Realtors frequently asked questions.  The following are the most common questions from realtors.  Should you have additional questions, please feel free to contact us via e-mail.                                    

Frequently Asked Questions(FAQ):

  1. How do you determine value?
  2. Is our current market declining?
  3. How do you make adjustments?
  4. What adjustments do you make for a pool? garage?
  5. Can I order a market appraisal on one of my listings?
  6. What are the appraisal guidelines for comparable sales?
  7. Why can't I simply use a price per square foot in determining value?
  8. What information should I provide to the appraiser?

How do you determine value?

[The appraisal process involves research into all 3 approaches to value; the cost, income and the market approach, and then determining which approaches are appropriate and relevant.  A limited inspection is made to the subject property and market area, which involves interior & exterior photos, measurement of the improvements and analysis of the properties location, age, size, lot size, features, upgrades as well as overall condition, deferred maintenance, work-in-progress, deterioration or necessary repairs if needed.  This information is then compared to the subject subdivision and market area.  A complete summary or limited summary appraisal report can then be prepared which will include;  information regarding the properties zoning, census, flood zone, lot dimensions, analysis of prior recorded sales or listing activity within the past 36 months, market conditions, conformity, adverse conditions, functional utility and any physical, functional or external obsolescence noted.  A minimum of e comparable sales are placed on the sales comparison grid, adjustments made for differences in components, and then the report is reconciled between the approaches used and a final estimate of value is reached.  This process involves on average of 5-12 hours. ]

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Is our current market declining?

[The unfortunate truth in most market areas of the valley is yes.  The Phoenix metropolitan area has experienced unprecedented "rapid-growth" within the past 36 months that could not sustain itself forever.  There was an average valley-wide equity growth in excess of 35% during 2005, when interest rates were at a 50 year low, lenders were quite relaxed about the loan qualification process (sub prime), builder's were building at a record pace, and there were fewer than 8,000 listings within the MLS database.  Builder's were actually holding a lottery (drawing) with new base price increases weekly to see who the lucky few were that were going to pay too much for a home that day.  Out-of-state investors were coming here in bus loads to buy up our homes, Realtors reported multiple offers within hours of entering the listing and the average marketing time was less than 14 days. 

Now, the MLS database has in excess of 55,000 active listings, properties are selling at list price or far below, exposure time has shifted to more than 160 days builders are now offering large commissions to Realtors, closing costs, free pools, no payments for a year or upgrade incentives in order to sell there large over-supply of inventory.  There currently is a shift taking place from a "rapid-growth" to a "stable-growth" market and sales prices returning to that period before the large increase of 2005.  Some areas however, especially in the perimeter of the valley, that may have been caught up in the "bidding wars" of the summer of '05, are seeing drastic reductions in sales prices with a greater supply than demand. 

This decline in our market is a correction to an unsustainable massive growth that took place 2 years ago.  This is brought upon my more homes available, buyers having more choices and sales prices being negotiated in a buyer's market.  It is important for appraisers at this time, to utilize the most recent sales available within the subject market area and not use sales in excess of 90 days, which could most likely represent market conditions that do not exist today.] 

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How do you make adjustments?

[Adjustments to the sales comparison grid on the appraisal report are designed to reflect the marketable difference in the contribution of the component as compared to the subject property and not their cost to create.  The first step is determining the most similar comparable sales whereby adjustments would be at a minimum.  Model match sales work the best, however are not always available.  Then a paired sales analysis would be conducted to extract from area market sales the marketable difference in value of the component. 

An example could include the subject having a fireplace, whereas a comparable sale has no fireplace.  if the subject property is a newer home, in overall good condition, the cost to create the fireplace new is $3,575. to $4,375.(new) for a single one-story fireplace.  However, paired sales may indicate that all factors being the same, the marketable difference for the contribution of a fireplace is only $1,000. to $2,500.  Thus the difference between cost and market.  All adjustments should be derived from the market. ]

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What adjustments do you make for a pool?  garage?

[A very common question that can not be answered with a simple figure.  What is the age of the pool?, age of the home? and age of the subject's market area?  What are the percentages of pools within the subdivision and market area?  These factors all come into play when making an adjustment for a contribution component.  A paired sales analysis is conducted within the subject's market area to determine a marketable adjustment based on recent sales within the area and not on the cost to create the pool.  This adjustment figure can be equal to the cost to create the improvement or could be a minor fraction thereof. 

The difference between a 2-car garage and a 3-car garage is a similar situation.  What is the normal covered parking within the subdivision?  is the 3-car garage conforming or is it an over improvement?  for a typical attached 2-car garage(400sq.ft.), the cost to create this garage for a new construction home, frame/wood construction, stucco exterior, good quality is approximately $28.02 per square foot ($11,208.).  For a typical 3-car garage of same type, age, condition & quality the estimated cost to create is approximately $25.34 per square foot ($15,204.) with a difference of the 1-car garage component (new) of approximately $3,996.  When determining a sales comparison adjustment for an older home, paired sales may suggest a marketable difference for the depreciated improvement of only $2,500. to $3,500.  Again showing the difference between cost and market.  cost estimates were obtained from the most recent Marshall & Swift Residential Cost Handbook]

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Can I order a market appraisal on one of my listings?

[Certainly.  We have a large Realtor base with many agents or their clients requesting a market appraisal in determining value before placing their property on the market for sale.  This report will be prepared and delivered to the individual(s) who ordered the report regardless of who is responsible for payment.  Recent changes however, from the appraisal standard board and the Uniform Standards of Professional Appraisal practice(USPAP) require that each appraisal report be an "end use" product with a specific intended use and intended user.  Therefore, this market appraisal can not simply be retyped or transferred to a lender at the request of the buyer to be used for the purchase sales transaction. ]

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What are the appraisal guidelines for comparable sales?

[Appraisers have standards imposed on their reports from the Arizona Board of Appraisal, Appraisal Standards Board, USPAP, HUD, FHA, VA, Fannie Mae, Freddie Mac, etc. and each lender/client can impose their own supplemental standards on a particular report.  In general, all closed & verified comparable sales are to be within 6 months (90 days in this current market), no further in distance than one mile, similar comparable sales with matching components (roof structure, number of bedrooms, baths, covered parking, pool, 2-story, etc.) as well as all single line-item adjustments not to exceed 10%, net adjustments not to exceed 15% and gross adjustments not to exceed 25%.

Example:  The subject property is located on an oversized 18,000 sq.ft. lot, is a 2-story home of approximately 2,500 sq.ft. with a 3-car garage and a pool.  The requirement for the appraiser would be to match as many features as possible.  this would be accomplished by having at least one comparable sale that is a 2-story home, one sale having a pool, one sale being located on an oversized 18,000 sq.ft. or greater lot as well as a sale with a 3-car garage or greater and gross livable area of the homes from approximately 2,250 sq.ft to 2,750 sq.ft (10%).  While all subject components may not be able to be properly bracketed, every attempt should be made to utilize the most comparable sales with adequate explanation as to why a component was not bracketed or if any guidelines were violated.]

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Why can't I simply use a price per square foot in determining value?

[Although this is a common practice for realtors in determining value, it is not a valid approach to value and in most cases would not be defendable.  Simply dividing a comparable sales price by the estimated (not measured) gross livable area does not take into consideration the overall condition of the property, lot size, features, covered parking, upgrades or any obsolescence, deferred maintenance, work-in-progress or possible adverse site conditions.  It would be a far better procedure for a realtor to use a simple spreadsheet and make minimal marketable adjustments for the differences in components between the subject & comparable sales to arrive at an "adjusted" sales price or square foot price.  ]

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What information should I provide to the appraiser?

[Appraisers need any information that's important to the subject property in determining current market value.  This includes recent capital improvements, any recent remodeling, additions or upgrades as well as any recent market sales data within the subject's market area of truly similar properties within the past 6 months, no farther in distance then one mile.  Please keep in mind that active listings are not used in appraisals and a pending sale can be used to help support an estimated value, however can not be used in determining value. 

A supporting sale means that in order to arrive at an estimated value of $300,000. for a subject property, an appraiser needs a similar comparable sale that matches the guideline criteria described above, having sold for $300,000. or more.  This will properly bracket sales price and be considered a supporting sale.  Every appraisal report needs a supporting sale.]

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Copyright 2006  [James Bobb & Associates, Inc.]  All rights reserved.
Revised: 08/20/07.