An appraiser in California is valuing a property and one comparable was a sale-leaseback transaction where the seller sold the property and immediately leased it back from the buyer at above-market rent. The recorded sale price was $800,000. Under California appraisal practice, how should the appraiser handle this comparable?
Correct Answer
D) Adjust the sale price downward because the above-market leaseback rent inflated the purchase price the buyer was willing to pay
In a sale-leaseback with above-market rent, the buyer pays more for the property because of the guaranteed income stream from the above-market lease. The recorded sale price ($800,000) is inflated relative to the property's value without the leaseback arrangement. Under USPAP and California appraisal practice, the appraiser should adjust the comparable's price downward to reflect what it would have sold for without the favorable leaseback terms.
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