Are properties sold under pressure useful in the comparison approach?

Properties sold under pressure, such as distressed sales, short sales, or foreclosures, often do not provide meaningful comparisons when using the comparison approach in appraisals. This is due to several factors.

When a property is sold under pressure, it might not reflect the true market value due to the circumstances surrounding the sale. These properties may sell for significantly less than their typical market value because the seller is forced to sell quickly, which is not a reflection of the property's usual worth in a normal market scenario. Appraisers strive to find properties that represent arms-length transactions as these best reflect the value that buyers are willing to pay in a fair market context.

Utilizing pressured sales in comparison approach can skew the data by introducing values that are not representative of general market conditions. The goal of the comparison approach is to identify sales that illustrate the typical price one could expect for similar properties—the pressure sale prices can misrepresent that typical price, thus not providing reliable data for accurate appraisal.

In summary, while pressured sale properties can provide information about extreme market conditions, they do not accurately reflect the value that would be observed under normal selling conditions, making them less useful for meaningful comparisons in the appraisal process.