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?
- Be Nice or Be Quiet - July 2, 2021
- Being Liberal with Values Hurts Homeowners - June 28, 2021
- Why Are Appraisers Banned? - April 15, 2021
I don’t think there is anything wrong with using the subject as a 4th comp. I personally just don’t do it. If it sold recently, the date and sale price will be disclosed in the report. It just seems a bit redundant.
If the subject’s prior sale was at verifiable market terms, its marketing exposure/time consistent with its market area, and there has been no relevant physical/legal or external changes since last sale, then yes. What better indicator of value than the subject itself!
In working the 3rd most populist county in the country, I will often have 75+ sales (typical home) over any given year within a mile of the subject. Although often the argument is suburban appraisers have it easy compared to rural appraisers, I say give me the same 10 sales from 3 years prior that I can reuse over and over, versus doing the research on 75 new sales a year. Has anyone ever been conditioned with 50 MLS sales within a half mile of the subject over the prior 6 months, I have. If I needed to use the subject as a sale, perhaps I could complete the 3 to 6 appraisals per day the author has previously stated he does.
Seek the truth.
as I understand it, the rule for comp selection is most similar, most proximate and most recent. Based on these guidelines, the subject beats anything else hands down… except for the last one… unless nothing has sold since… in that case, use it as a fourth comp.
If every sale dictates the market value, then why waste the time and money on an appraisal?
Using your subject as a comp is nothing short of a self fulfilling prophecy. It should be taken into consideration and analyzed, but I would not be used it as a comp.
Disclose the subject transaction but let the other market data dictate whether it was in line with the market.
BB respectfully, you may have partially missed the point. No one said that every sale of a subject property will set or prove the market value. What is being pointed out is that many times the subject sale and resale could provide irrefutable support for (1) market increase (2) market perception of renovation value; etc in conjunction with other data. The least it does is serve as a valid pending sale for it’s own transaction. You will know far more about that particular pending sale then you are likely to know abut any other. It’s rarely yes or no; black or white. It’s use is why appraisers are needed. Is it’s sale relevant data for a current market or is it’s sale something that doesn’t ‘fit’?
Is it closed, or just a contingent offer? maybe its just a listing with an offer? The most active items in the MLS is REPRICING. Look at the number of price increases and the number of PRICE decreases, aren’t they typically equal to the solds? A lot of stuff happens during the escrow, and after the appraisals. My technique is to analyse the offer made within the report.
The subject as a comp can be the best indicator of value when 1/ the subject is unique, 2/ there are very few properties that would appeal to the same buyer of the subject, 3/ there have been no substantial differences in the physical characteristics of the subject property, or if there have been, they can be adjusted, 4/ you can confirm that the sale was truly an arms length transaction.
Absolutely agree. I have done so many times as well. Not only can it be a decent 4th supplemental current comparable sale; it’s prior sale can also be used as one of the best matched pairs you will ever find for market condition changes. Alternately, in a flip situation (assuming open arms, above board marketing) it can provide support for whether the flip related improvements added more than their cost; or more rarely added less than their cost BUT made the property marketable at all with the profit coming mainly from the original discounted price and partially from the renovations. Bottom line whatever the subject tells us may be helpful.
What a great question Dustin!
Who can answer this question? Is it a hard stop to use the subject as a comparable based on current CU review perimeters? Have the developers of various automatic review softwares taken this into account? Given that they probably never read the selling guide but rather just found clever form correlation points, it’s doubtful. In other news, that jt lady just published another clearbox bombshell; we should relinquish all control to the fed, submit to mandatory amc’s by law, and should all be engineers or architects to retain our qualification as appraisers. We’ll be limited to 40%, 50% if we’re lucky, and now we’ll share a signature space with the amc qc team. When a ‘publication’ is literally 2/3’rds+ ads and sponsored product placement, you know it’s not journalism but more akin to a paid for message. Take a guess who’s paying for that? Look no further than the full page amc ad, on page 2 none the less. And apparently I need a drone and some more apps or whatever. This is not Spain. We are not in the EU. We’re not apologists for liberty and free markets.
Subject as comp? Tried it, UW’s rejected it so often, I don’t even try. Besides such an approach begs the question; Why is it turning over again so soon?
If it is a hard stop, then it would also be a violation of Appraisal Independence Requirements concerning the development and reporting of an appraisal prior to completion.
Were ‘rejections’ by real UWs or just the magical AMC claimed “Underwriter says?” I never accept the latter. I want the UWs name and official title and then I want to know if it is at the correspondent lender or the funding lender (the real UW).
Most obvious reason for resale is a legitimate ‘flip’. You have the value ‘before’ and you have the apparent price after which gives indication of either time increase (if no significant repairs) and / or market value of difference between poor or fair and good to excellent condition depending on circumstances.
Oh man, I’ve nearly given up on asking for the uw’s name. They seem to be unaccountable and shielded by whatever lender they work with. I’ve demanded they ring and still won’t provide their name when they call. One time a lady had a cat meowing in the background. It would be better practice for lenders to be required to disclose the uw’s name and company, the closing date, the rate, as well as the home inspection report to the appraiser. Not having to cold quiz the home owners if they’ve refinanced in the past 1 years time would be helpful as well. CU, and we’re all appraising in the blind these days. I’m wondering if this industry will ever move past the same rehashed issues which are common place but never quite resolved. It seems flawed by design if you ask me. The only relevant thing I learned from the latest issue of appraisal buzz was merely a confirmation that turnover is so substantial it’s doubtful anyone really knows all of the details. Rendering the crew here at appraisers blogs as the best consultants in the industry. Non advocates who put pen to page are few and far between. It’s great that Mr Harris contributes, this blog is worthy of articles sourced from far and wide with it’s unique independence, not answering to interested parties and advertisers. Appraisersblogs is truly one of a kind. It’s doubtful that other popular writers even have the independence to post here even if they wanted to, having to answer to sponsors and all. That’s probably why they don’t.
It’s real simple. “Dear AMC if there is a comment or clarification being alleged to have come from the underwriter then I want to see the underwriters own original language…and name“. There are no exceptions to that-not ever.
Us regular mortgage lending lackies don’t have quite the same lattitude. And for smart side appraisers, that conversation goes down with the desk manager who so graciously for one reason or another has preferred you to the masses for fair fee direct assignment orders. It’s not as simple as just flushing through amc’s anymore. In an unexpected turn of amc events, they flushed themselves and now we’re trying to build the professionalism back with direct. It’s always a somewhat tentative engagement because an amc vulture is always standing there on the sidelines, constantly soliciting our clients.
“Us regular mortgage lending lackies don’t have quite the same lattitude.”
-I don’t agree with you. There are too many examples that say different
Baggins-OK, I’ll concede not all situations lend themselves to ‘just saying no’. Assuming there is a need to keep the client regardless of their misinterpretation of both USPAP and generally accepted sound appraisal practices, an appraiser may have limit how much they push back; and for which types of items.
But that acquiescence should NEVER become so ingrained that the appraiser is afraid to stand their ground when required.
Selecting another comparable is not that big a deal (provided the subject comp for itself is not there to demonstrate something that ONLY the subject can demonstrate). But where do you draw the line?
Corelogic reports a property that sold two years ago to be in ‘excellent’ condition but inspection shows it is less than fair condition due to incomplete remodeling. I mean incomplete to the extent that the stucco in the back was never mud, or color coated and gaps exist in the stucco between walls-so interior portions are exposed to weather; Wood trim and eaves have extensive repair needs (like 30% need to be replaced). Client tells you the report condition must match the public record data because they (assume) that’s what CU’s big data analysis will be based on. There are reasons for AIR. This is one.
I find if I push back on the smaller things-big things like my last scenario don’t crop up from the lender QC folks-though I’ve seen where other appraisers have been told exactly what I pointed out..
You know, got to play nice with the good guys, the process is so bureaucratic that compliance as all parties understand that to be, can be tough to achieve in some scenarios. I stay focused on education and compliance, taking a technical free writing approach, but it’s true that sometimes you can cash through a client in a single order. Good customer service is accommodating the diverse mix of borrowers the client sources. Love it or leave it, no borrower shall be left behind. The appraiser ties the real property to a value number, and is then tasked with sailing that figure through the lenders systems. It’s not over, till it’s over.
Hmmm. There’s no argument to that!
Why not? except for a refi.!
Frequently my analysis states (“my value opinion was influenced by the contingent offer for the subject”). Most offers are contingent on the financing YOU are influencing.
Was it a closed sale? Was it an offer which influenced the appraiser? was it the result of a fixer where you have all the arithmetic proving costs, profits to calculate the important stuff?
Remember we are charged with analyzing all the stuff. It seems the appraiser should know all that stuff.
Some years ago I found a high house sale which immediately sold afterward for 20% less, checking further I found was part of a 1031 exchange for a retail commercial in downtown Banning