Appraisal or Comps?

Question

Which do you think is better? I am looking at some properties and they already have appraisals on all of them. But I also have access to professional comps - and they never match.

Dick Green · Answer

There's tax assessed value, appraised value, comps.  Tax assessed value can often time give an unrealistic market value due to deferred appreciation and exempt status affecting any increase.  Also Tax assessed values can be protested then lowered.

Appraised value is determined by considering the Cost approach, (what does it cost to replace the property), The Market approach (comparable type properties in the same area as the subject which has sold in the last 6 to 9 months), or the Income approach to equate value.  It should be the most accurate method of determining value.  Sometimes, depending on the appraiser or the lending institution it's not.

Comps are merely a quick snapshot of comparables in the area without making adjustments for age, seller contributions, conditions of comparables.  Though I have been usually accurate with comps, there has been several occasions where I have totally missed it.

If it was my money at stake......I would only depend on the results of an honest appraiser.

Al Alfaro · Answer

Both are important, and good comps will support (or debunk) an appraisal.

Just a note- if a home is appraised at a value significantly higher than recent comp averages, find out why.  Unscrupulous appraisal companies can inflate an appraisal (usually done in cahoots with the seller). This is FRAUD! If the home doesn't have any features that increase its value, then suspect that something fishy is going on. You can always contact the state's real estate appraiser regulatory agency to find out more about an appraiser (or to report suspected fraud).  Here's a good site to find Real Estate Appraiser Regulatory Agencies by state: http://www.aaro.net/Directory.htm (I'm not affiliated with that site in any way).

Al Alfaro · Answer

Those are the kinds of improvements I'm suggesting. Knick-knacks don't count for much :) Most investors that I find properties for want appraisals before anything else, so it is an important tool to have. I agree in that it's not always a deal breaker, though.

Deyano M. · Answer

true, but very minimally. Appraisers do not use emotion as a buyer would and only certain permanent upgrades will count: granite, permanent lighting. Any track lighting or ceiling fans- stuff like that usually will not sway an appraiser...

appraisals and comps are very rough estimates. Although comps have an actual exchange of money to back them up...

Al Alfaro · Answer

If that apple has extra features and upgrades (esp. kitchen and baths), it's going to appraise for more than a similar, "no frills" apple.

Deyano M. · Answer

From my understanding and very recent interaction with an appraiser for a large national lender- Appraisals are just comparing apples to apples: sq. footage, property specs- baths/beds, basic features.

So- I'm going to actually disagree slightly and say that appraisals can also be on the lower end of what you'll see with comps. And if you're talking about taxing offices, then the appraisals would come in on the higher end most likely as that would benefit the city or town.

Comps tend to be much more realistic as to what is going on in the market currently. In the case that my Mother's neighbor sold their very similar home for a certain amount, you get an idea of what actually sells- not a speculation of the value based on statistics.

With that said, comps can be emotion driven as buyers can fall in love and must have a property- potentially driving the price higher.

I usually look at the appraisal and comps and come to a range and estimate on my own.

N/A N/A · Answer

Thank you! I am going to go check out that website. I had been asking around for info about them but noone knew :)

N/A N/A · Answer

when you are looking to refinance the appraisal is important but what a similar house sold for in the area is the final consideration for the refi-  What someone was willing to pay for a similar house is the last word.

appraisers want your business so they will stretch the amount to some extent.  However, I had a refi going and got the appraisal that we needed however, the underwriter requested a desk top appraisal (comps) and would not approve the loan. So go figure

Al Alfaro · Answer

Glad that I could help :)

N/A N/A · Answer

thank you guys. Yes, I was afraid the appraisals were a little "stretched" -

the seller has many properties for sale all appraised by same people....some match up with my comp reports pretty close and others are appraised quite a bit more. This leads me to believe they are legitimate appraisal company or they would all be stretched to the highest for the same client - I would think anyways.

Thank you for the insight and replies!