When an appraisal comes in below the majority of adjusted comparables, how does the appraiser determine the value? Should he take an average of the comparable values?
Averaging comparable sales may appear to be a way to arrive at an appraised value, but averaging comparables is not a good appraisal practice or approach to value.
When comparables are plentiful (in a new housing tract, for instance), it will appear as though the appraiser is averaging the comparables, but the sales comparison approach to value’s purpose is to determine the most similar sales to the subject, reconcile the differences and arrive at an appraised value.
Depending on the area, there may be a wide range of values, lack of sales and over-improved or under-improved dwellings. The appraiser may be forced to go outside of the area for comparables, or use dated sales, sales with a large variance of living area or lot size, or even both. Each situation is as unique as each home is individual.
It is up to the appraiser to individually weigh each comparable and reconcile the differences, which include the condition and quality of improvements; both the effective and actual age; seller concessions; location; lot size; lot utility; unique amenities including water features; accessory dwellings; etc. All these factors need to be individually weighted, adjusted in the sales comparison approach and reconciled to the subject.
The adjustments are determined by various techniques: trend analysis, matched-pairs analysis or simple surveys of the market. The appraiser always tries to find the most similar and recent sales, but it is not always possible. The most similar sale may be at the lower end of the market or the higher end and therefore the appraiser will give most consideration to those comparables. General price trends, including analysis of listings and
When an appraiser is reconciling comparable sales, they do not average the sales. Each sale is looked at individually, analyzed based on research and drive-by data, adjusted for differences and then reconciled as to how it compares to the subject property.