widely appreciated. Back then, baby boomers said to me, ‘I don’t get the whole walk-to-downtown thing.’ Now millennials lead the property search location with, ‘I want to be able to walk to my gym.’”

Bonnie Beddall, a REALTOR® with RE/MAX Eastside Brokers in Bellevue, Washington, cautions that while detailed comps should be created for clients, they should not cause potential buyers to become overly demanding, expecting every desire to be met.

“We recommend that they focus on their ‘why’,” she notes. “For most buyers, a home isn’t a commodity. People have good reasons for buying: they may need to get their kids into a new school by a certain date, or they may be downsizing, or expecting a baby and need more space, or they may be relocating and need to be moved within a certain timeframe. It’s hard to time the market with a home purchase, and no one has a crystal ball. If a buyer has a clear ‘why’ in mind, some concerns become less important.”

Comp information will vary depending on the specific area for which it is created. There’s no such thing as a generic comp when it comes to real estate, unlike buying or selling a car, where condition is everything but location means nothing.

“I try to compare apples to apples,” states Dave Armstrong, a REALTOR® with Crye-Leike Real Estate, in Bella Vista, Arkansas. “For instance, we have a main lake here, one of seven lakes, but it’s the only one with a marina. So if I’m heading to a listing appointment for a home on this lake, I only take comps from that area. Other factors include the age of the home, size, number of beds and baths, location, amenities, general condition of the home, school district, etc. 

“I always try to get accurate information to be able to give my clients the most reasonable selling price. Everyone is always trying to put the seller’s best foot forward, and maybe even hide a few deficiencies with the property. But honesty is always the best policy. It’s one way to build trust in the market. I can always tell when an agent is not familiar with the nuances of our market. And a lot of the time, that lack of knowledge comes in the form of homes that are not priced properly.”

Agents have the time and ability to create much more detailed comps for buyer or seller clients than appraisers hired by banks or mortgage companies considering issuing mortgages and simply wanting the price/value of the property justified before the transaction. 

“It’s the art of the comparable properties that are selected,” says Philadelphia’s Thistle. “For agents, it’s like Christmas morning seeing the comparables the appraiser selects. And a little Monday morning quarterback reviewing the selections and adjustments made. Like a house in 19146 Rittenhouse with a comparable in 19146 Point Breeze, two neighborhoods away. That would be within bounds, but cause an uproar and not be fair. Just about every four blocks in the city has a different feel, and its own values. Even the side of the street or if the home is a corner/middle of the block, or what is across the street from it can have an impact on desirability.

“Here’s an example of an out-of-the-area appraiser looking to get the job done quickly. For a house on Lombard Street, they only used other houses on Lombard Street, spanning four different neighborhoods. Technically, the comps would be allowed with the radius criteria, but four different neighborhoods all on the exact same street? It’s always a red flag when an appraiser calls to ask where to park when the subject property is a city row home.”

Usdan provides a bonus idea over and above how agents can spur sales via thorough comps.

“Neighbors love to hear about nearby home sales, so disseminating any and all this information to the neighborhood is widely appreciated,” she shares. “Unlike most other  ‘junk’ mail or spam, radius mailers are mostly welcome because sale and rental prices are always relevant to the surrounding homeowners, who, after all, are also potential sellers.”