Probably a better way for me to have phrased that would go like this:
In appraiser jargon, a “comparable sale” would be one that could be considered to be among the most proximate, recent, and similar properties that would also fit the definition of a Market Value sale. A “comp” would be one of the sales that an appraiser would present in their appraisal for direct comparison purposes.
REO/Short Sale transactions could fit all the other criteria, but if they didn’t also fit the definition of a MV sale then they wouldn’t normally be considered as “comps” the way an appraiser uses that term. The exception to that being if there were enough of them to establish their own trends and drive the market pricing.
By the way, this happened during the last downturn. I remember doing appraisals wherein the majority of closed sales involved foreclosures and to a lesser degree, short sales. And you better believe that the sales that weren’t REOs still reflected the same pricing trends because these sellers were all competing for a limited number of buyers.
Now just because an appraiser might not use a sale as a direct comparable doesn’t make that sale totally irrelevant to the appraisal. Appraisers are supposed to research and comment on the market trends, any apparent discounting or sales concessions commonly being offered and the marketing times that are necessary to produce these transactions at these prices.
Just as an example, if I write up an appraisal report on a house I might only present 4 or 5 closed and/or pending sales in the report to support my opinion of value. However, I will also generally have researched 20+ sales for that one assignment, not to mention the continuous and cumulative referencing of the trends that occurs as a result of doing this type of analysis on a daily basis.
By the time I get done with an appraisal my value conclusions will be based on all that information, not just the few sales I present as the most comparable.
Having said all that, I would be remiss to not acknowledge that there are some appraisers who approach an appraisal strictly in terms of how much they can justify on it without getting caught. These individuals probably would completely ignore the “low sales” altogether. However, that attitude does not represent professional appraisal practice and I don’t consider those idiots to be among my peers. Obviously I will not defend such laziness and misconduct.
