Clay Sparkman
One thing that Fairfield does a little differently is allow our borrowers to supply their own valuation analysis in lieu of a formal appraisal. Our acceptance of a value estimate really comes down to the comps, and we really don’t care who provides them so long as they are appropriate, we can follow the logic used in estimating the value of the subject property, and we concur with the analysis of that valuation.
A realtor prepared CMA is an inexpensive alternative to an appraisal, and is often sufficient for most residential properties. However, we’ve seen a lot of CMAs that are simply a group of listings or recent sales, with no explanation as to how the estimated value was determined and why the comps are appropriate. It’s important that there is a good analysis in your comparative market analysis or whatever type of valuation that you provide.
A quickly pulled set of comps based on location, and size does not tell the whole story. The borrower should always drive the comps, and visually inspect each one. Comps should be visually inspected and compared to the subject property. Ideally the most similar 3-5 comps should be selected without regard to their price. Too often comps are selected in an effort to match a pre-conceived notion of value, which is clearly inappropriate.
Once the properties are selected, value adjustments should be made regarding the overall quality, neighborhood, layout, lot size, sale date, amenities, and any other varying factors. Once adjustments have been made, the price /SF can be calculated, averaged, and multiplied by the Size of the subject property. A good set of comps with a narration illustrating the derivation of your estimated value is a key element to a strong loan packet. See Below for an example of a comp matrix provided by one of our borrowers.
Our website is full of great resources, and more information on the quest for a good set of comps can be seen at http://www.privatemoneysource.com/articles/comps.php
See the example below.
|
Subject |
Comp #1 |
Comp #2 |
Comp#3 |
Comp#4 |
Comp#5 |
|
| Address Sale Date Days on Mkt Distance- Miles |
581 N Shady Gr | 363 E Boise St 5/13/08 105 0.18 |
175 Sunbird 4/28/08 27 0.53 |
415 SW Frarnall ? 115 0.62 |
388 SW Farnall 5/28/08 34 0.66 |
1192 N Tasavol 3/27/08 9 0.15 |
| Size – SF | 1200 | 1346 | 1314 | 1134 | 1264 | 1130 |
| Sales Price Price/SqFt |
139,900 103.94 |
139,900 106.47 |
151,900 133.95 |
138,000 109.18 |
149,900 132.65 |
|
| Adjustments: | ||||||
| Condition | -5% | -5% | -5% | -5% | -5% | |
| Location | -5% | -5% | -10% | |||
| Size (lot & bldg) | -5% | -5% | -5% | |||
| Total Adj | -5% | -10% | -15% | -15% | -15% | |
| Adjusted Price Per SF | 98.74 | 95.82 | 113.86 | 92.80 | 112.76 | |
| Mean $/SF | 102.80 | |||||
| Indicated Value | 123,355 | |||||
Condition Adjustments: Each comp appears to be slightly superior to the subject property. They’re reasonable close, so a 5% reduction should make them reasonably comparable
Location: Comps 1 and 2 are in similar neighborhoods and require no adjustment. Neighboring homes surrounding comps 3 and 4 seem to be slightly superior to that of the subject, and #5 is in a neighborhood that is clearly more upscale. A 5% reduction to 3 and 4 seems like a reasonable adjustment, with a 10% reduction to #5
Size: In comparison to the size of the home as well as the lot, comps 2, 3, and 4, are larger than the subject. Comp 3 is slightly smaller in square footage, but the lot is substantially larger. A 5% reduction in value should make these more comparable.
Final Valuation: To calculate the estimated value, each property was weighted equally. The adjusted $/SF was averaged to yield $102.8 and multiplied by the SF of the subject property. 102.8 * 1200 = 123,355.
– Clay (clay@privatemoneysource.com, 503-476-2909)
Clay is Vice President of Fairfield Financial, a primary source for private money since 1964. Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php
Tags: hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans
