Real Estate Agents often provide very accurate opinions of value based primarily on their very specific knowledge of a very specific market area. They are allowed a great deal of freedom in the way they arrive at that opinion. A state licensed or certified appraiser on the other hand has a very strict set of rules he must follow depending on the â€œScope Of Workâ€ of his assignment as outlined in his letter of engagement from the client. There are the Uniform Standards of Appraisal Practice as well as the various sets of rules and guidelines his clients may require, i.e. the IRS, and other federal and state agencies, GSEs (Government Sponsored Enterprises like FNMA, Freddie Mac et als) and many others.
The appraiser prepares the Sales Comparison Approach by researching sales that have occurred over a 12 month period or longer to establish the trend in values. Homes sold in "non-arms length" transactions and under duress are eliminated from the analysis. This large volume of sales is then 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 will be studied only the most relevant indicators of the subject value will be selected and cited in the appraisal. The other sales serve as supporting evidence and are retained in the appraiser's files. Because most appraisals are a "Summary" of a "Complete Appraisal" they list only the most relevant data.
Researching the appraisal is done by searching, reviewing, and analyzing various data sources including MLS, municipal data and commercially available resources. The appraisal relies on data obtained from these sources, much of which has been verified through multiple sources. In addition consultation with competent real estate professionals and government officials is made to obtain or verify information. Comparable sales descriptions are obtained from these sources and an exterior observation of the potential comparable properties is made to ascertain if there are an significant location influences. A diligent effort is made to uncover and verify all relevant factors that might have influenced the sales.
The cited sales include sales of homes that are slightly superior to the subject and homes that are slightly inferior to the subject thereby establishing a narrow bracket of high and low value that your home value lies between. 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 is also 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 that are currently at play in the market. They also indicate the lowest price one may currently pay for a comparable property giving additional support to establishing the ceiling of the valuation bracket.
Appraisals made for lending purposes intended for federally regulated institutions or transactions have strict guidelines regarding ratios and percentages of adjustments. Only settled sales can be used as â€œprimaryâ€ data and they must have occurred within the past 12 months as a maximum. Active listings, expired listings, pending contracts and sales that occurred more than 12 months prior to the date of value may be included as â€œsupplementaryâ€ data to provide additional support to the conclusions arrived at via the analysis of â€œprimaryâ€ data. Many people believe the appraiser does not pay attention to active listings however as I have mentioned that is not true. They are always considered even though they rarely show up in the â€œSummary Appraisalâ€. Today with so many declining markets their inclusion is becoming common.
The analysis and correlation of all this data is then 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 Value as defined within the body of the report.
If you are seeking a potential listing price you need to know the current â€œlist to sales price ratioâ€ as well which will allow you to price the property appropriately to allow for negotiation. Too high a price will often result in a below market sales price. Just as a over priced product on a store shelf gets â€œshop wornâ€ so does a real estate listing. If you are in a declining market, your first loss is your best loss. Time is against you. Price for a quick sale.... more