Tuesday, November 21, 2017

Homebuyers Must Learn to Differentiate between Sales and Comparable Sales

A list of sales - by default - does not become comparable sales ("comps"). Sales - even from the same neighborhood - must be quantitatively adjusted for characteristics and time to become comps. Once adjusted, the differences in property characteristics, distance and time (1/2016 and 1/2017 sales are not the same) become irrelevant. 

So, always ask your Broker/Salesperson to show how the comps have been quantitatively adjusted. 

Here is a snapshot of the adjustment process:

(Click on the image to enlarge)
The above table shows that although these are the 10 best pooled sales to value the defined subject, they are quite different in terms of the distance, time of sale, size and age so they have to be quantitatively adjusted (using sound econometric parameters drawn from the local market -- explained at length in prior posts), to be considered and accepted as comps, absent which they would remain as some random sales.

Once they are adjusted, the Comps Grid will show the line item adjustments as well as the total adjustment for each of the final five comps:

(Click on the image to enlarge)
Upon adjustment to the sales, the original sale prices are replaced in the analysis by the adjusted sale prices that contribute collectively to the valuation of the subject.

I picked the above graphics from Homequant.com as I own and operate it, to avoid having to deal with any copyright issues. My Homequant site is totally self-directed (no modeled values), totally free (no strings), and requires no login or registration whatsoever. Please choose the site that works best for you.


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