The Importance of Previous Purchases to Appraisers

How much weight do appraisers put toward previous purchases when completing a home
appraisal? Often times, looking at the past can help us understand the present. It’s
important to consider the factors that impact a previous purchase in the ever-changing
market of real estate.

An appraiser is required to analyze and report the past 36 months of transfers of the subject
property. Analysis of a prior sale can be normal and even mandatory in the appraisal
process.

If a property sold at a reasonable price, an appraiser could give strong weight to that sale. In
this scenario, an appraiser will take a closer look at exactly how the market and property
have changed since the sale.

On the other hand, a previous purchase could be considered meaningless if a property sold
for too little or too much in the past. In this case, an appraiser will not give real value weight
to this type of purchase.

When the Previous Purchase Means Less

Trustees Sale

This type of sale tends to go for a discount. Properties are typically not in great condition in
this scenario.

Fixer-Upper

If a home was in need of significant work, it most likely sold at a lower price. Chances are,
the home received major upgrades since the previous purchase. In this case, the previous
purchase value means less.

Family Discount

If a home was sold between family members, it is likely the previous purchase price will not
be a reliable source of information for today’s market. These types of sales often include a
discount to the actual value.

Factors to Consider

Timing

Before giving weight to a previous sale, an appraiser will assess whether it was a reasonable
representation of value at the time.

Context

Often times, a previous purchase is an incredible way to understand how a property fits into
the market. If a subject property has competed at approximately the same price position
within the previous three sales, an appraiser will likely give strong weight to those previous
sales. This helps one understand value for that particular property.

Adjustments

A prior sale can help determine how much the value should adjust for certain features of
the property. Is the home located on a busy street? A previous sale gives insight into
whether this was a big deal or not compared to surrounding neighborhood sales. This
research is effective insight into seeing what buyers have been previously willing to pay for.

Current Market

An appraiser will be objective by giving the most weight to the current market. You should
not get stuck on the previous purchase price and forget about the current market. Values
could have increased or softened since that previous purchase. The market could be
different today due to things such as:

• Change in zoning
• Change in buyer demand
• Gentrification

No matter the previous purchase price, it is important to compare that to today’s market.

Previous purchases help appraisers to uncover how any recent improvements or changes
impact the overall value of the property. However, no matter the history of the property,
it’s important to consider all factors that impact the overall value in the ever-changing
market of real estate.

Definitive Valuations is North Alabama’s premiere appraisal firm. Our mission is to provide
superior valuation and consulting services in Huntsville, Alabama, and surrounding areas.
Our staff strives to understand your needs and to provide the best solution for your
situation – whether for financial planning, relocation, tax dispute, legal matters, pre-listing,
or any other purposes. Discover more here.