appraisals you can trust

# Appraising 101:

## The Market Data Approach

The Market Data Approach is also known as the Sales Comparison Approach.  In it, the subject property is compared with recent sales in the area ("comparable sales" or "comps" for short). The more similar the comps are to the subject, the easier it is to determine the subject's value.

For example, House A sold last month at \$100,000 and it was 100 square feet bigger than the subject. House B sold for \$80,000 and it was 100 square feet smaller than the subject.  House C sold for \$90,000 and it was just right--the same size as the subject. There were no other apparent differences. So therefore, the subject must be worth \$90,000, right?

Well, maybe. In this case \$90,000 looks pretty solid because we are using fake data. In real life there might be three seemingly identical homes and one would sell for \$105,000, another for \$102,000 and the third for \$98,000.  Yikes.  After a little research you might find that the \$98,000 sale had been vandalized inside and needed work.  But what about the other two homes, which really do seem to be identical? And how much is yours worth, since it's the same model?

Answer: It's probably worth between \$102,000 and \$105,000. If anyone tries to tell you "It's worth \$103,872 and not a penny more," get another opinion. No one can figure a market value that accurately. If other sales in the area also support a range of \$102,000 to \$105,000 and the market hasn't changed since the comparables went under contract, your home will probably sell in that same price range. Where it actually sells depends on how you and the buyer feel during the negotiations. Or maybe it depends on the color of your carpet. If you have a pink carpet and the buyer likes pink, they may offer \$105,000. If the buyer hates pink they may only be willing to pay \$102,000 since they will probably be replacing the carpet. At some point it becomes too subjective to call.

Most people want a specific value when they get an appraisal. This is where the "art" of residential appraising comes into play. Statistical analysis can help to narrow down the range of value. But in the end, the actual number that's placed in the report is the appraiser's judgment call. That's why it is called an "opinion of value."