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Jonathan Miller On "What Is A Comp"

 March 05, 2012 08:25 PM

A: By now regular readers know that this is such a passionate topic for me, and its not because me and my programmers have been hard at work for almost a year on a unique Manhattan Comparable Sales tool - expected to go live in 6-8 weeks. The real reason why I care so much is that many brokers openly argue about "what is a comp"? The main debate lies between "relevancy" and "recency" of the comparable sale to the subject property. I admit, I did "pester" Jonathan to write on the topic because I value his opinion and his standing in the appraisal world is irrefutable. Lets get his take on what a comparable sale is, and take a quick peek at the real world and why "relevancy" should be the clear choice when markets are stable. First lets define both "relevancy" and "recency" when it comes to picking out a comparable sale for an analysis of a subject property: Relevancy - the comparable sales used are highly relevant to the features of the target unit. This tends to mean, the same building, the same line, the same layout or the same bedroom/bath size, the same exposures/views. Recency - the comparable sales used are the most recent sales either in the building or nearby. This tends to be at the sacrifice of 'relevancy' as vertical housing markets like Manhattan rarely have highly relevant sales that are also very recent. Now, in the appraisal world there are 3 types of markets: rising, declining, and stable. If the market is deemed stable for say a period of 2 years, then its OK to use a highly relevant comparable sale where an applied time adjustment is not too difficult to figure out. It's only in rising or declining markets that brokers and consumers tend to sacrifice "relevancy" in order to focus on "recency" - probably due to the difficulty in adjusting for market changes over time. This is where I disagree completely, especially since we have the Streeteasy Repeat Condo Index to help us see market changes over time. Before I continue lets take a look at Jonathan Miller's recent article, "What is a Comparable Sale":
The use of comparable sales are the basic ingredient for real estate appraisers and agents to vet out market value - so the similarity of it to the subject property (the property being valued) is paramount. As an appraiser, I see the term "comparable sale" often abused. Some of it can be chalked up to inexperience and some of it to fraud. An illustrated deterioration of the slippery slope goes something like this: Comparable Sale -> Sale -> Data -> Information -> Misinformation -> FraudA practical definition: A "comparable sale" is a sale that would be considered an alternative choice to a buyer that might purchase the subject property. The sale should have a similar set of amenities (ie, size, condition, location, views, configuration, etc.) to be considered as an alternative choice for the buyer. However it gets tricky when the subject property is unique and there are few "comps" to use.

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