USPAP and Choosing Comps – TAA Podcast 151

USPAP and choosing comps is likely a poor name for this podcast.  It’s a poor name since USPAP’s Standard One is silent on the choice of choosing comparable sales.   In fact, all Standard One (see SR1-4(a)) says about the sales comparison approach consists of twenty-seven words.  None of them is the word comparable, nor the words comparable sales.  So, no, Standard One in USPAP is not a reliable source relative to choosing comparable sales.

However, USPAP and choosing comps in made easier in the context of the Comment to SR1-3(b).  This is USPAP’s Market Analysis and Highest and Best Use Standards Rule.  In that Comment is the admonition the appraiser “…must analyze the relevant legal, physical, and economic factors to the extent necessary for credible assignment results.”  So, if there is a model for choosing a comparable sale, it is that such a sale must have the same relevant legal, physical, and economic characteristics as the subject.  In turn, this means appraisers must understand the subject’s legal, physical, and economic factors before it is possible to understand those of competing sales, thus before it is possible to choose comps.

So, since USPAP and choosing comps seems to be an incompatible pairing, is there another model to use as part of the process of choosing comparable sales?  Indirectly, yes, there is.  One of the difficulties we face in this task is that there is no formal definition of a comparable sale.  There are merely descriptions.  A careful reading of The 15th ed. of the Appraisal of Real Estate shows that a common description is that a comparable sale is one that has the same highest and best use as the subject.

And remember to have an experienced attorney on your speed-dial, and your E&O insurance up to date!