Can You Use a Sale That Closes the Day After Your Inspection Date?

So, here’s the situation; you are appraising a unique property in a limited area with few sales. You inspect the subject on Wednesday and finally get to the write up on Friday morning. As you are searching the neighborhood for sales, you notice a fairly comparable home that sold on the same street.  It happens to be the very best comparable you have. The problem? It sold on Thursday…the day after the inspection date. Bummer! But, can you still use it?

dustin_0In order to answer this intriguing question, let’s step back for just a minute and look at the bigger picture. What is the purpose of an appraisal? Aren’t we here to establish the most probable price the subject would likely sell for in the current market? How do we best do that? Most often, it is through the sales comparison approach to value which uses the law of substitution to determine value. In other words, we find comparable properties which have sold within the current market conditions (or adjust if market conditions have changed). Which is likely more reflective of the current market; a sale from 9 months ago which exceeds FNMA guidelines for adjustments or one from a day after the inspection date which is nearly identical to the subject?

Unless something dramatic has happened in the marketplace between the effective date (in this case, the inspection date) and the signature date (even if it were a month later), why wouldn’t that sale be a good indicator of the current market?

So, why do so many appraisers and clients disagree with this? Frankly, I do not know other than tradition. I have heard it before; you cannot use a sale that closed after the effective date of the appraisal. Why?  Because that is what their trainer taught them. Why did he teach that? Because his trainer taught him the same way. The fact is, USPAP does not disallow it. I know of only a few state guidelines which address it. Clients and the GSEs might have their own rules, but that is an individual company or organizational decision.

In reality, this situation would be quite unusual. My reports are nearly always turned in 48 hours from inspection. Comps are typically chosen early on in the process. The only likely scenario where a sale might be found after the effective date in my office is if it were presented to me by the client after the report was turned in as part of a reconsideration of value request. Frankly, this has happened to me and, when the sale was truly comparable, I have gridded it out as number 5 or 6 as part of a new appraisal assignment.  Of course, it came with a big disclaimer.

That brings me to my final point. If you happen to use a sale that closed after the effective date, I would certainly make a special note in the addendum to avoid any confusion or reader misinformation.

If our job is to value real estate, we should be using the most effective tools at our disposal. If the best indicator of value is a sale which occurred after the effective date of the appraisal – and we know about it – it only makes sense that we would consider it in the appraisal process. To not do so would be….well….misleading.

Postscript: I put this blog idea out to a test audience of appraisers before publishing here. It was met with mixed (and interestingly strong) opinions. Some agree and others adamantly disagree with me on this issue. One thing I found interesting is that though those who disagreed on my stance did so with LOTS OF CAPS and exclamation points, yet none of them could point me to a USPAP standard, or opinion, or a FAQ to support their position. There may be individual GSEs or clients or even state boards who feel otherwise, but these are not standard appraisal practices. One respondent put the idea out to a USPAP instructor who said, “As far as I’m concerned, there is nothing to debate. It’s not a closed sale. And I would note it as a pending sale with unknown sale price, not on the grid.” I pointed out that the key words in her response were “As far as I’m concerned…” I also put the same question to two nationally known and respected USPAP instructors. ‘As far as one was concerned,’ this other USPAP instructor is wrong on this one. The other one pointed to Standard 3 which uses the word “contemporaneous” to describe sale dates (of course, that means happening in the same time period). There are also some other things said in reference to retrospective appraisals that tends to indicate a need to use sales prior to the effective date (that makes sense). In the end, we will have to agree to disagree on this one and follow the opinion of one other respondent who said, “…it is up to all of you to make the bed you lay down in.” As for me and my appraisal firm, we will make our bed with the sale(s) that best represents the most accurate opinion of value…regardless of the sales date.

Dustin Harris is a super-successful, self-employed, residential real estate appraiser. He has been appraising for nearly two decades. He is the owner and President of Appraisal Precision and Consulting Group, Inc., and is a popular author, speaker and consultant. He also owns and operates The Appraiser Coach where he personally advises and mentors other appraisers helping them to also run successful appraisal companies and increase their net worth.   He and his wife reside in Idaho with their four children.  He is helplessly addicted to Swedish Fish.  

Original Post and Comments Found HERE


25 thoughts on “Can You Use a Sale That Closes the Day After Your Inspection Date?”

  1. I posted this comment on the original post and I thought I would also place here: I totally agree with Dustin. I actually planned to write blog article on this topic myself. In my appraisal practice, I do many retrospective appraisal reports. When we have a retrospective value opinion, it is a gift. We now have twice as many comparables. A comparable that sold six months after the effective date and adjusted back for market change is no different than a comparable that sold six months before the effective date and adjusted forward for market change. Hindsight is 20/20 and should not be ignored. USPAP only has a problem with a comparable that sold after the effective date if we are reviewing another appraiser’s work who did not have the luxury of that comparable or if there has been something catastrophic in the market that makes the market now so different that it cannot be compared. I know that lenders might have problems with comps that sold after the effective data, but I do not. A comp that went pending on the effective date and later sold is the ideal comparable with no need for market change adjustment. – See more at:

  2. Since when is 9 months prior to the effective date of the appraisal, for a comparable sale exceed fnma guidelines? Fnma guidelines state 12 months and can be exceeded.
    This is right out of fnma guidelines.
    Age of the Comparable Sales……

    Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales. For example, it may be appropriate for the appraiser to use a nine month old sale with a time adjustment rather than a one month old sale that requires multiple adjustments. An older sale may be more appropriate in situations when market conditions have impacted the availability of recent sales as long as the appraisal reflects the changing market conditions.

    Additionally, older comparable sales that are the best indicator of value for the subject property can be used if appropriate. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate 3 truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used.

    1. The Appraiser Coach

      Scott: Thank you for pointing this out, but I should have been more careful about my wording. I did not mean that a sale which is 9 months old automatically exceeds FNMA guidelines. Rather, I was trying to give an example of a sale that is 9 months old which ALSO exceeds FNMA guidelines. In other words, would you rather use a sale that is nine months old and really not that comparable to the subject or one that is one day after the effective date and is quite comparable?

  3. Yep, do what you need to do to provide the most credible opinion of value. Just be sure to explain what you did and why. And don’t forget there are always hypothetical and/or extraordinary assumptions that can be made.

  4. In the State of Washington our Department of Licensing will take your license away if you use sales that close after the effective date. You could use them and label them as Pending but if you represent that they have closed and the closing date is after the effective date – kiss your license good-bye if DOL finds out. DOL has published appraisers who have been sanctioned for this.

  5. Matt an appraiser

    The best thing to do is revisit the subject property after it closes and change the effective date. Then you will have no call backs for this.

      1. Amen. That’s exactly what I would do – perform a drive-by as a follow-up inspection and date stamp my photo. Making a comment in the appraisal as to what you have done would be suggested as the borrower or seller might question the effective date of the inspection.

        John Bullard

    1. I would have no problem going back to the subject property and do a quick reinspection. Now I have legally changed the effective date of the appraisal, and would change the inspection date on the form. I have called Realtor’s back and asked them if I can go back and reinspect, in order to solidify my value or change my value, if the new comp is more effective in the appraisal. I am now within all guidelines and USPAP
      25 years as a Certified Residential Appraiser

  6. I would have simply entered it as a listing or pending as per the inspection date with all adjustments including financing and concessions. Then I would have stated that it deed indeed close on the next day, and I would have stated in my sales comparison analysis that I was giving the most consideration to this listing/pending comparable.

  7. A more relevant question would be, how could you possibly justify not using a very similar comparable sale that closed after the valuation date that you became aware of but this awareness was prior to the date of delivery of the report and report date? FANNIE MAI requires that a loan that they purchase must have an appraisal with three closed sales within 1 year prior the valuation date. This does not preclude the appraiser from utilizing additional sales data and most often the appraiser would be required to have additional data to support their value conclusion. In most of my appraisals I utilize pending and active listing to support my value conclusion. If a sale closes escrow the day after my valuation date then it was a pending sale as of the valuation date. A pending sale is a meeting of the minds that has not yet resulted in a closed transaction. In the case where a sale closed the day after the valuation date the sale should be reported as a closed sale with the verification information included, like the escrow officer phone number, recording number if available, agent phone numbers, etc. Then a comment that as of the valuation date this comparable was pending as of the valuation date and subsequently closed prior to the report date.

    Lester Caplan, CA State Certified General Appraiser, AG001751
    32 years diversified appraisal experience

  8. This event happened to us but the home was not yet closed, due to close within the week. We confirmed the contract price with the broker, (first time they actually told us the price) and put the comparable in as a pending sale. We used it to support our value and market analysis with three other sales, but, we didn’t include it in our reconciliation since the final sale price was still uncertain. In the case of a sale after an inspection, it was pending on the day of so that is how it should be noted in the report, the price is confirmed so it could be used as a reconciled sale. I would use it as a forth comparable sale.

  9. I have used comps like this, along with a disclaimer that I am doing so. The guy who trained me had a concern that if we are allowed to do this, it may come back to haunt us later if retrospective reviews from three years later reveal a sale that closed between the effective date and the date of the report. My position is that if my work is solid, it should not be an issue. I also generally call a Realtor if there is a particularly relevant pending sale to find out when the closing date will be.

  10. Appraising sucks

    I’ve done it plenty of times when the comparable is awesome. “Comparable 4 sold after effective date, however, contract date precedes effective date”. Done and done!

  11. I wouldn’t have a problem with it. Retro and/or reviews do it all the time. Will the client have a problem with it? Credibility is defined in the context of the client expectation. To me, that is what is relevant in a scenario like this one. If the comps are so few that an appraiser is seriously considering this sort of option, my first thought would be to call the client and have a chat. First, the appraiser must make a judgment of whether or not they feel a credible opinion can be developed from the limited data in the first place. Second, if the appraiser does feel they can do it, the client should be informed and given a chance to decide if limited data provided as support for the opinion of value is acceptable to them. Again, credibility is defined in the context of the client expectation. I would think in a rural scenario where a client is used to seeing reports with comps all over the board, a pending/post closed comp from the same street a day after inspection would be a welcome change. I would wonder who in their right mind would not consider that data as relevant on some level. My guess is the folks who struggle with this stuff are the ones who always work in data rich areas and never need even consider such an act, much less the level of market analysis that goes into developing an appraisal of complex property. I used to do rural all the time, but have given it up, which is sad because it is fun to cruise around in the country and breathe in the air. I suppose I got tired of not getting enough money for the time needed and then delivering an appraisal that might be picked apart by people who type in CAPS on a regular basis.

  12. Excellent question and reasoning Dustin! I have two views. (1) I inspect on Monday (effective date). While at the site, the Realtor told me about a pending sale that he/she verified is due to close Thursday. Even the price is known and contrary to normal statistical data the buyer was able to negotiate a HIGHER (no anger D!) discount than the traditional 2% to 4%. In fact they negotiated the discount at 6% because the sellers just found their new house and now want to hurry everything up. It is a model match to the subject and is located around the block. In fact , it rears to the subject. I finish writing up my report on Friday. I could have rushed it, but resist doing that as a matter of policy. I also verified the settled price at “X” which is in fact 6% less than the asking price. How could I POSSIBLY justify reporting the wrong price as a pending sale (2% to 4% discount yields a price higher than the price that is known)? Part of appraising is the judicious application of common sense. It is not a contest to see how close I can make my report match a lender processor’s poorly understood ‘guidelines’.
    (2) Real world scenario-retrospective values. From my days as a Sr. Review Appraiser at IRS. Property owner (taxpayer) dies December 31st, 2008. Estate’s appraiser reports six (6) closed sales. One from August 1 ($1,000,000); September 15th ($950,000) and December 30th for $900,000) -all in 2008. ALL contract dates were a full three months prior to closing dates (so December sales were negotiated in September, etc.) The other three sales closed January 15, 2009 ($850,000); January 30 ($800,000) and February 10th for $750,000. ALL six sales were originally listed for $1,000,000. All are the same size and we’ll assume all had identical views, quality, condition, location, sites, etc.) o keep from wandering too far into the woods with other adjustments. Again the first TWO of the final three of the last sales (4 & 5) went pending December 20th, 2008 for the final sale price amounts and the last one had an all cash contract agreed to on January 25th, 2009. With 20/20 hindsight it was as if someone had gone to the wall switch and flipped the entire R.E. market to the “off” position in late November. Very little trickled through. Lenders were reneging on funding commitments for previously approved new loans.

    Appraisal report date is April 15, 2009.

    Taxpayers estate claimed a value of $825,000. Revenue agent who has taken an appraisal class offered by the local Board of Realtors thinks it should be $950,000 and that the estate must pay tax on the additional $125,000 plus penalties up to the notice of proposed adjustment (NOPA) date of January 2011 when the return filtered through the system. Internal Revenue Rules recognize conditions in effect on the date of value as being applicable or germane to value. OK, the specific POST value date comps ARE within policy; and have appeal precedents and Tax Court rulings as additional support for their use. An HONEST IRS review appraiser advised the Revenue Agent that the beginnings of what later became a complete R.E. Market collapse were known in late November, 2008 during the election. A well documented downward trend had already been established despite the short time period. NONE of the first 3 sales were representative of market conditions in effect on the effective date of value. Hank Paulson had not discovered that the sky was falling when those contracts were negotiated, but that news HAD been known when the last 3 sales were negotiated.

  13. Pingback: Can You Use a Sale That Closes the Day After Your Inspection Date? | Appraisal Buzz

  14. I too have faced this issue, particularly in dealing with a unique property. The AMC handler said it could not be done, I asked where in USPAP I could find this, he did not know. Fannie Mae does ask for closed sales as of the effective date. I told him that I would re-inspect for a fee, otherwise it would have to stand. They gave the fee and did not call me back for other jobs. No sense of humor, good riddance.

  15. Dustin is correct. Sales before and after the effective date are perfectly fine. There is nothing in appraisal theory, methodology, practice or logic that would preclude use of comparables taking place after the effective date. The confusion arises from two factors. The first is that most appraisers only make “current” date appraisals for which there are no post effective date comparables. So, customarily they do not have access to sales occurring after the effective date. The second source of confusion is the sales date. The “sales date” is the contract date or the date of the “meeting of the minds” – it is the date on which time adjustments must be based. Because many appraisers only used “closed” sales for appraisals, the closing date is often confused with (and used as) the date of sale.

    I also believe there is misunderstanding about Fannie Mae requirements. Fannie Mae only requires that at least three of the comparables be “closed”sales. That requirement dates back to the 70s when developers were providing appraisers with phony contracts. Fannie Mae permits use of under contract sales and listings depending on market conditions to arrive at a final value – in addition to those three closed sales.

    What I find interesting is that appraisers embrace and employ the concept of “bracketing” in all areas except date of sale. Bracketing the date of sale is one sure way to establish market stability (or changes to market conditions that may have occurred) between the effective date and the sales that took place prior to the effective date. It should always be used in retrospective appraisals.

  16. Retrospective reports may be one of only a few reasons if any for not using the most recent data after inspection, especially compounded ridiculous if it was a verified pending sale. That may be the only sound reasoning from old school of thought that would include USPAP? Otherwise please provide us proof and sound reasoning especially against limited data in rural areas.

  17. I think you need to be clear that there is a difference between what USPAP allows and what FNMA allows. Many residential appraisals are completed on Fannie/Freddie forms. By using these forms, you are agreeing to their supplemental standards. These standards require at a minimum 3 sales that closed on or before the effective date of the appraisal. As for using the sale that closed after the effective date of the appraisal, it wasn’t really a sale as of the effective date of the appraisal. It can’t be what it is not. It doesn’t mean you can’t use it, it just means you can’t call it a sale. In addition there is the peer standard-what an appraiser’s peers actions would be in performing the same or similar assignment.

  18. Wouldn’t it violate the Ethics Rule under Management #5? This keeps coming up so I sent in a request to the Foundation for their opinion and and waiting for a response. Not holding my breath.

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