Proximity - The One Mile Guideline
There is a 1 mile proximity guideline that is typically applied by appraisers in residential reporting. From a regulation standpoint, it is not required for the appraiser to stay withing a mile, as long as they use the most relevant sales. As with most things in appraising, this is a subjective determination.
WHEN CAN AN APPRAISER EXCEED THE ONE MILE GUIDELINE ?
Each appraiser must determine when to exceed a guideline of any type for themselves, based on the specific circumstances of a given assignment. Almost any fixed rule or guideline can be broken in appraisal practice, as long as the appraiser has a good reason, and explains/supports their reasoning in the report. An appraiser is probably not going use a comp from over a mile away if there are more relevant and reliable market indicators available within a mile. However, if there are specific reasons that a recent sale is relevant, it is possible that it may be considered even if it is a greater distance from the subject than desired.
There are many rural locations where the appraiser may have to look for miles around in order to find the most relevant sales for comparison. In my area there is a local community which is rural in nature with lot sizes of over 1 acre. The competitive sub market consists of 38 square miles, and generally speaking the typical buyer in that community does not pay a premium for one area of the community vs another. In that sub market I regularly use sales in the report that are up to 3 miles away. The community sales which are more similar and recent sales can be better market indicators than a more proximate sale which may be an older build or less comparable in attributes.
GEOGRAPHICALLY LIMITED SUB MARKETS
An appraiser also might exceed proximity guidelines in linear sub markets such as homes lining the intracoastal waterway. Because the strip of truly competing properties are restricted to the shoreline, it is can be necessary to exceed 1 mile up or down the coast in selection of comps. Geographical limitations such as being located on a barrier island can also lead to greater distances for competitive properties. If you are in a community that is located at the edge of developed land (with a swamp or preserve consuming all surface area to the north and west) then the appraiser may have to exceed distances to the east and south to find sufficient competitive market activity.
There are some properties that have unique features, and that can make it more difficult to find recent relevant sales within a 1 mile proximity. Homes with unusually large or small lots and homes that back a specific external influence are potential examples. If you have an unusual structure such as a detached 10 car garage, and there is a relatively similar property that sold recently but is located beyond 1 mile with that same feature, the appraiser is probably going to find that sale to be useful. Even if the sale is not used in the report, it may help the appraiser to develop a contributory value estimate for the feature.
LACK OF RECENT SALES WHICH ARE MORE PROXIMATE
Sometimes the appraiser may not be able to locate recent sales that are within a mile, despite being located in a suburban setting. If the community has very low turnover over the prior year, there may not be sufficient numbers of relevant sales for comparison. That does not mean that they will ignore recent relevant sales to select a higher priced sale from further away, but if there is a legitimate lack of alternatives, they may exceed distance guidelines.
WHY DO SOME APPRAISERS REFUSE TO EXCEED ONE MILE ?
I have run across appraisers that will religiously adhere to the 1 mile guideline. They will use more proximate comps, even though may be less relevant. As a Realtor myself, I find that to be frustrating. An appraiser that is competent to appraise a location, is familiar with the community, and has experience in the sub market should know whether it is appropriate to exceed guidelines to find the most appropriate sales. At the end of the day, it is a subjective process.
If you would like to research more information on this subject, you may want to look at the Fannie Mae Selling Guide or HUD Handbook 4000.1 These publications are both key word searchable (use shortcut Control F to search). There is also a brief general comment in the HUD Appendix D Valuation Protocol
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