As we come to a new year, it's important to remember how comp age is calculated                                                                                                         
Bradford Technologies - ClickTIPS


ClickTIPS
How to Calculate the Age of a Comparable Correctly
If you are using the current version of ClickFORMS, the age of a comparable is being calculated correctly for you. But it is slightly different from past versions. We have received numerous support calls on the change, so we wanted to explain the rationale for the change.
For starters, remember that when we use any sale for comparison purposes, we are comparing the circumstances of that sale as of the date that the sale occurred.
For the purpose of calculating the age of the property, the best practice is to subtract the year built from the year of the sale. For example, if the property was built in 2010 and sold in 2019, it was nine years old at the time of sale. If, for the purpose of an appraisal, I use this 2019 sale as a comparable for an appraisal with an effective date of sometime in 2020, the age that the property was at the time of its sale is still nine years old. It does not get "older" by one year because I am using it in 2020.
In other words, when calculating the age (that will be used for comparison purposes) of the property, it is important to use the age that it was at the time of sale in order to accurately depict the circumstances of the property when the buyer and seller reached their meeting of the minds and agreed to a transaction.
This is also why adjustments made for Date of Sale/Time become so critically important under certain market conditions. Using the same scenario as above, the sale price paid in 2019 would reflect the market's reaction to that property in 2019. When using the 2019 sale for comparison purposes in an appraisal with the current effective date in 2020, we recognize that the sale price was determined by market conditions present at the time it was sold, not the market conditions in place on the effective date of the appraisal. When an appraiser determines that market conditions changed between the sale in 2019 and the appraisal in 2020, an adjustment is made for the change in market conditions (can be positive or negative depending on the way things have changed).
Reporting the age of a property built in 2010, sold in 2019 and used as a comparable in 2020 as 10 years portrays an inaccurate picture of the age of the property on the date it transacted. Just as we would not artificially move the transaction date to a more current date to accommodate an appraisal today, we would not want to artificially change the age of the property either. Similarly, if subsequent to the closing of the sale in 2019 the roof was replaced, we would not treat it for comparison purposes as having been sold with a new roof – it simply wasn't there when it was sold.
Most of the time, this is not an issue because appraisers use sales that have recently sold in order to capture the market conditions prevailing as of the effective date. As such, for most of the year the actual age of a comparable sale will be the same whether they calculated using the effective date of value or the actual date that the property sold since both ways will produce the same answer.
This is also an especially important concept to consider when doing retrospective valuations. This is why in performing retrospective appraisals it is not only important to calculate things from the effective date, but when teaching appraisal courses on this practice, we emphasize using past tense language to further illustrate that we are analyzing events from a point in the past.
If you have any questions or comments about appraising, please do not hesitate to email me at bill@bradfordsoftware.com.
Bill King
Chief Valuation Officer
Bradford Technologies, Inc.
AQB Certified USPAP Instructor
Bradford Technologies
302 Piercy Road | San Jose, CA 95138 | info@BradfordSoftware.com
800.622.8727 | www.BradfordSoftware.com
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