I've created a number guide to help you pick comparable sales for your home. I don't use a number guide, but I do use this system every day of the week when I'm appraising homes, and you can too. This guide will give you a method for selecting the best comparable sales for your home. 10 are given the most consideration and 1 is given the least consideration.
Location-10-This one doesn't need much explaining. Homes located on the street and on the same side of the street as your home is the ideal comparable sale. But if the design of the home differs, it may not be comparable to your home. If your home is located next to a lake, location is extremely important. The square footage is almost as important as the location. An appraiser will not use a home that differs significantly in square footage to your home unless they are absolutely forced to (i.e. no other comparable sales to support the location or most important amenities).
Square footage-9- (GLA-gross living area) - The square footage of your home is separated by the above ground area and the below ground area. Any living area that is above ground level is considered in the GLA (Gross living area). This would be the main level, the second level and any other level above ground level. Spit entry homes offer a basement that is below ground level. This area is included as a basement. Some split entry homes are homes that are at ground level. These homes are built on a slab of concrete and are all located above ground level. All of the square footage of these homes is included in the GLA. Basements, garaging, other outbuildings and secondary guest homes are usually not included in the square footage. A guest home will be included as an amenity. This is one of the most important factors in determining the overall value of your home.
Location of bedrooms and bathrooms-8- is extremely important in some market areas. Younger families usually want at least three bedrooms located on one level. This is one of the reasons why 1 story homes with three bedrooms on the main level is so popular. Other floor plans that usually appraise well and sell well are two story homes and other designed homes with three bedrooms located on any level that is above ground level or above grade. Bathrooms are simply a matter of function. Are the bathrooms next to the bedrooms? If you are buying an older home and there are three bedrooms on the second level, but no bathroom, this may affect marketability, because this will lead to a functional issue since you'll have to go all the way down stairs in the middle of the night to go to the bathroom.
Design-8-this criteria should be given strong consideration when determining your home value. The reason why this is important is because it makes it difficult to argue the value if the home design is the same as the subject. Many times, the design determines the functional utility of the home and the locations of the bedrooms and bathrooms. If an appraiser uses two story homes to compare to your 1 story homes, you'll conclude that they are not even comparable, because they offer a completely different design and a complete different market. This goes hand in hand with bedroom location and bathroom location, too. Some homes offer three bedrooms on one level, while other home offers one bedroom on each level. Homes with one bedroom on each level usually end up an REO (bank owned home) in my area, so pay attention to the location of the bedrooms and bathrooms, it's important.
Date of sale-8- is one of the most important factors in determining the estimated value of your home. This is because every day and every season, everything changes, the people in your market area, the interest rate, the motivations of people buying and selling homes, closing and openings of new jobs in your market area and the list goes on and on. In a volatile market area, lenders will require that the appraiser use two sales that have closed within three months and possibly even two listings or one listing and a pending sale.
Heat source-7-: Any heat source that is non-typical for the immediate market area will cause problems. If most of the homes in your market area offer gas, forces air and the home you're thinking of buying offers electric baseboard heating, make sure you or your Realtor compare homes with similar heat source. In some areas, it makes a big difference. Think about the cost to convert the heating system. The furnace and all of the duct work that blows hot air throughout the home is a significant investment. Many buyers do not like baseboard heating, as this limits where they can put their furniture. They are usually less efficient than other heat sources, which will cost the owner more money to operate. Some Realtors and home owners will tell you that they can heat one room instead of the entire home. The real issue is in the pudding and that means finding real comparable sales that support value and in most cases, it is not good.
Views-7-are hit and miss. This means that I've seen view properties that sell for significantly more than homes in the area. The buyer is clearly looking and buying homes with big views. But many times, this criterion is often oversold. A good view to you may be a typical view to everyone else. Make sure you don't pay for a view that is not warranted. It happens everyday. Views must not be obstructed by homes or your neighbor's trees. The views must not be obstructed by taller homes built in front of your home. If your home is located directly above a noisy freeway, but your home offers a view, the value of the view is offset by the noisy freeway, in most cases.
In other words, be careful when purchasing a home with a view. Views may by considered a number 1 in some cases, but I've placed views at 7 to be sure that you understand that views and sales of view properties are limited and may cause your home value to fluctuate more than other homes in the area. So when considering views, it must be breathtaking and located on the bluff before you should get excited. If everyone has the same view of a mountain that is miles away, don't get excited.
Quality of the home-7-: Your home must offer significant quality to step up into the next quality range. Let's say that you have a trailer and you install the nicest slab granite counter tops that you can afford. Are you laughing? I've never seen this before, but many times, home owners will improve areas of their home, but other areas including siding, roof, decking material, floor cover, bathroom fixture, ceilings are just not the same quality. Make sure the design and quality go together or you could be wasting more money.
If your home is the largest lot in the area and you are not allowed to develop your lot, your excess lot may not be worth any more than the surrounding smaller lots. This criterion is important, but less important than other areas of the appraisal. The appraiser should try to bracket the lower and upper end of your lot size, however, in some cases; the lot size will not contribute significantly to the overall value.
Basements are a secondary consideration for all appraisals-5-. The basement is included below the GLA and is adjusted at a different amount. Don't allow the Realtor or yourself to just add up all of the square footage for your above grade square footage and your basement and add them up. It does not work this way. Basements are a hole in the ground and many people do not like a basement. That said, many people do like basements. One of the reasons why you'll want to spend less money and time fixing up your basement is because is it difficult to support the value improvements for a basement. If you add two egress windows, making your basement offer two additional legal bedrooms, most MLS data will not disclose this. What is not disclosed is difficult to support and prove.
Outbuildings and garage count-4- Outbuildings and garage always seem to cost more than what you get back out of them. In most cases, however, they are in demand. They are usually difficult to locate. They usually sell for more than other homes without shops, but from speaking to owners and reviewing comparable sales, the difference in the increase of value will not support the full cost to install these buildings. A word of warning about outbuildings, don't overdo this area. Many city centers (homes closer to the city core, downtown areas) offer older homes with one garage. A second garage will usually bring the value of your home upward, if you didn't build it, but you buy it with the home, it usually is a good investment. This is because a two car garage within the city is in high demand, as space is limited. If you build the garage via hiring a contractor, don't be surprised if the garage cost you more than the home is valued with the garage. In most cases, you'll pay more retail than what you'll get back in investment.
Condition of home-4-: It is difficult to support and prove the condition of other homes. As long as your home is not falling apart and you try to keep up with your home, everything will be okay. Average condition will include nail holes in the walls, tacks in the walls.Â The floor covering will be clean and well cared for with maybe a few minor stains on the floor that can be clean up. Most of the time appraisers will not make adjustments for condition unless it is clear that your home is a complete wreck. In most cases, if your home is in poor condition, it may be in poor overall quality. Sometimes quality and condition overlap. Let me give you an example. If you have a home with dirty, broken tile in the shower, the condition of the shower is poor, but the quality materials used in the shower is good. If you replace the shower tile with high quality tile, then the condition and the quality will be good. Most appraisers will try to avoid condition and quality adjustments unless they have to. This is because it is difficult to support and adjustment for, in most cases.
I've based the most important criteria as 10 and the least important criteria as less than 1. The higher the number, the more important it is in determining the estimated value. Some of the numbers are the same. This means that they can overlap and, in some cases, be just as important. I hope this helps when reviewing your appraisal or if you are selecting comparable sales for your home.