Podcast: Play in new window | Download (Duration: 7:49 — 10.7MB)
In real estate appraisal, there is no standard definition of a comparable sale. There is no formal definition in the literature. Nobody has a practical definition, either. USPAP does not have one. Fannie Mae just assumes we all know what one is. But we don’t have a standard definition. That does not make sense, does it? So, what do we do? Do we invent our own definition? It is not that easy!
Since we do not define a comparable sale, what are we appraisers to do? About the best we can do is go with what we have. And what we have is, at best, a description. OK, a description of what? A description of the characteristics of a comparable sale. Fannie Mae, bless her bureaucratic heart, offers that description. She says a comp has the same legal, physical, and economic characteristics as the subject. Really clear, fight? NOT! But we go with what we have since we have nothing else.
Fannie says a comparable sale has a site similar to the subject’s site. That means they are highly similar when it comes to exposure, frontage & depth, access etc. In addition, a subject and a comp have similar room counts and a similar GLA. Their architectural styles and modes of construction are similar, too. Finally, the subject and its comps are in generally the same condition. Clear as mud, right!?
You know what’s silly? There is no definition of a comparable sale, but all the AMCs know when you picked the wrong ones! And do you know what’s even more interesting? The comps you should have chosen just happen to make the deal work! No conflict of interest, no subjectivity there, right! Yep, the appraiser is always wrong and the AMC is always right! Yes, the AMCs always choose the correct comps despite the fact there is no formal definition of a comparable sale!
But doesn’t Fannie Mae give the appraiser the discretion and choice to select a comparable sale? Yes, she does! This responsibility falls on the appraiser’s shoulders, not the AMC’s.
Tim, you did it again. You cleared up some muddy waters. I have often wondered why people get so confused at what is a comparable sale. Now I understand, There is NO definition! I wish our profession could clear up some of these issues. The same goes with adjustments. There are so many “methods” that it makes your head spin. I wish we could just get rid of adjustments all together. I miss the days of three comparables and no revision requests. With the information age that we live in, anyone can look for “comparables”. The hard part is organizing them into an logical organized mess.
Thank you, Mark! I was surprised, too, when my research indicated no definitive, universally-accepted definition of a comparable sale. Some deeper research (which I did not cover in the podcast) indicates part of the problem is the “standard” definition of market value – there are too many exceptions to it. The concept of highest and best use, too, is a complete muddle since, by definition, a property’s H&BU is the one that brings the highest value. Yet the definition of market value refers to the most probable price. But we muddle on, doing the best we can. I appreciate your comments! My best to you and all of yours!
Funny how the whole appraisal is an opinion at best, and based on what YOU consider best available information. Then someone tells you , oh that’s not right! There is no right or wrong opinion. There can be mechanical errors but you’re paid for your professional opinion.
Mike, Thank you for your response. Yes, we get paid for our opinion, but unless it is the same as the AMC’s opinion, theirs is right and ours is wrong! Go figure!