Can You Use the Subject as a Comp?
To keep my finger on the pulse of the real estate appraisal community, I like to check in on Facebook groups dedicated to our profession. A little while ago, I noticed that the same question was coming up over and over again; ‘can you use the subject as a comparable sale?’
When you work in a big, metropolitan area, this isn’t really an issue. Real estate appraisers in those places would probably dismiss this idea out of hand; they’re going to have plenty of comparables to use in their valuation process. In rural areas like the one in which I work however, the process can be a little trickier.
There are simply fewer homes in more remote areas, and many of the properties are unique. Many times over the years I’ve entered the relevant data and searched for comparables, to find that the only result was… the property itself!
Now, I’m going to come out straight away and say that my answer to the initial question is ‘yes’. You can use the subject as a comparable sale, and I have done many times over the years. The more important question is ‘should you?’
Again, my answer is ‘yes’. However, I believe that an important distinction needs to be made about what we actually do in real estate appraisal. We’re not appraising the house itself. What we’re really doing is appraising the sale, and the value. We are appraising how people react. In that case – if we are appraising the value – what could be a more helpful indicator than the subject itself?
I should add in a few disclaimers at this point. I’m only talking about using the subject if it was sold in the past six-twelve months, if the market has remained stable, and if there have been no significant changes made to the property (although, even if changes have been made, I believe you can still adjust your valuation accordingly).
There was a lot of discussion on the Facebook groups as to whether or not real estate appraisers were actually allowed to use the subject as a comparable. I took out my dusty old copy of The Big Book of Real Estate Appraisal (OK, so really I jumped on to Google), and did some research. Here’s what I found, in Fannie Mae’s Selling Guide:
“The subject property can be used as a fourth comparable sale or as supporting data if [the sale] was previously closed.”
So there you have it. The subject can be used as a valid comparable; it’s a perfectly legal thing to do. Not only that, but I believe it should be. Just know that it cannot be used as Sales 1, 2, or 3 if it is a Fannie Mae transaction. Remember, as real estate appraisers we’re looking at the buying habits of the individual. We’re trying to evaluate what the buyer will do in a certain market, not the property itself. In certain circumstances, using the subject as a comparable can be the only option we have. Not only that, but it can also be a highly effective one.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode 012: Can You Use the Subject as a Comparable Sale?