comparable sales

Ask Henry

Dear Henry,
I am appraising a unique property. It is located in an area that has very few duplex's. There are no resent sales in the subject's city. I know I can go to a similar neighborhood to get comps however the neighborhoods are in a different city with different tax base. This area of South Florida has many different cities within a 10 mile area. How far can I go from the subject property and still be considered a comparable neighborhood?

Thank You for you help,

Dear E.,
There are no USPAP requirements that limit the distance you can go to find the best comparable sales. Actually, it is just the opposite because it is a violation of the USPAP to limit your search for the best comparable sales based on instructions from the client. However, it is O.K. for a client to ask you to explain why you needed to go some unusual distance to find the most comparable sales.

Sometimes the market area in which the best comparable sales are located is very limited because it is near a university, hospital, or public transportation, etc. An opposite example is when a typical wealthy buyer, who is working in New York City, considers buying a mansion in Long Island NY, Morristown NJ or Greenwich CT, then you may end up looking for comparable sales in three different states.



Choosing Comps in a Declining Market

Newly published guidance from the Appraisal Institute helps appraisers know when and how to use distressed sales, such as foreclosures, as comparable sales. Such knowledge is crucial in the current market where distressed sales are common, creating complex valuation challenges.

AI’s Guide Note 11: Comparable Selection in a Declining Market notes: "transactions used in an appraisal assignment require adjustments for changes in market conditions."

The Appraisal Institute’s Guide Note 11 says: “A declining market will likely exhibit very little sales activity. When the sales comparison approach is necessary, but there are virtually no current sales in the market area to analyze as comps, the appraiser must: (1.) Expand the geographic area for comp search, then adjust for location as appropriate, and/or (2.) Use less recent sales, then adjust for market conditions as appropriate.”

It continues: “Appraisers cannot categorically discount foreclosures and short sales as potential comps in the sales comparison approach.” However, due to differences between their conditions of sale and the conditions outlined in the market value definition, these might not be usable as comps.

Further, foreclosures and short sales usually do not meet the conditions outlined in the definition of market value, the Guide Note says. A short sale or a sale of a property that occurred prior to a foreclosure might have involved atypical seller motivations (e.g., a highly motivated seller.) A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp. However, the Guide Note also points out, if the foreclosed property was sold without a typical marketing program, or if it had become stigmatized as a foreclosure, it might need to be adjusted if used as a comp. Also, some foreclosed properties are in inferior condition, so adjustments for physical condition may be needed.

this link to download the free PDF: “Guide Note 11: Comparable Selection in a Declining Market

Ask Henry

Cluster Homes Vs S.F.R.

Hi Mr Harrison,

I'm working on a cluster home attached on one side to another property. The two residences share a common wall, and the properties are very similar. My problem is that there are no other similar comps in the neighborhood; the last similar property was sold 3 years ago. Can I use another type of property as a comparable?

Thank you,
Al at Florida House Appraisals

Dear Al,

Getting good comparable sales is a perpetual problem for appraisers. There are no rules about where you can seek comparable sales information. It is up to the discretion of the appraiser. If a client tries to restrict where you can get comparables from you should either talk them out of the restriction or refuse the assignment, because if you accept this restriction there is a good possibility you will be making an appraisal that violates the USPAP. There are exceptions to this rule which are complex and would require limiting conditions, assumptions and possibly a custom definition of value.

The USPAP requires that you make a "credible appraisal". If you do not think there are sufficient comparable sales available that make it possible for you to do this, I recommend that you turn down the assignment.


Ask Henry

Adjustments for REOs and Short Sales

Hi H2:
Still a fan of your column/blog after all these years!

My question is: how do we adjust for bank sales and short sales when the only comparables available are in these two categories? In the past, we were able to find similar comps that were not REOs or short sales -- but that has now become impossible in some areas where I practice.

Larry Kowitt
Real Estate Appraiser, New Jersey

Dear Larry,

This depends upon what is happening in the subject property's market area for houses similar to the subject property. If the market area is flooded with short sales and bank sales, a prudent buyer is not going to buy the subject house unless it is priced competitively with those sales. Therefore, you should be using bank sales (REOs) and short sales as comparables and an adjustment may not be needed. It is more complicated when bank sales and short sales make up only a portion of the market. A prudent buyer would try to buy an REO or short sale if they were available on the effective date of the appraisal. Therefore, you would have to consider competitive listings. Ask yourself this question: "If the subject property were not available for sale on the effective date of the appraisal, what would a potential buyer of that property accept from what is available?" What they would buy as a substitute basically defines the comparables, and determines the value of the subject property.


Ask Henry

Atypical Comparables

Dear H2,

I am appraising a condo where the mortgage is held by a small bank in the developer's portfolio. The original appraisal was for $1,623,424 a few years ago. The bank requires that these appraisals be redone every few years. This is a 3,905 sq. ft. very upscale penthouse with a private elevator. It is on the fourth floor of a four-story building with a woodland view, but is just a five minute walk to one of the largest shopping malls amd upscale business centers in the greater Atlanta area. Location is excellent. The value of the condos in the subject building have declined as out-of-town buyers have walked away from what they thought were rental investment properties. The original prices were from about $750,000 to $1,700,000. After a series of foreclosures, the units have been selling for $200K - 300K and a few lower. I have a comp less than a mile from a competing building that is $2,024,300. It is almost identical to the subject unit, but has no elevator. Other than that, there's nothing anywhere close by. Also, taking into consideration the state of the subject condo, I just don't know where to start to do this appraisal. The workmanship is excellent and this five year old unit which is owned by the developer is like new, as he has hardly ever been there. I have not ever been faced in 28 years with such a challenge. Could you give me some guidelines?

June Ortiz

Dear June,

What you are describing is happening in many market areas throughout the country. What makes your question difficult is you offer no explanation of why the one comparable sale seems to be so different from the rest of the market in which your property is located. Your appraisal has to be based on all of the known comparable sales in your market area from which you select the ones that you believe are most comparable. What the subject sold for historically must be reported, but has no bearing on its current value. You have to make a judgment as to how much weight to give this one sale that seems to differ from the rest of the comparables in the subject condo complex. At a minimum, you must verify that sale and try to find out from your verification source(s) why the buyer was willing to pay so much money.


Ask Henry

Average in an Opinion of Value

Dear H2,

On a current appraisal, after all adjustments are made in the sales comparison grid of the URAR, the end adjusted values are as follows: Comp1: $125,000 - Comp 2: $127,000 - Comp 3: $124,000. I am unable to accord weight to any one of the comparables and would like to give weight to all of them, using an average that is in the middle of the indicated value range ($124,000-$127,000). I would like to add all three indicated values, and divide by three (= $125,333 average) and then reconcile the values to be $125,000.

However, I’ve been told many times not to derive an opinion of value using a mathematical method such as this one. Yet I have seen a few appraisals of my peers that do use this method, where appropriate. Of course, I want to be in compliance with Fannie/Freddie and USPAP. What's your opinion?


Dear Brooke,

If you are using a URAR form, the format calls for you to describe each comparable sale and then adjust it for any significant differences between it and the subject property. However, there is nothing in the USPAP that requires you to analyze comparables this way. In more complex appraisals (usually reported in a narrative appraisal report format), I have seen large sets of comparable data adjusted using averages. What you plan to do is fine, but the final value estimate of the subject should be based upon a reconciliation that, in your judgment considers everything about the subject, market and comparables that you think is significant.

The reason an "average" is not usually used by appraisers in the reconciliation process is that it is a statistical term that implies that you took a random sample of all the available comparable sales, and that the sample was large enough (usually a minimum random sample is at least 18 items). You would then also need to state if the average you obtained is the mean, median or mode.


Ask Henry

Time Adjustments

Dear Henry,

I am seeing appraisers applying time adjustments in a wide variety of ways. It would be good if everyone were on the same page!

The Fannie Mae guideline on time adjustments says that if the sale is over 3 months old, you should apply a time adjustment. Does this mean that if the sale is under 3 months old, no time adjustment is required, even though the market is declining? Should the time adjustment be from the date of contract to the subject appraisal date, or to 3 months prior to the subject appraisal date? I have been unable to find an answer to this question anywhere. I am making time adjustments on all comparables up to the effective date of the subject appraisal, but don't know if I am being overly conservative. Thank you in advance for your help.

Toni Stiffler

Dear Toni,

The Fannie Mae guidelines (which Fannie Mae points out are just guidelines, and not mandatory requirements) suggest that a time adjustment is desirable for comparable sales that are over 3 months old. When you don't comply with a Fannie Mae guideline, I recommend that you put a comment in your appraisal report explaining why you made this decision. This will be helpful to readers (and reviewers) of your report. This 3-month guideline does not imply that a time adjustment is unnecessary when the period is less than three months, if the appraiser thinks one is necessary.


Ask Henry

Comparable Sale Photos

Hello Henry,

I have been an appreciative customer and fan of your publications for decades. However, in your current online REV Magazine where an appraiser is complaining about having to take lots of comp photos, I submit the following sample of a letter received from one of our clients in this regard:

"There is commentary in the Addendum stating: "Some MLS photographs are used for comparable sales, as it had not been determined at the time of the property appraisal inspection which comparables would be most appropriate to use in the sales comparison approach." In the Appraiser's Certification, under Scope of Work (#3) [typically page 4 of the URAR form], it states: The appraiser must inspect each of the comparable sales from at least the street. Please address whether or not the appraiser inspected the comparables used in the appraisal report.”

Our clients insist that if the appraiser inspected the comps (as the Appraiser’s Certification indicates), then why couldn't they takea picture to show they were there? They can provide MLS photos in addition, if they better represent the property. Hopefully you can get the word out as to why this is simply good practice, as not doing so can delay the mortgage process.

A Concerned Fellow Appraiser
Name and email withheld by request

Dear Friend:

Keep in mind that the USPAP does not even require the the property be inspected. The URAR Fannie Mae #1004 - Freddie Mac #70 was created by Fannie and Freddie to codify some of their "Scope of Work" requirements which they require from Lenders selling mortgages to them.

I agree that in this age of digital cameras (and camera enabled cel phones) it would be prudent for the appraiser to photograph every potential comparable sale they inspect, and then select those photographs later for the comparable sales they use in the report. If the MLS photograph provides better information about the comparable sale, it should also be included in the report. The USPAP requires that there be a dialogue between the lender/client or their representative as what they require for each appraisal. This would be the appropriate place for the photo requirement to be communicated to the appraiser.

Back in the 1980s, we had a large appraisal company which at its peak had about 50 appraisers. This was before digital cameras were common. We had special 35mm cameras that recorded the date, time and address of each photograph. We required that our appraisers photograph every potential comparable sale when they inspected them from the street. We also keep all of these photos in the permanent work files. It was costly at the time, but in our judgment a worthwhile requirement. Now, with digital cameras and cheap CDs, mini-zip drives, and other storage capacity, I recommend that all appraisers follow this procedure.


Ask Henry

Comparable Sales - Nearby Location

Dear Henry,

In the following definition of Comparable Sale, what would you consider to be a reasonable "nearby" distance?

Comparable Sale: A comparable sale is a property, that is similar to the subject property in most respects, is located in a similar (nearby) location, and has sold recently at arms length. The selection of comparable sales is in most residential appraisals, the single most important determining factor in establishing value. It is the appraisers responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

Benson J. Bercovitz

Dear Benson,

There are no benchmarks or USPAP rules that determines what is a reasonable distance to look for comparable sales. Often it is just a few blocks from a university, hospital or some other work place where many people in the market are motivated to live, to be nearby these facilities. On the other hand, when corporate executives are relocated to New York City, they often check out housing in New York, New Jersey and Southern Connecticut, so houses that appeal to this market can be hundreds of miles apart. The final determination of the best comparable sales is solely up to the appraiser.



Ask Henry

Extraordinary Assumptions, Retrospective Appraisals

Hello Henry,

I am developing a retrospective field review with an opinion of value for investigative purposes. The effective date is 4-1/2 years prior and the subject and all (three) comparables were investor rehabs/resales in an economically distressed neighborhood, with price increases of 50 - 60% within 3-9 months.

The main issue with the report under review is data verification and the credibility of the comparables' cash equivalent sales prices. Primarily, no 3rd party verification sources were cited and it does not seem that financing concessions were properly verified or adjusted for if they did exist. Seller-assisted financing was common in the market at that time. Most weight was given to Sale #1 which did not have an MLS listing. Sale #2 had a potentially unsupported 8%+/- upward condition adjustment for 'avg' vs 'good' condition; this sale had a "blank" listing #, but also had a 60% price increase within nine months, indicating that it may have rehabilitated in a manner similar to the subject. My research has revealed two sales that support the original value that have no MLS listings; and other "blank" MLS listings that appear to have been investor rehab/resales. I cannot verify these sales or the conditions of the sales in the normal course of business after an elapse of 4-1/2 years. Is it acceptable to use these sales in developing my OMV with the extraordinary assumption that they had no sales concessions that affected their prices? Or by using these unverifiable sales would I be committing the same poor practices found on the original report i.e., the pot calling the kettle black??

Thank you for your time,

Michael A. Ciaccio
Certified Residential Appraiser RD6539

Dear Michael,

I can only give you some general advice, as it is my policy not to comment on specific appraisals.

  1. It is up to the appraiser to select the most comparable sales. There are no USPAP restrictions on how this is done.
  2. It is up to the appraiser to make whatever adjustments are needed, keeping in mind that using unsupported adjustments can lead to trouble as the USPAP requires that the appraisal be credible.
  3. The USPAP has specific instructions about using "Extraordinary Assumptions" (2010-11 USPAP U-3 & U 18). From what you say, they may be appropriate in this instance. Be sure to follow the disclosure requirements.
  4. You must decide if your report is credible. If there is a reasonable doubt in your mind about its credibility, you should not make the appraisal, as it would violate USPAP to do so.