Search Parameters and the Best Comparables


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Search Parameters and the Best Comparables
By Rachel Massey, SRA and Tim Andersen, MAI

Watch any house hunting show on HGTV and it is apparent that buyers often restrict their search for property to a price range. So why shouldn’t appraisers? We must all have heard one variation of this argument at one time or another. From a logical standpoint, it does “seem” to make sense because appraisers try to mirror the actions of buyers in the marketplace. The simple answer to this question is that by limiting our search to a price range, we are apt to miss the most potentially relevant comparable sale. Restricting the comparable search by price is one of the easiest ways to miss good data, as well as to analyze the market improperly.

Although buyers may limit their search to price, watch an episode of House Hunters some time and see what the agents show the buyers. Invariably agents will show something that is outside of the buyer’s range, either breaking the bank and going for the gold, or showing them something well below their expectations. The agent might show them something they never would have considered because of the current condition of the property, but in actuality, it meets most of their needs. Although buyers typically push the top end, they are often able to negotiate to a lower sales price. On the flip side, sometimes they will look at a property needing extensive renovations, and factor that into their overall budget.

We have something to gain by watching these shows, as they demonstrate how buyers often act. Savvy real estate agents don’t let the buyer’s price range constrain them from finding the right house. A good agent will try to determine the buyers “needs” versus their “wants,” and try to find properties that meet their needs. While the buyer may think their need is to stay within a certain price range, that range quite often does not suffice. Instead, the buyer needs to look at what is available and what substitutions there are when the desired property is not available.


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As presented in the Appraisal Institute’s Appraisal of Real Estate, 14th Edition (pg. 30):

“The principle of substitution states that when several similar or commensurate commodities, goods, or services are available, the one with the lowest price attracts the greatest demand and widest distribution. This principle assumes rational, prudent market behavior with no undue cost due to delay. According to the principle of substitution, a buyer will not pay more for one property than for another that is equally desirable. Property values tend to be set by the price of acquiring an equally desirable substitute property. The principle of substitution recognizes that buyers and sellers of real property have options, i.e., other properties are available for similar uses. The substitution of one property for another may be considered in terms of use, structural design, or earnings. The cost of acquisition may be the cost to purchase a similar site and construct a building of equivalent utility, assuming no undue cost due to delay. This is the basis of the cost approach. On the other hand, the cost of acquisition may be the price of acquiring an existing property of equal utility, again assuming no undue cost due to delay. This is the basis of the sales comparison approach.”

One sentence above was underlined for emphasis. Imagine a simple appraisal of a production tract-built ranch house, in a cookie-cutter neighborhood, with an abundance of 1,000-1,300 square foot houses. Most of the houses sell in the $200,000 to $225,000 range, so what happens if the appraiser restricts him or herself to that range? Is it possible the appraiser will miss a good comparable sale? Perhaps not, because of the uniformity of the housing. Even so, there may be a sale that just closed at $229,000 that is similar to the subject property in all aspects but which has new kitchen. Would that sale be relevant? Absolutely! It provides information about the market direction (increasing) as well as information about how the market reacts to that new kitchen. What about a sale that just closed last week for $195,000 which is similar to the subject in all respects? If the search criteria exclude that sale, it’s possible the appraiser may miss it, and some indications that the market is starting to decline.

Many appraisers review appraisals that restrict the search parameters to price, yet miss the house that sells across the street and is a model match. How could that happen? It can happen because the market is in decline (or increasing) and that house was one of the leading indicators of what was happening in the market. We are constantly seeing appraisals that clearly state their search parameters, which is helpful in understanding what the appraiser was looking for as part of that search. Yet we also continue to come across appraisals that use price as the sole or primary search criteria. Perhaps this has always been prevalent, but with the increasing requirements for disclosure of such factors as search parameters, we are seeing more of this practice.


In USPAP, Standard Rule 1-4 makes it clear to the appraiser that:

“In developing a real property appraisal, an appraiser must collect, verify, and analyze all information necessary for credible assignment results. (a) When a sales comparison approach is necessary for credible assignment results, an appraiser must analyze such comparable sales data as are available to indicate a value conclusion”

By restricting the search for comparables solely to price, is it even possible that the appraiser is collecting and analyzing all information necessary, as required in Standards Rule 1-4? In the sales comparison approach is it possible that searching by price leaves out “sales data as are available”? Yes, it is possible, and is a failing that state appraisal boards are aware of.

What do we consider a similar property? We contend that the buyer of a 1,900-sqft house may well look at a 2,900-sqft house favorably and say that it is a substitute. Yet it is rare that the buyer of that 2,900-sqft house will consider the 1,900-sqft house a true substitute. For a sale to be truly comparable, the buyer of the sale would also need to consider the subject as a substitute, not just the other way around. Remember also that a comparable sale has the same highest and best use as does the subject property.

Since examples help, imagine appraising a 2,000 square foot ranch style house on two acres in a semi-rural area. The house was built in 2000 and has a full basement and two-car attached garage. Does it matter what you think the house is worth, or would the most logical search relate to a house that is reasonably similar, in a similar setting within the immediate area? Is it possible that by restricting the search to a price range, that value-indicative sales will be overlooked?

When informing your client of the search parameters, think of a disclosure such as this:

“Search criteria included all sales of existing housing built between 1990 and 2005, on one to three acres, in the Saline school district. The search included only houses that were between 1,500 and 2,500 square feet in above grade living area, with garage and basement. From these sales, I chose to include properties that were south of Bemis and east of Moon Road, in York Township. From this data, I included only sales that closed within the past nine months and had 12 available sales which were generally competitive. Of those 12 sales, I chose the ones that were most similar to my subject in terms of quality, size and styling. The others were considered but ultimately the sales included were, in my opinion, the best available.”

This type of description of the search parameters leads the reader to the conclusion that the appraiser has examined both the market and then extrapolated from that market data set what was relevant in comparison to the subject. The intended users of this appraisal can easily understand what the appraiser’s search parameters were, and even if they disagree with the value opinion, have a guide to what the appraiser considered comparable.

For a value reconsideration, this type of language can help restrict the use of rebuttal sales that are outside of the search criteria. This can be a side benefit of clearly expressing your search parameters related to size, age, distance and other competitive features. If the parameters are clearly expressed and the possible sales shown, such as in a “farm-list” or “CMA”, and those sales were part of the analysis, it is effectively a way of putting the brakes on a request to consider those sales. If they have already been analyzed and are not reliable for whatever reason, any request can just refer the reader back to where in the appraisal narrative this was stated.

Another reason searching by price is not sound appraisal practice is that, in essence, the appraiser, through this restriction, is appraising to a predetermined value, or range in value, a significant USPAP violation. Remember that restricting the search to price, as opposed to those value factors that truly drive the market for a property, such as the one that is being apprised, puts constraints on what the market is able to tell the appraiser and is a defacto predetermined range. Instead of restricting the search for comparables solely to price, look instead at the physical, legal, economic, and intrinsic attributes of the property, as well as what buyers would likely consider as alternatives. Look to similarities in properties, not similarities in a preconceived idea of price.



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About the Authors
Rachel Massey, SRA, AI-RRS, is an AQB Certified USPAP instructor and has been appraising full-time since 1989. She is a Certified Residential Appraiser in Michigan, specializing in review work for various clients, as well as lake properties and other residential properties in and around the Washtenaw County market. Tim Andersen, MAI, is a commercial real estate appraiser, AQB-Certifed USPAP Instructor, USPAP consultant, author, and expert witness.



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Comments (10)

  1. I try to search on age, trying to omit the distressed properties that are sometimes given away for a song. No matter what, someone with a budget of $250,000 will not be looking at properties listed over $500,000, in a neighborhood, you can have very low properties and extremely high properties. Every time you’re outside the range of any element you have to comment. My reports are starting to look like a narrative and most of it’s a waste of time. The list checkers that look at your reports after they run it through their program to catch any of the obvious errors seem to take pleasure at nailing the appraiser for any issue that they can find. I’m getting really tired of stating, as I stated in …. and so on.

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  2. I used to put a price change in the 1004MC. Every AMC out there said that you can’t search on value. A price range does make sense, but if they won’t let you do it, what is the point. It’s kind of like steering of a realtor to a certain location.

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  3. Rachel,
    Great article! I often see too few comments in the report or generalized comments. USPAP does require disclosure of scope of work in the report. The comments you suggest are an appropriate way to disclose scope of work in selecting comparables.
    Any search, no matter how thorough, can leave out good comps due to the reliability of the data and how it is entered into the MLS, the search engine, and other factors. USPAP only requires due diligence.
    Another, AQB Certified USPAP Instructor

    - Reply
  4. by John Couturier, SRA

    I think this article does a great job of touching on an even broader issue than search parameters. Appraisers should be sensitive to how buyers make their choices in the particular sub market the appraiser is working in, and, I completely agree that watching shows like the one mentioned or simply talking to participants in the market place on a regular basis gives the appraiser a human perspective on what is driving that market. And, as pointed out in the examples of realtors showing homes “above” and “below” the buyer’s purchasing capacity, the market does incorporate bracketing and so we appraisers must be careful, as well, to bracket our analysis in terms of pricing and amenities so that we are correctly reflecting what is going on in the market. In this data rich environment it is sometimes tempting to rely solely on published data sources and arithmetic techniques, something an AVM can do. I think we appraisers can supply an important “value added” when we temper the hard data with the perspective of the participants themselves.

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  5. I think the authors hit it right on the head when he said “any search parameters can leave out a relevant comp.” For instance the example the article gave used square footage, lot size, school district, and year built. In my experience square footage and lot size are two of the least reliable search parameters available as real estate agents often have false information for the listings. For instance it is very common to see see an agent include basement area in square footage. The price range is the most reliable data available from the MLS as it is very rarely misinformation. All of the search parameters used in the example from the article are suspect due to agent error and must be cross referenced with assessor/county records etc. I could all but guarantee that if the search from the example was used there would be an abundance of false comparable sales including smaller, older homes on smaller lots, and even in different school zones. There would also be many homes that should fall into the search but don’t all due to agent error. Then these sales are used in part to assess market conditions further eroding the reliability of the appraisal. It is possible that other MLS systems may have much more reliable data then the one i use (MRED) but the bottom line is using the search parameters from the example in any market area covered by my particular MLS would undoubtedly result in a misleading appraisal. As previously mentioned by David Rij the best process is to start with very few search parameters so that you do not overlook any possible comps that may have misleading information.

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  6. I agree fully with the concept and have researched, discussed and debated it. However, similar to price, the age, square footage, lot size, etc can also be put at a “point” that leaves proper data out as well. The combination of proper appraisal practice, USPAP standards and the predominance of the requirements put on appraisers for “support” from lenders (which without question pays most residential appraisers) have created this anomaly. Price can be used as a “Final” search parameter just the same as the others ONLY if all the potential data has been considered and determined to NOT be credible that falls outside of the range noted. The problem with discussion implying that it is NOT possible for price as a parameter is that the “typical” underwriter thinks that statement is absolute regardless of the additional discussion explaining the scope that took place to achieve said range as the most reliable.

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  7. Any search parameters can leave out a relevant comp. In more complex appraisals with limited comps it is always a good idea to search comps with as few parameters as possible and also search the immediate neighborhood with no parameters going back 1-3 years to see all sales. If the recent similar sales are limited enough you might use a much larger, much smaller or older comp from the immediate neighborhood then originally desired. This article appears to be talking about MLS research as though only 1 search is performed, I routinely do multiple searches for comps to widen parameters when there are limited comps. I also will re research comps after viewing the subject and initial comps after returning to the office when I find some aspect of the subject is not bracketed by my comps are I could use more comps with specific characteristics more similar to the subject such as updating, views, lot utility, etc. I think re researching comps after inspection is not done as often these days because it takes more time and the lenders requirement to have a photo of the comp, appraisers don’t make enough on an appraisal to take a 2nd trip out for comp photos. So lenders are putting a high priority on comp photos with the unintended consequence of appraisers sometimes not re researching comps and omitting some of the best comps and thereby misvaluing the subject property, which is the main purpose of the entire appraisal process.

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    • Hello David, thank you for writing in. You are right that you want to have fewer parameters and to search in multiple manners. The crux of the article is that it shouldn’t be limited to price. We wrote that because both of us have seen numerous appraisals that state their search parameters are such as X price to Y price in XYZ city.

      You are also spot on about some people not going back and re-searching after the site visit. I have made a habit now of not doing my research until after I have physically seen the house, as I end up going out two, three, and sometimes four times to revisit comparables – hardly good time management skills.

      Again, thank you for your comments.

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  8. A smart buyer would NEVER do this. A smart appraiser is un-biased and does not try to put him/her self in the position of either the buyer or sellers. A good appraiser is concerned with the best market data to produce the most probable and reasonable value. In my opinion, I would like to see it mandated that both the sellers and buyers have to get a professional appraisal. This would help eliminate harassment by either. side

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    • Hello Martin, I agree, although one thing I do think is critically important for an appraiser to do, is to get in the mind of a potential buyer. The sales that a potential buyer would consider should be the pool of sales that are considered in the comparable search.

      Love your idea about having a professional appraisal as a mandate, outside of the mortgage process. Would be nice, but I bet there would be abuses there somehow or another.

      Thanks for your comments.

      - Reply

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