Does Anyone Know What A Proper Comp Is Anymore?

July 17th, 2011

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Does anyone know what a proper comp is anymore? Yes, I believe they do. The problem lies in the fact that people do not go to the effort to do the research to uncover the facts and differences behind each comp. So I end up screaming at my computer when I get responses from homeowners who are trying to refinance their home and claim a certain high valuation. Same with a seller who is trying to justify a certain high price on a home they are selling. The lack of research is stunning.

Below are some examples:

The split level example

1. I had a seller who was trying to sell a split level home. It was approximately 2000 ft.² but half of the finished square footage was below grade. They were comparing their home with other 2000 square-foot homes which were all above grade. That is no comparison. When the appraiser came out to do the appraisal he was looking at other split levels where there was a sizable amount of finished square footage below grade. These were selling anywhere from $60,000-$80,000 below the purchase price of homes that had all 2000 ft² above grade. You’d think this would be a simple discussion. But the seller argued that 2000 ft² was 2000 ft² no matter where it was located. But Fannie Mae, the banking industry, and ANSI (Appraisal National Standards Institute) all disagree. You can read more about this here.

The renovation example

2. I had a refinance client tell me that their home was easily worth $700,000 because a neighbor’s home three doors down had just sold for a little over $700,000. And they said that their home was larger with a bigger yard. The problem was that the neighbors home had just undergone a stunning, complete and expensive renovation. And that threw the numbers off. It did not mean that the neighbors house three doors down was not a comp. It just meant that their home was not valued at $700,000. There was an adjustment that was needed that they never considered because they did not do the research to learn about the level of finish in their neighbor’s house.

The different house

3. I had a realtor tell me that a certain home in the city was worth $2 million easily. My appraiser appraised it at $985,000. That is right, you read that correctly. The realtor was screaming and yelling and said the appraiser was an idiot. The appraiser said they were willing to look at data that they may have missed. The appraiser asked the realtor to provide other comps. The realtor could only provide one comp. The comp was a 2-unit home, that was 5000 ft², that was recently renovated, that had a two-car garage. The subject property had not been renovated over 20 years, had no parking, and was a single-family home on slab with no basement, about 2800 ft². Do I need to go on? This is a realtor that had been in the business for 30 years.

The proximity example

4. I had a client tell me that their condominium was worth $800,000. They said this is so because there were several condo units of similar size condos that sold recently in nearby condominiums down the street from theirs. But what they were overlooking were recent sales and data right inside their own building. Fannie Mae requires that two of three comps come from within the same building, if the data exist. There had been four recent sales inside their own building that the seller completely overlooked, in order to try and justify an $800,000 purchase price by using competing condominiums that were located close by. But the data inside the condominium showed that the unit was actually work in the low 700’s.

The land value example

5. I had a seller who was trying to justify a $650,000 price on their home, simply by saying that the lot value alone was well over $500,000. So the home must be worth another $150,000 easily. They made this assumption because a few contractors in their neighborhood had paid around $500,000 for a home simply for the lot value, and then scraped the home and rebuilt a mini mansion and put it on the market for $800,000 or $900,000. But Fannie Mae and Freddie Mac, the banks, and the appraisal industry do not make lot loans. They make home loans. So most of the value has to come from the house. No one will win that battle trying to tell an appraiser or an underwriter that house is worth $650,000 simply because a builder would come in and give them $500,000 alone for the lot.


I could write a blog about 30 pages long with stories of people using comps that are not comparable at all, or they are possibly comps but they have not made the proper adjustments to account for differences in square footage, lot size, view, level of finish, etc.

This article and this article talk about what an appraisal is and how its done. These articles will be helpful. Sellers, realtors, appraisers and all of us need to be focused on only finding comparables that have the exact same characteristics. Or if exact comps do not exist we must adjust for the differences. The fact that some contracts get written and then the appraisals get to my desk with a valuation problem is usually due to the lack of seller education. Many times you hear an appraisal problem blamed on and out of market appraiser. And that can be true at times. But as a direct, local lender; we only use local appraisers. So in the very few appraisal problems I have seen, it usually stems from sourcing poor comps and lack of seller education.

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Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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