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
Fannie Mae Selling Guidelines State
"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.