This comes up more often than people think, especially with duplexes and other small multifamily properties in markets where sales volume is limited.

The key isn't necessarily the 3-mile distance—it's whether the appraiser can demonstrate that those are the best available comparable sales and adequately explain why they were selected. If there simply aren't any recent, similar duplex sales closer to the subject property, many lenders will consider more distant comps provided the appraisal contains strong market support and commentary.

That said, not all lenders have the same risk tolerance. Some have very strict overlays, while others are more flexible, particularly lenders that regularly finance investment properties or portfolio loans.

I agree with @Jay Hinrichs that a true private lender or someone much closer to the asset can sometimes be a better fit. I also agree with @Garth Huxtable that experienced investors often identify these issues before going under contract by reviewing available sales data. However, even with the best due diligence, some markets just don't produce enough comparable sales, and the appraisal process ultimately determines what's supportable.

If the appraisal is well-supported and the value is justified, I wouldn't give up on the deal just because one lender says no. It may simply require finding a lender whose underwriting guidelines better accommodate low-volume markets rather than assuming the property itself is the problem.