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What’s a comparable sale? Does USPAP answer this question? (spoiler alert: NO!) Can the GSEs answer this question? (same spoiler alert!). You’re an ethical, curious, well-trained and well-educated appraiser. What are you going to do? In this podcast, Tim Andersen, The Appraiser’s Advocate takes a stab at the answer! Think highest and best use since that is the key to a comparable sale. There is no “official” definition of a comp. But the best description, however, is one with the same highest and best use as the subject.
There are sales and then there are comparable sales. What is the difference between them? In essence, one difference is your verification of that sale. You turn a plain-vanilla sale into a comparable sale! How? Use Fannie Mae’s definition of market value as your verification model. If a sale ticks all the boxes in that model, and it has the same highest and best use as your subject, you have a comparable sale! When they don’t have the same highest and best use, you don’t have a comparable sale. It’s that simple. Yes, finding comparable sales takes some work. But this is what our ethics demand of us.
Now what? You found the sale. You’ve verified it according to the market value definition model. It has the same highest and best use as the subject. Now you analyze that verified sale. Why? Between your original research and your file data, you may have 15 comparables. Now, analyze them to determine those that are are most similar to the subject. Which of them presented the lowest gross adjustment ratio? Is the most recent sale physically proximate? Are all the comps cash equivalent? Can you support the adjustments?
What’s a comparable sale? Listen!