What Kind of Data Do Appraisers Use to Determine A Home’s Value?
An appraiser has many tools in their tool belt to assist them in coming up with a home’s indicated value. It is the appraiser's job to use these tools effectively and proficiently to get the job done correctly. One tool that is used by every appraiser in every report is DATA. There are two different sources of data, primary and secondary sources. Let’s think of primary data as data that is collected by the appraiser first hand and secondary data as data that is collected from outside sources. Under the umbrella of primary and secondary data the information can be separated into three different types; specific data, general data and comparative data.
Specific Data is described as data that is specific to the subject property like whether or not it has a pool or how many bedrooms and bathrooms it may have. Specific data has a direct correlation and influence on a properties value because specific data is quite literally data that is specific to the properties improvements.
General Data is data that affects the property’s value on a national, state, city or neighborhood level. Like trends in business cycles, the economy, or building costs. General data can affect a property’s indicated value in several different ways. A good example of this is the effect that population growth or decline places on a marketing area. When the city of Detroit experienced the deindustrialization of its economy thousands of jobs were moved from the city causing the city's population to decrease dramatically. The ripple effect of the deindustrialization of Detroit caused home values to decrease along with it. As more and more people fled the city, property appreciation hitched a ride and gave Detroit's a very hard lesson on how general data can affect their property’s value.
Comparative Data can be described as data from recently closed sales in the same location that are similar to the subject property. Appraisers use comparative data to derive value given to features of comparable properties that are similar to the home they’re appraising. If the home the appraiser is appraising, typically referred to as the subject property, has a pool the appraiser will look for comparable properties in the same marketing area that also have a pool. Appraisers will use the features they find in the market that are similar to their subject and compare to other properties that are missing those features. For example, if Comparable A has a pool and sells for $300,000 and Comparable B doesn’t have a pool and sells for $285,000, as long as all other features are the same you can conclude that the pool is worth about $15,000. Comparative data is imperative to the appraisal process and is often used by appraisers to arrive at a value in an appraisal report.
Are you ready for the test? Just kidding. Now that you’re familiar with the three different types of data an appraiser uses in his/her appraisal report, you can now better understand how and why appraisers come to their conclusions. Have more questions on appraisals or the process? Feel free to send us an email or reach out to us on our website for more info.