A California appraiser is valuing a residential rental property in a market where AB 1482 (Tenant Protection Act) applies. Recent comparable sales include properties purchased by investors at prices reflecting the income stream from existing tenancies, and properties purchased by owner-occupants who acquired vacant possession. The subject property is tenant-occupied. How should the appraiser handle this market condition in the sales comparison approach?

Correct Answer

C) Analyze whether the investor sales and owner-occupant sales reflect different market segments, identify which segment most likely represents the subject's probable buyer, and select or adjust comparables accordingly

Under USPAP and California appraisal practice, market value is defined with reference to the most probable buyer. When AB 1482 applies, just-cause eviction protections and annual rent increase caps affect investor return calculations differently than they affect owner-occupants seeking personal use. If the subject is a tenant-occupied property likely to attract investor buyers, investor sales are the most relevant comparables. If the subject is more likely to attract an owner-occupant buyer seeking vacant possession, owner-occupant sales may be more appropriate — with adjustments for any differences in occupancy status. The appraiser must analyze the market segmentation, identify the probable buyer, and select or adjust comparables to reflect that segment rather than mechanically including or excluding either group.