FYI.
Somtimes banks use realtors when they don't want to pay for an appraisal, they will order a BPO or Broker Price Opinion. in my time, I've done hundreds of these.

A zip is not the primary determinant of identifying the population of sales that will be considered comparable to the subject although in many instances it is. Similar market reaction to a set of physical and locational characteristics as well as proximity are the primary determinants.

The Sales Comparison Approach of an appraisal is prepared by researching sales that occurred over a 12 month period or longer to establish the trend in values. Homes sold in "non-arms length" transactions and under duress were eliminated from the analysis. This volume of sales is used to isolate the incremental value contribution to the whole of various features and to understand the forces at work in this market over a period of time. Although a large volume of sales are studied only the most relevant indicators of the subject value are selected to be cited in the appraisal. The other sales serve as supporting evidence retained in the appraiser's files.

Comparable sales selection is made first by location but with close attention to structure, style, age and condition and then the geographical limits are gradually increased until a sufficient number of sales of reasonably similar homes were identified. The cited sales include sales of homes that are superior to the subject and include sales of homes that are inferior to the subject thereby establishing a narrow bracket of high and low value wherein the subject value clearly lies between. The bracket is narrowed by adjustments that are made to the raw sales prices based upon the isolated incremental value contribution to the whole of primary features and characteristics as measured from historical sales data via paired sales analysis. Because settled sales can be very old considering that the actual agreement to purchase may have occurred many months prior to settlement and under vastly different market conditions it was deemed prudent to analyze a significant number of expired, withdrawn and current listings to illustrate the upper limit of value, current value trend and competing supply. Expired and withdrawn listings of similar homes give evidence of what the market will not pay for a home with similar characteristics as the subject thus helping to establish the upper limit of value for the subject. Current listings reveal the direction values may be going and give an indication of supply and demand factors. The Principle of Substitution holds that typical potential buyers in a marketplace usually are unwilling to pay more for a property than the cost of acquiring an equally desirable substitute property. Therefore, it follows that market price levels for residential real estate (all real estate, for that matter) are influenced significantly by the supply and pricing of alternative properties available to buyers. The appraisal process, then, must include a thorough analysis of the availability and pricing of comparable properties. Although examination of past sales in a marketplace can, at times, be helpful in developing such an analysis, an appraisal that is based solely on such historical sales information runs the risk of not providing a timely indication of value. This is particularly true in transitional markets where market price levels are appreciating or depreciating. The analysis and correlation of all this data is used to provide a clear and accurate identification of the forces currently at work in the market and to provide a supported and defensible opinion of the subject value.

I would suggest you begin you analysis the same way by separating the population of sales and listings you have been provided with by what is superior and what is inferior thereby clearly defining the value bracket wherein the value of your subject resides. You may also request that your agent run an analysis of list to sold price ratios to give you some idea what percentage of list prices homes are selling at. This is all very difficult for someone to do with out a data source and expertise in market analysis. This is where an ethical and knowledgeable agent is extremely important.

Frederick R. Giebel, Jr. FHA approved, NJ Certified General Real Estate Appraiser appraising South Jersey for 27 years

Not always from the same zip, some towns have more than one zip code, it's more of a distance from the subject property which should be considered. Homes in the same neighborhood should be used as comps opposed to homes across town or in a neighboring town. You've got to compare apples to apples and they must be from the same tree!

For Sale or Active listings should be shown and looked at regularly only as a way to see what your competition looks like but has nothing to do with the possible sale price of your home, these are homes that may have been or will be sitting on the market over priced.

True and useful comps are similar or "comparable" homes which have recently sold within the same city and closest to the geographic area which the subject property is located. Although comps may at times be used from another city if that city is literally across the street from you.

NOTE:
If you build a castle in the middle of a slum, you cannot compare it to a castle in a town miles away because that is where the only other castles are located.

--
Victor Kaminski
Owner / Broker Manager
Marivic GMAC Real Estate
2056A Lincoln Hwy. (Rt.27)
Edison, NJ 08817-3330
Office: 732-650-9911 Ext.302
Cellular: 908-884-5757
Toll Free: 1-866-745-GMAC(4622) Ext.302
http://www.MarivicRealty.com
http://www.realrep.com/
http://www.homes.com/Content/AgentProfileDisplay.cfm?agentid…
http://www.trulia.com/voices/profile/Real_Estate_Pro-Edison-…
http://www.city-data.com/forum/members/victorkaminski-211209.html
http://www.realrep.com/Listing/DefaultListingSummary.aspx?Sh…
http://www.city-data.com/forum/3305497-post16.html
http://www.trulia.com/voices/Home_Buying/I_m_thinking_of_pur…
http://nls.point2.com/members/US/New-Jersey/Edison/Victor-Ka…

If you are establishing a value online, be cautious of the zip code pricing. Some areas have towns that use zip codes of other towns and do not represent an accurate value. The best way to price is by neighborhood, then town.

Hi Tlpc,

CMA done by Realtors usually go back as far as 6 months. Realtors also take in consideration other aspects when picking comparables. Appraisers can go back further and even make adjustments that Realtors will not be able to. You can ask your Realtor to narrow down to a number that you feel is right. You also can hire the services of an appraiser, this is not common, but you can do it if you feel his/her input is going to be crucial on your decision. Good luck!
Leonardo

Some excellent answers here, particularly from the appraisers on the appraisal process. Let me throw in a few additional thoughts, coming at it from a slightly different angle.

Comps and appraisals may look alike (and may end up virtually the same), but they're quite different, as the responses below indicate. To use a rough analogy, a comp is like a quick sketch/caracature done at a county fair. A sketch is relatively quick, but if done properly clearly resembles the subject of the drawing. On the other hand, an appraisal (properly done) is more like a studio portrait. It takes longer, there's more care and analysis involved, and it should be a more accurate representation of the subject.

Now, having said that, there are some limitations to appraisals and some desirable features to considering comps as well. First, as Marc said (and I gave him a thumbs up for his overall answer): "The comps would also have to have typical seller motivation. I am not using foreclosures or estate sales to compare with yours in most cases." On the other hand, if you're a seller and really trying to determine at what price your home will sell--or you're a buyer and want to make sure you're not paying more than "the going rate" for homes--you need to use foreclosures and estate sales. There are some communities in the Washington, D.C., area, for instance (Manassas, Woodbridge) where every second or third home on the street is an REO or foreclosure. If the last three townhouses that sold were in the range of $120,000-$140,000, then that's the price it'll take to sell yours, even if you're not facing foreclosure. And if you're buying, do you really want to spend $220,000 on a townhouse when the one next door is for sale at $130,000?

Recognize, too, that appraisals can vary, depending on their purpose. I've seen lots of properties recently where the owner was trying to sell, but couldn't because he/she owed more than the house was worth. Very often, though, the owner says, "But my house was appraised at $700,000 just last year," when the house wasn't worth more than $650,000 then and is only worth $600,000 today. The problem: The house was appraised for a HELOC, or equity line of credit. Those appraisals invariably seemed to be on the generous side.

Hope that helps.

As an Appraiser, I can tell you there is a lot more to determining comparables then providing "for sales" in a market area or zip code area. Also from my expierence, I can safely say a vast majority of Realtors/Agents do not, and/or do not want to, understand the appraisal process, and are not willing to do the extra time consuming research necessary to determine actual comparables.

To briefly answer your questions, without going into a lengthly explaination of "comps 101", when your lender orders an appraisal, both sold and active listings should be chosen as comparables. Emphisis is put on historic sales to determine value and listings are used to help determine market direction along with market analysis. The initial search for comps, starts within the neighborhood/subdivision and immediate market area of 1 square mile radius. The time frame can go back 1 year, the more recent are preferred. For determining actual comps, the properties need to be similar, or as close as possible, to the subject property in: location, style, construction, age, square footage, condition, room count, bedroom & bath count, amenities, lot size, etc.. If the transaction of the subject property is an arms-length, then foreclosure, bank owned, short sales or any other distressed property transaction cannot be used as comparables.

If there are not any recent sales of comparable properties within the market area, transactions farther back in time and/or outside the market area can be used. However, an explaination justifing the reason needs to be included. Time adjustments and/or regression analysis would also be required in addition to any necessary and appropriate adjustments (to any comps - sold or active) for differences in similarities.

It is always wise for any buyer or seller to consult with an appraiser prior to determining an offer or listing price. Since appraisers do not have a vested interest in the outcome of the transaction, they can provide the buyer/seller an unbiased accurate market value to help determine a offer/selling price. As a buyer, you would not necessarily need an appraisal (your lender will order one after an agreement is signed), a consulting assignment would be sufficient to help in determining an offer price.

Hi Tlpc,

I am a bank appraiser as well as Realtor, so this is how it's done. I look for comparables in the immediate neighborhood first. Those are always the best indicator of value. When I say neighborhood, I mean just that. Homes within 1/2 mile basically.

So take Roselle Park for example. If your home is on E Colfax or Spruce I would first look for comps in a boundary like this: The railroad to the north, Galloping Hill to the East, Route 28 to the South and Chestnut to the West. Then I would narrow it down to blocks that contain similar housing, lot size, and zoning to the one you are buying.

The comps would also have to have typical seller motivation. I am not using foreclosures or estate sales to compare with yours in most cases.

The comps have to be closed sales, or under contract and past home inspection issues. Active listings are also considered, but closed sales and sales under contract are the ones I would really pay attention to.

If there aren't a lot of recent sales, I go farther back in time and make a time adjustment depending on what the market is doing.

So I would not use Roselle, or Elizabeth or Union for your house. Sales from different locations and school districts are inappropriate. Location is a PRIME consideration. So I stay in Roselle Park no matter what.

If all you were given is active listings by your Realtor, you are not being properly represented. There is just no way to sugarcoat it. Do yourself a favor and get your own representation. That's the whole point of a buyers agent. To make sure you are getting the right data to make an informed and logical decision.

-Marc

I started to answer this question because it sounded easy enough. However, I used to work for an appaiser and the answer started to get complicated. You need someone local to help you. The comps we typically look at are 'sold' as well as 'active' listings with a time frame of six months. The same subdivison is best if you can find them. Go out as far as a year if you have to. Your realtor is probably trained in how to do this.

I hope this helped a little!