Any local Real Estate agents want to jump in here?
I live in the 7th ward and am very familiar with the specific streets and nieghborhoods of this area. I'm not even talking about the neighborhoods that would necessarily show up on a map, I'm talking about smaller differences between one particular street vs another street just one block away. The sales prices of potentialy comps can be drastically different based on minute details. How do you account for this when putting together a CMA? Do you widen the area, or narrow it? Do you exclude properties in a nearby neighborhood that are on a bad street or block, or do you include them as comps and just make adjustments to account for the difference?
For example, I'm currently working on a CMA for a property in the St Claude area, just one block off St Claude. So if I find 3 comps as follows, which one(s) should I use?
1) A house technically located in the same area as my subject property, just 5 blocks away, but on the other side of Claiborne (a drastically worse area)
2) A house in the Marigny area, just 2 blocks away, but on the other side of St Claude (a drastically better area)
3) A house in the 7th ward/treme area, almost 20 blocks away in a completely different neighborhood, but the neighborhood is overall very similar to my subject property
So which one(s) would be more valuable to me as a true comp? Or, should I just use all three and make adjustments as necessary based off of the differences? I am worried about pulling comps that are not similar enough to my subject property, but if I narrow the search so much that I'm only looking in the St Claude area, specifically ruling out properties on the "bad" side of Claiborne & properties on the other side of St Claude in the Marigny area, I'm limiting my search far too much and there just aren't any comps to pull! That's just a 5 block radius I've limited myself to.
Another note ... I started by pulling comps from this tiny little 6 block radius area, although the houses I was pulling were a little too different from my subject property. I made adjustments as necessary. Then I removed the properties that had the most amount of adjustments, both in quantity and dollar amounts. Then I expaded my search a little and included properties in differet neighborhoods, but still overall nearby (all in the downtown area, East of the French Quarter. So it's not like I'm comparing downtown to uptown or anything so drastic). I noticed after doing all of this, that the "suggested list price" I was coming to kept increasing. Does this mean I was doing the right thing by altering my search and deleting some comps, and that this new number is a more accurate representation? Or does this mean that I was inadvertendly favoring comps that would increase the "suggested list price" I would come to? If it's evidence of the latter, how do I avoid that pitfall?
For reference, the orange is the subject property, and the blue dots are the comps I've pulled. Does this look right? Or are some of these too far away? The dots on the far left and far right or the most similar neighborhoods to my subject property. And the other four dots, while very close are in very different areas, the Marigny being much nicer, and near Claiborne and on the other side of Claiborne being much worse.
Disclaimer, I am not a realtor and have only been focusing on the New Orleans market for 18 months so you there would be people who could give you better advise than me. I do invest full time in the area so deal with this every day though so will share what I do. For me I draw a border to create a comparable area. Somewhere like Claiborne in your example would be a border for me as we know the comps change drastically. Being a local you would know what those borders are. I would always start with sales over the last 6 months but if there isn't enough in that little area I would prefer to take it to 12 months than to use comps out of the border. I can usually find enough good comps that way. I will always drive the comps as I progress on the deal just to make sure that block doesn't change a lot from the subject property. It is really hard to comp in New Orleans and you just need to put in a little extra effort and thought.
@Leilah Davis While I am not a realtor, I am active in this part of the city. I am surprised that you cant find comp's in your exact area (St. Claude to N. Roberston, Elysian Fields to Desire), as there has been alot of activity in that area, including some very pricey renovations. Without know how you are defining your comps, its hard to say why you are not finding any.
Are you only looking for new construction, if so that is likely your problem (you will need to look at renovated properties and adjust, there is just not enough new construction going on in alot of NOLA neighborhoods).
I think its not accurate to think your house will be considered a comp with anything on the riverside of St. Claude, we both know that is not the case. If your picture is accurate for the house locations, I am not sure if most of them are very accurate for comps. The house to the east (Bartholomew St maybe) is not the same area as your property.
You will have to account for the fact that you appear to be very close to the train tracks, which has always been an issue for that area.
I would say that if you are working the number to get a higher price, your likely doing it wrong.
I would also add that this is a fringe area or an area in transition, whichever you want to call it. In these areas comps are especially difficult as they will vary severely. Sometimes as much as $100/sf depending on where they are. Because of this you will want to keep your search area as tight as possible to really get good numbers. Things can, and do change drastically from block to block in New Orleans, and especially so in these transitional areas.
Keep in mind that these areas are the hardest hit when and if the market shifts. They can increase rapidly in value and fall just as quickly...
My question is more about how to do a CMA the "correct" way, given this particular set of circumstances, rather than asking for help analyzing this particular property. I was hoping to hear from some licensed real estate agents (or appraisers, if there are any on this site) who can tell me the proper way to do it.
According to my real estate licensing course, comps should be pulled from the last 3 months. You can expand the search to 6 months if necessary, but they say definitely not beyond that. So let's assume I'm deadset on following this rule (again, just in an effort to gain practice for my upcoming real estate licensing exam) and I'm therefore not finding properties that are particularly similar to my subjecy property within the tiny little radius I've given myself - is it better to then expand the search outward to similar properties in similar neighborhoods, or to expand the search within my little "neighborhood" radius to properties that are not very similar?
Mike, it sounds like you're suggesting that none of the three options I listed are good comps to use, and that I should instead stay within the "neighborhood" selected and expand my search to include properties that may be very dissimilar from the subject property. Did I understand your point correctly? I've found there to be a major difference in selling price-per-sqaure-foot of newly constructed home vs "renovated" homes, unless it was a total gut job. So I am nervous to use those as comps. They don't seem particularly ... what's the word ... comparable! (lol)
As for your last note Mike, I wasn't intentionally working the number in order to get a higher price, but perhaps I was subconsciously selecting higher selling prices? Idk! Either way, I beleive I made appropriate adjustments to the sales values of the comps. The price I cam to was only about $10,000 off after I made the adjustments, so it really wasn't a significant difference anyway.
This is why I would really love to hear from some lisenced real estate agents. In New Orleans, how narrow do agents and appraisers make their search for comps? Knowing the areas I feel inclined to agree with Mike that one block can make a HUGE difference, but is keeping my search very narrow based on the specific neighborhood, and making my search very broad based on the property features (size, type, etc), the proper way to do it???
@Braden Smith Thanks for the reply! Totally agree that transitional neighborhoods can change quickly. And definitely agree that one block can make a huge difference when comparing properties! Would you mind taking a look at my reply to @Stephen Keighery ad @Mike Wood above and let me know your thoughts?
It sounds like everyone is in agreement that priority number one when doing a CMA in New Orleans is location, location, location, and I couldn't agree more! I plan on doing another test CMA for this property using only comps in the immediate vecinity and not on the other side of any major borders. This will mean that I'll have to use properties that may be pretty dissimilar ... I'm a bit worried that if I do that, the comps will be all over the map and may not actually give me any clarity. But I guess I'll head off and try it, see whrere it gets me :)
Thanks again to all!
@Leilah Davis Having built several new construction houses in "fringe" areas as described by Braden, I am pretty tuned into the appraisal process and comps. I dont sell most of my projects, but do focus alot of attention to comps so that I can ensure that the project will value out correctly to justify the construction costs. If you find gut renovation and new construction comps, I dont think the adjusted value will be that far off between the two, if they are similar in trim and size.
As for you question about the three options, I am not sure they are great comps, unless you fully understand the required adjustments needed to suit the location. I personally would only look a few blocks from a house in these "fringe" area's. Otherwise, you really start to compare apples and oranges.
I assume that you looking at this to see what your spec build your planning will comp out as. If that is the case, it might be worthwhile to contact an appraiser and pay for new construction appraisal, this assumes you have some idea what your building. That value will likely come in a bit low (~5-10% low) based on my pre-construction vs post construction appraisals, but should give you an idea of what comps would/could be used and how they would be adjusted. I will say, the appraiser will have a hard time finding new construction comps and will likely use several gut renovation comps, they always do with my projects (I am not building in Lakeview or any other part of the city with a large amount of new construction comps).
Thanks again @Mike Wood ! Not sure it's going to be worth it for us to pay for a pre-construction appraisal (i've never even heard of this, to be honest), but I appreciate the suggestion. We already have a pretty good idea of what we're going to build and a rough estimate of how much we'll net on the property when we sell, assuming market conditions don't change too drastically by then. I just wanted to confirm that the CMA I was using as practice wasn't too far off base. Based on the suggestions above, I went ahead and did a new CMA using only properties within the St. Claude to N. Roberston, Elysian Fields to Desire boundaries that you suggested and came up with a price that is only a bit below the number I got before. So thank you again for that great advice! I think at the end of the day I was subconsciously skewing the numbers a tad. It's always helpful to re-assess and ensure that our numbers are realistic. I'm just glad the realistic CMA and my accidentally inflated CMA were still very similar at the end of the day, otherwise I could have done a lot of damage to myself inadvertantly!