Tuesday, November 6, 2018

Homebuyers must Verify Appraiser or Assessor Values in Four Easy Steps

Step 1 - Verify Subject Info
(Click on the image to enlarge)
Subject Info is often inaccurate in Public Records so verify it (compare with listings). For example, our subject property (single family home) is located in Orlando, FL, comprising roughly 1,900 SF building area, 40 years old and sits on a 10,000 SF lot.

Step 2 - Verify Comps Criteria

Sales must be properly selected and adjusted to become comps. In this example, sales within two-mile radius and 25% 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 6% annual growth, projecting out to 12-06-2017 (a tentative offer 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 pricey neighborhood, increase the adjustments as appropriate.

Step 3 - Select Final Five Comps

From a pool of ten Comps - based on the selection criteria set forth - five closest ones (based on the distance from the Subject) are chosen. Sales recency 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 incompatible despite having met the distance criteria.

Step 4 - Verify Valuation

The selected final five comps 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 might consider up to the 25th Percentile, while someone bent on outbidding the competition to acquire the property could start at or above the 75th Percentile. It is therefore quite relative. Unlike an AVM (a statistically significant solution!), a comparable sales solution is very subjective as well.

I picked the above tables and spatial 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 / no salesperson will call you), and requires no login or registration whatsoever. Please use the system that works best for you.

Note: All adjustments in Homequant are linear. In Automated Valuation Modeling (AVM), non-linear adjustments (due to the nature of their contributions) are generally used via non-linear regressions. If you are trying to learn AVM or understand how to make advanced non-linear adjustments to your model, please check out my recent book on AVM "An  Illustrated Guide to Automated Valuation Modeling (AVM) in Excel..." on Amazon.



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