Appraising Property
I have comped out a property so that I can get a handle on whether there is enough room to buy this deal.
The house (3 bd/1bth) was brought to me by a realtor, and the property is on the market and is being sold by a realtor; so chances are the asking price is close to market value.
I analyzed a set of comps, which includes actives, pending and sold properties that were given to me by the realtor. The problem is that the comps seem to not be good ones to use. For example, they include properties that are in locations that are much nicer than the subject property; they include comps for properties that have central air/heat, whereas teh subject has no air and wall furnace heat. There is a property, which is located 2 blocks form the subject property and is similar to the subject property in terms of size, that is in pending status. The realtor did not use this as a comp! Instead, he used other comps with pending statuses that have a higher price/sf.
His rational, when I questioned him on whether these comps are suitable to use, is that any comp within a .5 mile radius of the subject property is a good comp to use, and is therefore a suitable comp.
He also thinks that comps that have sold within the past 4-6 months are not as suitable to use in this market because it is appreciating very fast. He would rather focus on the actives and pendings. My reply to that we don't know what price the "pending" properties are under contract for and we certainly don't know what price the "active" properties will eventually sell for. Therefore, let's not discount the importance of using and relying on "sold" comps as long as we factor in all three types (actives, pendings, solds) when we analyze a deal.
Please give your suggestions. How do you guys comp out properties? 
I'm a broker in PA. When I give someone my estimate of value of a property, first of all, I never use pendings or actives as the basis of my value conclusion. If it hasn't closed, it's not good data. Insofar as using any property within .5 mi, my response is it depends on a lot of factors, not the least of which is the other property a "like" property, a comp or distinguishable. Finally, I am not an appraiser but have always done my valuations by making upward and downward adjustments for location, condition, amenities, etc.
Your realtor got lazy, really doesn't know any better, or doesn't care. At least that's what is sounds like. I agree with you. Zach
Of course he's gonna make the comps sound good. He's the one that brought you the deal. I would get a realtor (ask for the top listor in the office for that area) from another company to do comps for you. When doing comps, realtors can hand pick what properties to include and not include. While this may not be right, it's the facts. BTW...
If it's still a good deal, buy it from your realtor (don't burn any bridges) and then list with the one that gave you the comps as a reward.
Have you ever seen an full appraisal report (1004 or 2055)? If not I would say get ahold one to understand wants on it and see the adjustments and supporting statements if any. Ask someone that you know if you can see thier appraisal. Drive by the comps and/or try to get the MLS listing for the Comps and try to understand the appraisers estimated value. (Remeber that it was the appraisers estimated value on the day of the report).
Lets look at what the lender expects in the appraisal from the appraiser.
1. Comps need to be recent (within 6Mos.).
2. Comps within 200SF of GLA (Gross Living Area) of subject.
3. Comps within Subject's subdivision or 1 mile.
4. Comps either inferior, same or superior to Subjects condition, amenities, etc. (Note same across the board OK, or a combination of inferior/Superior OK).
If no recent sales within the last 6 mos. expand 9, 12 mos. Same with GLA SF and distance from Subject. Adjustments for time, SF and Location hane to been supoorted. Very few adjustment per Comps. No across the board adjustments on the upper have of the Comps Grid (above the GLA).
If the data just isn't there Time, Location, GLA, Pending or Listings might be used as Comps 4,5,6....
Since it depends on a lot of factors, not the least of which is the other property a "like" property, a comp or distinguishable. Ask your agent for the Statistics for the past 6, 9 and 12 mos. for all the listings, pending and sales within the Subject's subdivision/market area. The again with the subject GLA +/- 200 SF, subdivision/market area (1 mile) and 6, 9 and 12 mos.
Now you can make a better informed dicision as to the adjustments for location, condition, amenities, etc..
Hope this helps.
Comps are useful to me, but then I try to be carefull and consider their source and try to rely on other data to help make decisions. Our Sunday Paper has published prices of homes that sold in the last week, with the addresses. Single Familys, Duplexes, I Clip out that part of the paper and put it in my file cabinet and refer back to it when looking for property in those areas. They are not that detailed, but can give you a rough estimation of what you may pay in such areas, and they are a great way to check comps that you might receive.
To vmckinney:
Thanks for your reply. Let me ask you--Would you say that using comps (including sold, active and pending) that are within the same subdivision may be significantly more reliable than using comps that are located in another subdivision, even though the comps are within a 1 mile radius?
Also, would you use comps that have central heat and air as comparison for a subject property that has no air and has wall furnace heat? (I think that installing central heat and air can cost over $3,000. Using this logic, I would assume that a comp with central heat and air would be worth several thousand dollars more than a property that does not even have air.)
If I can add my thoughts here...
Personally, I feel the solds data is more relevant and credible if it comes from the same subdivision (same surroundings, same basic house, etc.) So if you have a choice, use sales from same subdivision and then adjust for whatever (location, condition, house SF, lot size, etc). If you don't have a choice, use the best solds data you can get and adjust as necessary. Once again, I would caution you about using pendings and actives. They have not closed and thus are NOT SOLD.