Why Didn't The Appraiser Use This Comp?
It can be frustrating when an appraisal comes in lower than the sale price, but you feel there are relevant sales that the appraiser did not include in the report. As a Realtor, I have been in that position before, and it can be infuriating. However, as an Appraiser I have to say that there are many reasons why an appraiser might choose not to use a particular sale. When I have excluded sales which were presented to me by an agent, it is usually due to the availability superior alternative sales.
An appraiser must determine if a sale is truly competitive to the subject property, confirm the sale, and weigh each sale against other available sales to ensure the most relevant comps are put into the report. An appraiser may review dozens of sales to determine the best 3-9 comps that make it into the final report.
CONFIRMING THE SALE
The most common forms currently in use for residential home appraisals define market value as the "most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus". The complete statement is 2 paragraphs long and can be found in any report, but that is the most relevant section to the current discussion.
The appraiser reviews the terms of potential comparable sales to ensure that they meet the definition. Was it really an "arm's length" sale, or was there some other influence involved? I have literally seen a sale in South Florida that included the trade of a flat in the South of France (in addition to cash). The sale appeared very low at the recorded price, but that did not include consideration of the other property trade value. There are also a fair number of real estate sales in Florida that include boats or other types of personal property.
The most common way to confirm terms of sale is through use of the local Multiple Listing Service. However, if you have found a sale that you think the appraiser should consider but it is not listed in MLS, then please review our post about use of non MLS sales.
WEIGHING THE SALES
There are many factors that go into weighing potential sales to determine which ones are the most relevant. You may want to review our article about understanding appraisal adjustment guidelines to better understand some of the appraiser's considerations when selecting comparable sales (GLA, lot size, view, design, age, etc). Appraisers are also constantly making sure that primary market driving factors are "bracketed" and we have another post that discusses bracketing in detail.
Recent sales are also strongly preferred. Generally speaking an appraiser is not going to use a sale from a year ago if there are similar properties that sold more recently. A Real Estate Appraiser can't ignore several sales that tell one story, just because you may have found a single sale that may tell another story. If you are able to show valid reasons why one sale is more relevant than the others, then you are more likely to have that sale considered by the appraiser. Use of sales over 1 year old are not common, but it is not unheard of either. If you have a unique feature or location and there is a perfect comp that is 15 months old during a time period of relatively stable values, then you may have a reliable potential comp.
If there is a comparable sale that is not used in the report and there is a particular reason it was disqualified, the appraiser would hopefully comment about that sale and why it was not used (assuming it otherwise appears to be a very competitive sale). Make sure you read through the comments in the report to make sure they didn't discuss why it was not used. Was the buyer a family member of the seller or were there circumstances that might cause the sale to be thrown out?
Finally I highly recommend that you submit comps that you believe to be relevant BEFORE the appraiser writes the report, preferably when they set the appointment to look at the property. Our article regarding Realtor Preparation for Appraiser Appointments discusses this concept in some detail. If you know of one or two sales that are very relevant and that support your contract price, then it is always a good idea to let the appraiser know about them in advance of the file being completed.
Experienced Appraisers Inc is a network of highly specialized appraisers that have been in the business for decades. We have appraisers that cover every inch of Florida and can handle any property type for any intended use. Please contact us today to receive competent representation for your valuation needs.