Does one-mile radius of comps in appraisals still apply in 2016?

By
Real Estate Appraiser with Accurate Valuations Group, LLC LA St Certified 851

QUESTION: Is there a one-mile rule when it comes to finding Comparables for home appraisals.


ANSWER: I would strongly recommend watching Fannie Mae's CU video on comp selection.  I've attempted to provide actual Fannie Mae references to help answer this concern. 

Not really, it really depends on the individual underwriter on that particular day, and it depends on which location box the Appraiser checks: Urban, Suburban or Rural.  AND, most underwriters want to see at least two comps sold within 90 days

When Urban is checked, then comps should be as very close as possible. Suburban generally provides more tolerance of say 1 to 3 miles, perhaps 5 miles if challenging. Rural here in GBR could mean 5 to 25 miles but in Idaho could be up to 100 miles.

Naturally, you want to choose comparable sales from as close as possible and if your listing is in a subdivision, consider those comps inside that subdivision first before going out of subdivision for other potential comps.

This statement is in my custom template: 

"Comps used are from subject's competing market area and are in acceptable proximity (it was not my goal to restrict use of comps within only  one mile radius and Fannie Mae has no such stated rule)."

 

LIMITED SUPPLY ON THE MARKET AND LIMITED NUMBER OF HOME SALES AS INVENTORY TIGHTENS FURTHER MEANS COMPS ARE LOCATED FURTHER AWAY  
My recent experience has been challenging because it's getting a lot more difficult to do appraisals with a limited supply of recent sales in some markets, which can mean going out further for comps, well beyond 1 mile. Sometimes limited sales and mortgage underwriting requirements (using the most recent sold comps available, at least 2 sold within past 90 days) mandate using comps over 1 mile.




My Appraiser friend in Sacramento, Ryan Lundquist, penned this:

The myth of the one-mile radius in appraisals


 


WHAT CHANGED? AND FANNIE MAE VIDEO



Fannie Mae "CU" or Collateral Underwriter in January 2015 implementation by Fannie Mae. When I took the 7 hour CU training in 04/2015 and watched the Fannie Mae video below, we learned Fannie Mae Computer Model sometimes prefers comps up to 3 miles away versus comps within 1 mile because the 3 mile comps are closer to subject's characteristics. This video threw a major wrench into what Appraisers have been taught for the past 50 years and what mortgage underwriting has expected of us. Appraisers even have boiler plate statements in our templates explaining why we used comps over 1 mile.



In this Fannie Mae example below, the comp 3.1 miles away was a better comp than those located within 1 mile (screenshot from their video tutorial for Appraisers): 


About this video: The specific categories that CU compares for data integrity:

Age, Lot size, GLA, Bedroom Count, Bath Count, Basement Total, Basement Finished, Parking, Condition, Quality, View, Location, Sale Date, Amount

http://fanniemae.articulate-online.com/ContentRegistration.aspx?DocumentID=fb6e69ad-7930-4af8-8978-6a09fd8dfe46&Cust=77787&ReturnUrl=/p/7778798708


 

 

 

Fannie Mae Selling Guidelines State



https://www.fanniemae.com/content/guide/selling/b4/1.3/08.html :

"Comparable sales from within the same neighborhood (including subdivision or project) as the subject property should be used when possible. Sale activity from within the neighborhood is the best indicator of value for properties in that neighborhood as sales prices of comparable properties from the same location should reflect the same positive and negative location characteristics.

Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. The appraiser must also provide an explanation as to why he or she used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject neighborhood.

If a property is located in an area in which there is a shortage of truly comparable sales, either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use as comparable sales, properties that are not truly comparable to the subject property. In some situations, sales of properties that are not truly comparable may simply be the best available and the most appropriate for the appraiser’s analysis. The use of such sales is acceptable as long as the appraiser adequately documents his or her analysis and explains why these sales were used. (For additional information, see B4-1.3-03, Neighborhood Section of the Appraisal Report. For specific information concerning the selection of comparable sales for manufactured home appraisals, see B4-1.4-01, Factory-Built Housing: Manufactured Housing.)

When describing the proximity of the comparable sale to the subject property, the appraiser must be specific with respect to the distance in terms of miles and include the applicable directional indicator (for example, “1.75 miles NW”). The distance between the subject property and each comparable property is to be measured using a straight line between the properties."


Hope this some how helps.  It honestly depends on the mortgage underwriter you're dealing with because not all of them are on the same sheet of music. And, many Big Bank Lenders have their own set of rules much more strict than other Lenders.

NOTE: One Mile Radius image source is Sacramento Appraisal Blog. 

 

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Rainmaker
737,104
Rob D. Shepherd
Windermere/lane county - Florence, OR
Principal Broker ABR, GRI

We a rural enough that we work in zones. One mile would not work here.

Jan 07, 2016 10:04 PM #1
Rainmaker
823,751
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

This is great information that Realtor's can even apply when doing CMA.

Jan 07, 2016 10:35 PM #2
Ambassador
1,936,796
Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Thank you fo these explanations.  Buyers usually look at features, size, etc of a home when they are searching.  While some may want to buy only in one particular neighborhood, many would look in a much larger radius than even the three miles if the neighborhoods are also similar.  It only makes sense to adapt the appraisal/underwriting rules to that particular consumer behavior. 

Jan 09, 2016 06:23 AM #3
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Rainmaker
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Bill Cobb

Greater Baton Rouge's Home Appraiser
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