Farthest you will go back for Sold Comps?

Question

In general what is the farthest you will go back to get comps to establish a estimate of market value? I have read 8 months is usually as far back as you should go, obviously 6 months would be ideal but sometimes thats not possible.

Bill Gulley · Answer

Historical lease amounts don't tell you what the market is today, you need to look at leased property. I certainly would not want to compare to a vacant property to establish a rental amounts except to say, at the rents that owner is asking, that will provide a vacancy.

If a property had solid leases 9 months ago and is still vacant, the market demand has changed, at least for that property. If that vacant property is most like yours, what does that tell you? That tells me I may not rent it very fast, it's not marketable as a rental.

Now, no two properties are identical, location, location, location.
If a similar property was rented for an amount and you can tell why it's not longer rented, then you might consider the differences and apply generalizations of rents, if your location significantly different. :)

Bill Mitchell · Answer

Bill Gulley That was a fantastic informative reply thank you.

Does that information still apply to leased comps as well? I was looking at a property today that had not much leased activity 6 months back in the subdivision, but 9 months back it has SOLID leased comps just like the subject property I am looking at.

My thought is you probably need to be more conservative going back in time when estimating ARV (due to appraisers), and you have a little more wiggle room going back in time for leased comps.

How does that sound?

Thanks again everyone this has become a great thread with alot of great replies

Manesh Hardeo · Answer

With some of the subject-to appraisals with hard money lenders I've noticed they will only go back 6 months, but will go out as far as they need for sufficient comps.  Sometimes even 2 miles, but then again this is the Metro Atlanta area where comps can be hard to come by.

I haven't been in the Houston market for over 2 years, so I'm not sure what it's been like there.  You can call our Houston office if you have any questions or contact 212 Funding that does a lot of hard money.  They're actually located in Friendswood not too far from you.

Bill Gulley · Answer

I suggest you keep apples with apples as much as you can. If your buyers will be getting financing the value will be established by thier appraisal. That will be using sold comps within 90 days.

While the date of sale is important to show the current market, more importantly is that the comp is the most similar to the subject. This being your best comp it should be within 90 days but can go out to 120 days.

When comps go beyond 120 days you need to compare the market itself. If the market has changed you may need to make adjustments for time and market conditions.

You can go back a year, this would need to be considered if it was very similar in style, location and amenities as well as time on the market. While such a property may be the closest to the subject, it may not be considered as the best comp but more in a supporting light to value.

We also look at the time distribution of sales as an indication of market, a sale within 30 days, one sale at 65 days and one at 90 days will likely fly, but that is a slow market for the range, IMO.
1 in 30 and the other 2 within 60 days is much better, a hotter market.

Population and inventory can be limited and times of sales can be adjusted, usually you're looking at longer holding periods in such cases.

The best thing to do is to really detach yourself from any personal opinions of the subject, this is hard for many investors, I have been guilty of being too "in love" with a property for one reason or another, but then again my love for any property doesn't last long, usually 3 to 7 years if I'm willing to hold it. OTH, if it's a flip, I don't want anything beyound 90 days. Investors tend to look at comps to justify thier wanted outcome when there is a personal attachment to the subject.

So, use the comps that are sold in the most recent market, within 90 days, it's usually a better indicator than a better comp 9 months ago IMO.

And, the best thing to do is call local lenders and ask them about the time frames they underwrite to, what is acceptable, a bank in Dallas may want all comps within 60 days, a bank in Lockwood, Mo. might be happy with comps within 120 days or even one 9 months out. Otherwise, you're looking at secondary market acceptance for residential in that geographic area. And the older the comp, the more justification is needed to use it for lending purposes.  :)

Samantha M. · Answer

Here in north texas / dfw area. I think the market has remained relatively consistent, my gut tells me in some areas i could go 10 months back in some areas, if anything i think prices in dfw overall have improved a bit.

So if you are having to grab older comps 10 months back maybe even a year and they would have been worth more if they sold 2 or 3 months ago potentially.

David Niles · Answer

Its going to depend on your market as well. Real busy market that has a lot of ups and downs, the time frame is very important. Market like mine that has been very slow but steady, I can go back 12 mths if needed with certainty that my value is still correct. 
Most markets you should try to stay within 3 mths.  You are usually better off making other adjustments in your comp vs going out further in time.

Andy Chu · Answer

It really depends on your market. If home prices have not really gone up or down then using comps 12 months back is doable. If you are in an extremely volatile market, then using a 3 month comps is preferable.