The Duplex That Sold Twice in One Quarter
You are reviewing an appraisal of a two-unit duplex in a transitioning neighborhood. The appraiser used the sales comparison approach and gave 60% of the weight to Sale A, which closed 14 months before the effective date for $412,000. Sale A was a cash purchase by the tenant of the upper unit, who had lived there 11 years. Sale B closed 2 months before the effective date for $455,000; it was listed at $469,000 and sold with 3% seller concessions. Sale C closed 5 months before for $438,000 but was a distressed estate sale with a 21-day marketing period. The appraiser made no concession adjustment and applied a single 4% annual market increase to all three sales from their closing dates. The contract rent on the subject's upper unit is $1,150, roughly 25% below market. The appraiser reconciled at $430,000.
1. Identify the most serious comparability and adjustment errors in the sales comparison grid and explain how each distorts the value conclusion.
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The grid has three compounding problems.
1. Sale A is not an arm's-length market sale. A tenant of 11 years buying the unit they occupy is a classic non-market motivation: occupancy rights, moving-cost avoidance, and an existing below-market lease all push the price away from what an unrelated buyer would pay. Weighting it at 60% imports that motivation into the conclusion. At most it is secondary support.
2. Sale B's concession was ignored. With a $469,000 list and 3% concessions, the appraiser must adjust the sale price (or the comparable's price) for the concession before comparing. Three percent of roughly $455,000 is about $13,650 - material at this price point. Omitting it overstates the indicated value from the best comparable.
3. A flat 4% annual trend applied to all sales is a mechanical time adjustment. Time adjustments must be market-derived and applied to the sale's closing date relative to the effective date. Applying the same rate to a 14-month-old sale and a 2-month-old sale ignores that the rate itself is unproven and that Sale A's date gap is long enough to require stronger evidence than a rule of thumb.
Sale C's 21-day exposure is a red flag for duress, and its weight should be reduced or explained. The reconciliation also never accounts for the subject's below-market contract lease, which a buyer would price.
2. The appraiser reconciled at $430,000. Given the data, is that conclusion defensible? What should the reviewer require?
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It is not well supported as written. The best comparable, Sale B, indicates about $441,000 after the concession adjustment, before any time or condition adjustments. Sale C, if credible, indicates roughly $438,000. Sale A, the sale given the most weight, is the least reliable. A conclusion of $430,000 sits below the strongest evidence and is reached by weighting the weakest sale most heavily - an internal inconsistency a reviewer should flag.
A defensible reconciliation would:
- Re-rank the comparables by reliability, not by recency alone, and explain the ranking.
- Show the concession adjustment explicitly on the grid.
- Support the time adjustment with paired sales, a repeat-sale analysis, or a published index, or state that no adjustment is supported.
- Address the below-market lease, since the subject's income profile differs from a market-rent duplex and affects what a typical buyer pays.
- Reconcile toward the range indicated by the most reliable sales and explain any departure from that range.
The reviewer should request a corrected grid and a revised reconciliation, and should note the deficiency in the review report rather than silently substituting a value.