Should comp equal the second best bid on the appt?

Interesting theory, but there'd be no way to reliably collect that data.

Sometimes appraisers will consider asking prices of same-line apartments, with the current average listing discount knocked off.

If demand were completely static, this approach would make sense. In normal circumstances, however, new buyers enter the market, and a certain percentage of them come in at the high end at the valuation range for a property class. Equilibrium tends to be maintained by this replenishment.

In a serious buyer's market, new buyers skew toward the low end and existing buyers may adjust their bidding downward (rather than stretching upward in price or downward in quality to increase their chances of "winning" the next bid), so the next trade may tend to print around the level of the previous underbid. Appraisals reflect this change in the buyer mix implicitly, with an adjustment for "market direction". Fundamentally, it's just another way of describing the same phenomenon.

I misused the word "static" above. I should have said "closed".

What if there were two people willing to pay $500K in your example, but not a penny more. The first to bid $500K gets the unit but the next bidder was in the wings. Why isn't the comp $500K?

West,

your examples closes the system for new supply but lets demand to come in. This wont keep system in equilibrium, instead demand will grow making the case for increasing apprs. In case of equilibrium, however, apprs. should be below lowest comps because highest bidder gets taken out and as far as comparable properties are concerned his/her replacement has not arrived yet. Thus, the next buyer's bid should show what the market is. If the $475K buyer tho, decides to shell out $500k on next comp property that's fine. But thats where we start going into bubble again because people start stretching themselves.

Kyle,

If the second best buyer was ready to shell out $500k, I agree, the prop is still at $500k. Basically, this agrees that the apprs. should be at whatever the second best buyer would pay. If it is at $500k, then $500k it is, if it is $475k, then $475.

Thoughts?

To answer the original question, the answer is NO. You can't use a hypothetical sale as a comp. If someone paid $500k, then it is worth $500k. Also, we do not know if there is a fourth buyer out there who would also be willing to pay $500k. And finally, there is always the chance that the $475k buyer will increase their bid to $500k the next time around. If someone can afford $475k, they can also afford $500k.

In my example, the 2nd would-be $500K bidder shows up after all three of the others and the broker says unless you will bid more than $500K then don't bother. This person says, "well then I won't bid since I'm not going higher." This person doesn't 'register' as a bid but is in the wings for the next similar unit. The comp should be what the last sale was. Period.

forgive me, I dont't even understand the point of this whole thread - until a sale is completed it is not a comp.As in yes, kylewest - the comp "should be what the last sale was". WTF

I'm with you ph41. I don't get this thread. It is as if someone looking to get a low offer accepted asked themselves, "how can I argue that the last sale price is not the comp?"

I understand the point the OP is trying to make, but what you don't know is if the bids that didn't win were those buyer's "highest and best", and odds are they weren't. For all we know, the $450K might have ended up at $495 if there were no other buyer and the seller was only negotiating with them.

Short, that's not how it works. To explain it, lemme introduce some symmetry. Suppose in your example there is also another seller of an identical apartment at $525K. Where does that leave the comp? Sure, there's a buyer at $475K, but there is also a seller at $525K. We of course have no transactions happening, but that is the natural state of any market (i.e., most of the time, no one is trading). So maybe you can argue the comp is somewhere between $475K and $525K, but in an opaque market where bids are fully hidden and true asks are hidden by negotiations and the non-commital nature of asks (when it gets down to it, the seller is not forced to sell at asking price), the last trade is as good a proxy as you're going to find for price.

and if the only other bid is a lowball for 400k? Or there's no other bid the comp is zero. Nah.

This is the case in any market (up, down or flat). Only one buyer can win. So your argument doesn't work.