Thursday, July 23, 2015

Home Buyers MUST Verify Appraisers' Values in Four Easy Steps.

Updated 02-23-2016

Step 1 - Verify Subject Info

(Click on the image to enlarge)
Subject Info is often inaccurate in Public Records so verify it. For example, our subject property - a single family home - is located in N. Las Vegas, with 1,400 SF building area, 30 years old and sits on a 7,000 SF lot.

Step 2 - Verify Comps Criteria

Sales must be properly selected and adjusted to become comps. In this example, sales within one mile radius and 20% of the Subject's physical attributes (Land, Bldg and Age) are considered to be comps. Also, all comps are adjusted for time (sale dates) at 1% growth per month and are projected out to 12-31-2014 (a tentative purchase date). Therefore, the Subject will be valued as of that date.

To converge all Comps to the Subject's physical attributes, they are adjusted at $10 per Land SF, $100 per Bldg SF and $1,000 per Year of Depreciation. If the subject is located in a pricy neighborhood, increase the adjustments as appropriate.

Step 3 - Verify Final Comps

From a pool of ten Comps - based on the selection criteria set forth - five most recent ones are chosen. Closest distance and least adjustment are the two other selection methods. Before finalizing, always take a look at them spatially (on the map), as the comps from the "other side of a major artery/freeway could be inappropriate." Here are the comps spatially:

Step 4 - Verify Valuation

The final five are producing the subject valuation. While the Median Adjusted Sale Price (ASP) is the most probable value for this subject, 25th to 75th Percentile range is the most probable range. Alternatively, an investor may consider up to the 25th Percentile, while someone bent on outbidding the competition to acquire the property could start above the 75th Percentile. It is therefore quite relative. 

Now, try out your own subjects at our Homequant site. It is absolutely free and requires no registration whatsoever... 

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