Weighing Comp’s and “Kind-of-Comp’s”

The cornerstone of establishing market value for a given property is the CMA, or “Comparative Market Analysis.”

As prepared by both Realtors and Appraisers, it consists of selecting a peer group of three homes (“Comparable Sold Properties”), then going through a compare-and-contrast process sizing up each of the Comp’s relative to the “subject” home (the one you’re trying to price).

The pro’s call this “bracketing, post-adjustment.”

Integral to this process is the presumption that there are three good Comp’s:  homes similar in style, size, condition, and location — that have sold within the last six months (preferably less).

Which Criteria to Relax

The art of valuing a given property comes in when the Comp “pickings,” so to speak, are slim.

Which criteria do you relax?

To take just one example, suppose you’re trying to price a rambler (Midwestern for “one-story,” called a “ranch” elsewhere).

Unfortunately, you have to go back 18 months to find a similar rambler that sold in the same neighborhood.

Some Realtors and Appraisers will widen their geographic scope, and look outside the neighborhood in adjacent ones to find a more recent sale.

Given how discrepant even adjacent neighborhoods can be, I find that less reliable than staying within the same neighborhood, and going back further in time for a similar sale.

Tweaking the Settings

If you go that route, though, Step #2 is figuring out what prices have done, overall, in that neighborhood, during that interval.

Fortunately, MLS statistics readily allow such statistical interpolation.

Alternatively, I will “jump” housing styles to find a good (or acceptable) Comp when necessary.

So, normally I’d prefer an “apples-to-apples,” rambler-to-rambler comparison.

However, if that’s not possible, I’ll use a 1 1/2 or two-story, then use “above ground finished square feet” to compare the “Kind-of-Comp” to the subject property.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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