.01 The best indication of the value of property being appraised is the price paid for the property in an arm's-length transaction on or prior to the valuation date. When the property to be appraised has not recently been the subject of an arm's-length transaction, the best method of estimating the value of unimproved real property is by use of the market data or comparable sales approach. This approach uses arm's-length sales of properties that exhibit the most similar characteristics to the property being valued. The sales transactions used will adhere to the following definition of fair market value:
The fair market value as defined in section 1.170A-1(c)(2) of the Income Tax Regulations, section 20.2031-1(h) of the Estate Tax Regulations and section 25.2512-1 of the Gift Tax Regulations is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Fair market value is a definite amount paid in cash or its equivalent for a given property and is the same regardless of the purpose for which it is appraised.
.02 Potentially comparable sales may be obtained from tax assessors, real estate brokers, appraisers, the recorder of deeds or other sources. The appraiser should first make a detailed inspection of the property being appraised and the potential comparable properties. During the inspection of the property to be appraised and each potential comparable property, the following factors or information should be considered:
(a) Location, including proximity to roads, schools, shopping, transportation, and other amenities;
(b) Configuration, topographic features, and total area;
(c) Restrictions as to land use or zoning;
(d) Road frontage and accessibility;
(e) Available utilities and water rights;
(f) Existing easements, rights of way, leases, etc.;
(g) Soil characteristics;
(h) Vegetative cover, such as: grass, brush, trees or timber;
(i) Status of mineral rights;
(j) Riparian rights;
(k) Other factors affecting value.
Additional information necessary includes the name of the buyer, the name of the seller, the deed book and page number, the date of sale, sale price, property description, amount and terms of mortgages, property surveys, the assessed value, tax rate, and the assessor's appraised fair market value.
Detailed analyses of the comparable property sales should include considerations of similarity of highest and best use legally permissible, the time interval between sale date and valuation date, economic similarities and trends affecting the neighborhoods. If any sale is a distress sale, a forced sale, or one negotiated with unusual terms provided by the seller, it should be discarded. Probative value is added to the use of comparable property sale when each sale price has been confirmed by either the purchaser, seller, real estate broker involved in the sale, or lawyer or title company handling the transaction. At this time, it may be determined whether there was any compulsion exercised by either party to the sale or if there were any motives affecting the purchase price.
03. Comparable property sales may be used only after the sales prices have been adjusted for differences between the properties. In making adjustments the appraiser should adjust to the property being appraised. Many property features are of equal value and require no adjustment of the sale price. Adjustments for time are necessary unless prices for real estate are static between the dates of sale and the valuation date. Adjustments are a judgmental conclusion of the appraiser and are usually shown as a percentage change.
