Appraisers select comparable properties, or “comps,” to help determine the value of a subject property. By analyzing the sale prices of similar properties, appraisers can estimate the market value of the subject property.
It’s crucial to take into consideration the most likely buyer for the subject property when selecting comps during the appraisal process. This means choosing properties that would appeal to the hypothetical buyer that the property is most likely to attract. For example, an appraiser working with a home in a retirement community should select comps that would appeal to other retirees. The ideal comps would have similar age restrictions, community features, and amenities. Comparing the property to homes that appeal to a different type of buyer, such as families with young children, could result in an inaccurate appraisal.
Here are some tips to determine the most likely buyer:
- Understand the local market: Every real estate market is different, and there are lots of various sub-markets within a given market. What is desirable for buyers in one market may not be in another. It’s important to understand the local market, including factors like neighborhood preferences, school districts, and the type of properties that are in high demand.
- Consider the property type: Different types of properties attract different types of buyers. For example, a single-family home is likely to attract families, while a condominium may be more attractive for first-time buyers or empty-nesters.
- Think about the property’s unique features: Every property is unique, and it’s important to consider the subject property’s unique features. Features such as a backyard pool, a large garage, water frontage, or large acreage may appeal to specific buyers. It’s also important to note that not all unique features are created equal. Some features can significantly affect the value of a property. Others may have less impact on the value of the property.
It can be more challenging to determine the most likely buyer for properties that are unique or unconventional. In these cases, the appraiser may need to widen their search to include properties that are not an exact match but have similar features or characteristics. He or she may need to rely on specialized knowledge and experience to identify the most relevant comparable sales and make adjustments for differences in functional utility.
In conclusion, the selection of comparable properties is a critical component of the appraisal process that requires careful consideration of the most likely buyer for the subject property. This ensures buyers and sellers receive accurate valuations and that real estate agents can make informed decisions.