Am I the Only One Who Disregards These Comps?

Question

I'm talking about the ones where the realtor handled both the listing AND the buyer on the sale. I just don't see these Realtors as being impartial. Furthermore, the sales prices always seem to be way out of line with the rest of the comps where the buyer came in with their own Realtor.

So I disregard these comps when valuating residential propertiers, particularly after repair values. Does anyone else do this?

Justin S. · Answer

It is just one part to the entire equation.  I would never disregard them though.  To be honest, I would try to find out what they did to sell at such a high price.  I would even call them to see if they have any more buyers lined up.  Always something to be learned.  If they are comps in my subdivision then they affect me no matter what I think.

Justin S. · Answer

If I think an appraiser will use them, then I do not disregard them.

Account Closed · Answer

An appraiser might look for comps differently than a Realtor would do. The appraiser's search might have more criteria for example. When planning for re-sell, it would be safer to go with the lower comp. Don't forget to calculate holding costs, loan costs, etc.

Ibrahim Hughes · Answer

Good points Will and Justin. But as I mentioned above. I would disregard these comps when it came to 'valuating' a property. Not necessarily disregard in all instances.

But why would I use possibly overinflated comps to justify my offer? I would think that a lower sales comp would justify my low offer, not a high one.

Also, I know the rents in our area. For that next of the woods each unit of a 3 family house would bring in $1150-1250/mo. And the quality of tenant would not be great. So at $1200/mo that's $3600/mo for a $350k (taxes - $4500/yr) house. The numbers are too tight imo.

Will Barnard · Answer

I too agree that "disregarding" is not the best term or approach. Every comp is useful in some way or another, to "disregard" one is not wise.

As Jason pointed out, each comp can be used for one of two tasks:
1. To support your low offer value for acquisition purposes
2. To support an appraisal value at your exit.

For exit values, REO and other distressed sales comps (short sales, probate, etc) should be tossed out as they are not true comparisions to a move-in condition fully rehabed home, however, they would be used for your acuisition comps to support the offer amount.

As to dual representation, I have found just the opposite of the scenario mentioned in this thread. Usually, those comps are from acquisitions of REO's and other distressed sales and the value is lower than the other comps, not higher. Of course, every market is different.

Justin S. · Answer

Ibrahim

I think you are actually thinking like me, but you used the term "disregard" which I would never do in this case.  I would investigate it quite a bit and see what is going on.  I would try to find out:

1.  Financing used and who the broker was on each deal.
2.  Find the appraisal company that appraised the property.
3.  Are all three realtors under the same broker?
4.  Who are their buyers?  Out of towners?
5.  Type of rehab they completed?
6.  Same school district, etc.  
7.  Same seller in each case?
and so on.

In your original post, I was under the assumption there was only one outlier, but three sales is fairly significant.  I would definitely research more.  You could even door knock on the homes and see why they bought it.

Ibrahim Hughes · Answer

Justin - There are 4 comps like this with 3 different Realtors involved. Each deal had the same realtor representing the buyer and the seller.

Silvio - (according to my analysis) you can only sell at $355k if you find an unsuspecting/unsophisticated buyer willing to buy at the high price. Not something I'd want to base my business model on.

J Scott - In the examples I mentioned where the comps are skewed, an Investor may be able to get a high appriased value but the chance of getting a corresponding sales price (from an unsophisticated buyer) is a lot less. Thus, a scenario (like I mentioned to Silvio) I wouldn't want to base my business model on.

J Scott · Answer

As has been alluded to in this thread, there are two uses for comps:

1. To determine what you can get a property under contract for;

2. To determine what you can get a property to appraise for.

Both of these are very important, as each will have impact on the other.  For example, if your property will only appraise for $150K, you should tailor your rehab to not do upgrades that will garner you a $170K contract (you're wasting money).

So, when looking at comps, you need to ask yourself, is this going to help me determine a sales price or an appraisal value?  And then use the comp accordingly for your analysis.

Silvio Brigliadoro · Answer

Ibrahim, you are right! I would never take comps or values from a Realtor, specially if he is also the listing agent. If you can buy at 255k and below and resell at 355k, sounds like a pretty good area to buy-n-flip to me!

Justin S. · Answer

Same realtor on each deal?  They paying cash or financing?

Am I the Only One Who Disregards These Comps?

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