Sunday, June 24, 2018

A Good Home Valuation System Allows Users to Differentiate between Sales and Comparable Sales

Sales vs. Comparable Sales

A list of sales - by default - does not become comparable sales ("comps"). Sales - even when drawn 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 (01/2017 and 12/2017 sales are not the same) become irrelevant. 

So, always ask your Broker to show how the comps have been 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 other 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 Sale Prices are replaced in the analysis by the Adjusted Sale Prices (ASP) of the comps, contributing collectively to the valuation of the subject. The Comps Grid here has been ranked by 'Distance' meaning the comp closest to the subject becomes the Comp #1. 

To uderstand the three ranking methods - Distance, Sales Recency and Least Adjustment - please read the following post:

http://blog.homequant.com/2018/06/a-good-home-valuation-system-allows_3.html

Also, do not confuse Scoring with Ranking.

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 registrations whatsoever. Please choose the site that works best for you.

http://www.homequant.com/

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