Time is your friend when valuing homes, especially when analyzing unusual properties. Sometimes when appraising a property, you find six model match sales within three months of date of value in a very narrow range, the value of the subject is obvious, and you’re done. Next please.
Other times, the subject is located on a busy street, is larger than any sale in town in the past 12 months, and has a moat. How do you deal with this nightmare? This is when time is your friend.
Expand your search parameters back in time until you find a competitive sale that brackets or equals the subject’s unusual feature. That sale from three years ago that was bigger than the subject is a comparable you can use to value it today. Or better yet, use the prior sale of the subject from five years ago so you have a sense of the value impact of that moat. Sometimes the best comp is the prior sale of the subject.
If you have time adjustments in your tool box, you’ll have access to a wider range of comparables than someone who doesn’t.
I’m developing a time adjustments class for REAA Sacramento that I plan to teach in July. I’ll talk about time adjustments more on this blog but will leave you with a couple of ways to determine time adjustments, especially when you want to bring forward in time a dated sale to use as a comparable.
Gary Christensen has a video here that discusses how to do a linear time adjustment in Excel. This works well when you have a set of comparable sales that you can analyze and the market has been relatively consistent. I’ll discuss this in detail in the near future.
Another simple way that works well for comparables from 2+ years ago is to look at the percent change in average (median/mean) sale price or price per square foot for the subject’s market area compared to the date of value. That percent difference-that’s your time adjustment. Apply the percentage to the comparable’s sale price and your old sale is ready to use as a comp. Most MLS systems have market analysis tools that will let you look up an average price in the past. In the worst case, the Freddie Mac House Price Index on the MSA level can help. Or you can use pivot tables to track changes in market areas (more to come soon about pivot tables).
I recently appraised a home in a small project where the most recent sale occurred nine years prior to date of value. I used the Freddie Mac House Price Index to determine a 29% negative time adjustment for this sale, subtracted the dollar amount, and the dated sale was ready for comparison.
Freddie Mac Home Price Index Calculation
|Freddie Mac Index Value
What is the most time between a date of value and a date of sale for a comparable in one of your valuations?