Once all the comp values have been adjusted, is the average of those values used to determine the value of the subject property?
On the surface, this seems like a reasonable approach. Like properties are selected and then adjustments are applied to make them as similar to the subject as possible. It only stands to reason, if the adjustments make the comparable properties like the subject, an average of the adjusted sales prices should reflect a supportable final value. Although everyone easily understands this highly mechanical method, it’s not the procedure appraisers are taught to elect their final value by the sales comparison approach.
Good appraisers put forth a lot more thought and effort into their conclusions. This process, known as the reconciliation of the sales comparison approach, is the technique used by appraisers to elect their final value within the adjusted range of comparable sales.
Although the purpose of making adjustments to comparable sales is to make them as similar to the subject as possible, the adjusted values rarely reflect the same result, creating a range from which the appraiser will elect their final value. When the range is tight, selecting a value is fairly straightforward and is easily understood by most readers of the report. However, wide ranges require the appraiser to provide more support and reasoning to justify the value they select. In my opinion, effectively communicating this reasoning is what separates a good appraiser from a great appraiser.
As my old high school football coach would say, “This is where we separate the men from the boys.” There are a lot of qualified appraisers who can reach the “correct value,” but the field narrows when it comes to educating the reader and explaining how the final conclusion was selected. It’s not easy and it takes someone capable of putting together a good argument. In some ways, a good appraiser is a lot like a good trial attorney: someone who can put the pieces of a puzzle together and convince the listeners, despite how they may feel, that he is right. The good appraiser builds a case that closes the door to opposition because it is already addressed in the report.
Assuming a recent date of valuation, more weight is generally given to comparable properties that sold recently because these properties best reflect what is currently occurring in the subject’s market. Comparable properties with little to no adjustments are also good indicators of value. It stands to reason that the fewer adjustments made, the more similar the comparable properties are to the subject. As such, most form appraisal reports list both the net and gross adjustments made for each comparable near the bottom of the market grid. The results of other approaches, such as the cost and/or income approach, can provide some insight for the appraiser to consider when electing a value for the sales comparison approach. Distressed sales, active listings and pending sales also provided valuable information and direction.
These days, being a good appraiser goes way beyond filling out the proper form. It even goes beyond the keen ability to distill, interpret and analyze volumes of data. The good appraiser is the one who can do all of these and then, through reasoning and commentary, lead the reader to their final conclusion.