Appraisers - Appraising something with no comps?

Question

Can any appraisers give me some insight about this? How would something work where someone needs to get a loan and an appraisal needs done, but there are no comps? Does this mean everything is a no-go?

My best example would be something like the first condo building in a rural area where only SFH and attached singles (duplex or townhouses) exist. What would happen in this situation?

Jon Holdman · Answer

Dealing with hard-to-comp properties is dangerous.  Appraisals are something of a crap shoot anyway.  But when a property is hard to comp its even more so.  An appraiser will always have some way to come up with a value.  Three different appraisers, though, may come up with radically different values.

Mike Cumbie · Answer

Hi @Melissa Kirchhoff,

I'm not an appraiser, but I know a few. There is always comps. For instance if there are only Ranchs sold and this is a Colonial, they may take "cost to build" each and make the adjustments from there. Obviously not  optimum, but their job is to calculate a value. They have many tricks up their sleeves and experienced ones will get you a solid well thought out number.

Brian Pulaski · Answer

My uneducated guess would be finding close to the same size SFH, sharing the same bed/bath count and then adjusting the appraisal up or down from there.

Omar Khan · Answer

@Melissa Kirchhoff Valuing hard to comp properties is a pain (@Jon Holdman). An appraisers gets in the realm of massaging #s. For instance, they can assess how much it would cost to construct (replacement cost) or multiply by a discount factor due to lack of liquidity/type of property.

In some cases, appraisers reach into neighboring markets to develop a better idea of how much a property should be worth.

There is no magic formula. The variables are subjective and driven by market sentiment.

E.g. houses before the 2008 crisis were appraised for very high values but within a few months the values cratered by 20-50%. Why? Because market sentiment changed and hence, the underlying variables changed.

The appraisal is someone's opinion at a given moment in time only.

Melissa Kirchhoff · Answer

@Angelo C. - Thank you, that's what I figured! The hard part is the condos that would be comps, really aren't, and the only thing that would be a comp would be really quite a distance (like an hour or so away). So I was trying to get a feel for how they would determine value on that.

@Jon Holdman - Yes, that's my biggest concern, I know how appraisals can go with lots of very close comps, nonetheless not close comps! So I'm wondering how the people that first develop condos in areas without any really went about selling them. Was it just all cash buyers?

Melissa Kirchhoff · Answer

@Brian Pulaski - Thanks, that was how I was approaching it too.

@Mike Cumbie - Thanks, I've never heard of any doing that in this area, so that's helpful! I've heard around here they won't generally lend on two houses on one lot because there aren't comps for that. You'd think that'd be just a benefit for the lender, more potential income or more to take back if they foreclose, but they won't lend on it. So I'm worried if my plan works (which is basically creating condos in an area with none), I'll be stuck with no one able to get a loan for it!

Appraisers - Appraising something with no comps?

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