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Factors that affect comparable homes, appraisals

Q. I have questions about comparable home sales, also known as “comps.”

In a perfect world, the real estate agent should take note of any features that would affect the price — new roof, insulation added, fresh paint, etc. These things mean much more in a large antique home than a small ranch home. As a buyer, if these things had been done in an old, large home, I know that I will not have that expense to worry about, and this would aid my decision whether or not to buy.

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One thing about comps that people never think about: why the property was sold. It is not always a “willing seller” and a “willing buyer.” My neighborhood offers perfect examples: A neighbor died and his children had to sell right away. Another neighbor became very ill and had to sell. Another told me he was selling because of health reasons and could no longer do the simple things to keep up his property.

I think you will agree that in each of these cases these houses were sold out of necessity — not the best situation to get the best price. But I guess a comp is still a comp.

I am sure that both of you have come across situations where the buyer and seller agree on a price for a property. All seems well until the bank decides to low-ball the appraisal, and now the buyer can’t get a mortgage. Appraisals at one time were considered fair-market value, but now they seem to be the value that the bank is comfortable with. When the bank tells the appraiser a figure that it likes, the appraiser knows that if he does not come close, he can say goodbye to any future work from that bank. I know that it is not legal for the bank to do that, but we all live in the real world and we know that it sometimes happens.

Keep in mind that the banks caused this situation (low-ball appraisals) because years ago they gave out mortgages to anyone with a pulse. Now even people with good credit and good jobs have to put up with all of this. Maybe in the future the banks will get back to working with the buyers, sellers, and real estate agents. Time will tell.

I would appreciate your thoughts on anything I have stated here. You both work with this every day, and I’m sure that you probably have a different perspective than I do.

A. It’s true that in a perfect world, the home with more amenities such as central air conditioning or a newer roof will yield a higher purchase price than a property that does not. However, in a market with less inventory, like the one we’re in, amenities become less of a factor because buyers are trying to find what they need in a home — such as location and price point — and what they want becomes secondary.

In answer to your question about how a home seller’s situation affects the price: Sometimes extenuating circumstances necessitate a quick sale and can occasionally drive down the price. But more often than not that’s not the case, and here’s why: Almost all home sales nowadays are on the open market through the Multiple Listing Service. As soon as it appears on MLS, hundreds — and sometimes thousands — of people see it. This usually gives all home buyers who are interested a fair shot at the property. If the home is underpriced, then a bidding war will start, and the property will probably sell for over the asking price. We have seen a lot of bidding wars over the past two years because there are more buyers than sellers.

You’re right — a comp is still a comp. But if, for example, five houses in a neighborhood sell for around $400,000 and one of these homes is sold under extenuating circumstances and goes for $350,000, then the appraiser will recognize that it was only one home and it shouldn’t affect your price. If, however, you have five houses in a neighborhood that sell for $350,000, regardless of the circumstances, then those are the comps, and they will affect your value.

As far as banks giving “low-ball appraisals,” unfortunately this has been happening more and more because home values are increasing. Appraisers have taken a lot of heat for overvaluing properties during the last boom, so now they are being more careful. We don’t blame them, but it can get frustrating at times. We tell clients every day that a home is worth only what someone is willing to pay for it. Most times this is true, but in this low-inventory market, buyers are occasionally willing to pay more than a home is worth just to have their offer accepted. Appraisers realize this, and that is why their value sometimes comes in lower than what a buyer is willing to pay. After all, it is an appraiser’s job to say what he or she thinks a home is really worth.

Most banks don’t fire appraisers for coming in low, and they shouldn’t unless the appraiser is consistently being too conservative.

We believe that banks are working with people, but everyone is more careful than they were years ago. That is a good thing for the housing market. As it continues to recover, we’ll see many of these issues decrease.

John McGeough and Anthony Lamacchia are the brokers and owners of McGeough Lamacchia Realty in Waltham. Send questions to Address@globe.com. Follow us on Twitter @MLRealtyNE.
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