Comp Check..What they are and what they arent..

In today's real estate market it's really impractical for the loan officer, processor, manager or appraiser not to do some type of preliminary research on property before proceeding with the full appraisal. With the day to day changes of the real estate market it's unrealistic to assume a homeowner would know with good faith what there home is really worth.

However, at the same time there are also times when a comparable market analysis is not a pratical tool in establishing any type of market value for the property and is misleading to everyone involved in the transaction.

From my experience and the experience of many of our appraiser I have put together a list of some positives and negatives with "comps checks" and what a client should realistically expect when going on Zillow.com, trulia.com, sitexdata.com or even a market analysis done by an appraiser.

What Zillow.com, truila.com and similar sites really are.

There basically data cruncher sites. They get there information from county tax records, homeowners,assessors records and various other sources. They condense all of that information and use it to come up with a value based on specific criteria (i/e square footage within 15%,age within 15 - 20%, bedroom count, bathroom county etc...) they take the tax information of the property compare it with the information they have on properties that recently sold and basically average the whole thing. The problem with this is it creates very inaccurate and inconsistent results. Alot of times it could compair a condo with a townhouse or even a single family house with a townhouse if the physical characteristics are similar. From experience I have played around on the sites several times and the results go from being very accurate to extremely inaccurate I have seen some sites being off by more then $200,000 on a $400,000 house on a regular basis.

So if the sites are so bad then what do we do?

The only way to really know is to get an appraisal. However this is not always practical and thus the "comp check" almost becomes a necessity in current market conditions.

Reasons comp checks are good:
1. If the value of the collateral is no where near it needs to be to provide a loan program it is a waste of every one's time to not know this as soon as possible.
2. It doesn't waste the borrower money and appraisal "bill" problems don't occur as often.
3. Borrowers don't demand a refund even though they have no legal right to do so. (we have contact several real estate attorney's about this and any appraisal refund given is out of the sole kindness and respect for the business relationship, not because the threat of being sued).
4. Saves everyone time and money


Reasons they are bad:
1. Even with modern technology and the vast amount of information on the web it is still challenging to say exactly what the property value is with out a full inspection and analysis.

2. They can be misleading both on the upside and the down side. Sometimes properties are over comped and sometimes there under comped. Over comping is probably the most common in appraising however under valuing properties is also very common and there are plenty of deals that have been killed because the borrower didn't want to do ahead with the full appraisal.

3. The time it takes to really put an accurate assessment together is usually longer then an appraiser will spend on something that they are not getting paid for. Its not that were lazy or ungrateful for your business. It just really takes about 20- 30 minutes of research to come up with an accurate "take it to bank" number. This means that if someone sent over 10 comp checks it would take approximately 5 hours to complete.

4. The borrowers lie about the condition of the property before the inspection. We have gone on appointments where the borrower said its 5,000 sf we a full basement and we get out there and its 3,000 sf with an unfinished basement. Or that its totally renovated and when we get out there its in the process of being renovated. In both cases the value is totally different and no ones happy.

So are the comps accurate?

Yes, they are your best shot at what a professional real estate appraiser thinks the market value of the home will go for. Sometimes they are the exact number and sometimes its more of an educated guess. I think one problem is that most appraisers don't communicate the accuracy and confidence of the number correctly. This is partly due to them being lazy and partly due to the fact that most loan officers want a guaranteed number and will try to find an appraiser that guarantees the number to send the order to. All of the appraisers have the same information so they would rather get the order.

What you should expect.

A decent appraiser should be able to narrow it down to within 5-10% and that's totally reasonable. You might think on a $500,000 dollar house a 50k swing is to much. Sometimes that's true but generally speaking that the range of similar comparables we have to chose from.


In conclusion:

Generally speaking as a whole a comp check is a good thing and very accurate. Individually on a case by case basis it can be very inaccurate. The best thing to do is remember that we wouldn't of went out there if we didn't think it was worth doing and they ultimately you are our client and our job is to serve you in the best and most professional manner.



Brian C. Coester

bcoester@coesterappraisals.com