Comparables or “comps” as we say in the biz, are typically described as recent sales in a subject’s market area that are similar to the subject that is being appraised.
Fannie Mae puts it this way,
Comparable sales should have similar physical and legal characteristics when compared to the subject property. These characteristics include, but are not limited to, site, room count, gross living area, style, and condition. This does not mean that the comparable must be identical to the subject property, but it should be competitive and appeal to the same market participants that would also consider purchasing the subject property.
Fannie Mae Selling guide B4-1.3-08 (03-02-2022)
I typically start by looking for homes that match your home’s physical characteristics exactly and are located within your home’s community or subdivision in the last 6 months. If you live in a 3 bedroom 2 bathroom, single story home with 1500 square feet and a pool, I’m going to see if I can find a house that matches exactly those physical characteristics in the last 6 months. If I can’t find it, then I will go back to the last 12 months.
After a 12 month search, if there are still no results. I start expanding my parameters. I start to look for 3 bedroom 2 bathroom homes within 200 square feet of the subject (1300sf to 1700sf). I may relax my pool requirement, or my bedroom requirement and look at 4 bedroom homes. Still my primary goal is to find SOMETHING that sold in your community, because, as they say, the first rule of real estate is “location, location location” and I consider homes that are closer to you in location as better, more accurate indicators of value than homes that are 2, 3, or 5 miles away.
The less “similar” a home is in its physical characteristics, the more adjustments one has to make to it in order to make it similar to the subject home. What I mean by this is, if I find a sale across the street that is a 3 bedroom 2 bathroom single story home that sold a month ago is 1500sf but doesn’t have a pool. I have to “adjust” that comp for its lack of a pool. I have to figure out a market extracted amount (using data showing what other people have paid for homes with pools versus homes without pools in the area) and apply that adjustment to the comparable. Pools typically contribute positively to a home (especially in Arizona), so I would adjust that comparable “upward” to make it match my subject.
| Subject | Comparable 1 Sold for $300,000 | Adjustment |
| 3 Bedrooms | 3 Bedrooms | $0 |
| 2 Bathrooms | 2 Bathrooms | $0 |
| 1500sf | 1500sf | $0 |
| Pool | No Pool | +$20,000 |
| Adjusted Value $320,000 |
So in this example, the adjusted value for comparable 1 is suggesting that my subject may be worth $320,000. Typically 3 or more comparable sales are used to determine the value for the subject. The number of sales used depends on the availability of data and the number of similar home sales there are. I’ve used as many as 10-12 comparables before and as few as 3.
Too many or too large adjustments may indicate that a sale is not really all that comparable. And appraisers may get push-back from lenders, borrowers and agents about this. But this, in and of itself, does not detract from the appraisal’s credibility, especially if the availability of similar sales is severely lacking because the subject property is very unique, or there just aren’t any recent sales in the area. Again, let’s turn to Fannie Mae for guidance:
If a property is located in an area in which there is a shortage of truly comparable sales, either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use properties that are not truly comparable to the subject property. In some situations, sales of properties that are not truly comparable may simply be the best available and the most appropriate for the appraiser’s analysis. The use of such sales is acceptable as long as the appraiser adequately documents his or her analysis and explains why these sales were used.
Fannie Mae Selling guide B4-1.3-08 (03-02-2022)
Sometimes there really is just one truly comparable sale. And while other, less similar sales may be used, in this situation, I always hang my hat on the most similar sale in my conclusion of value.
What about you? Are you an appraiser or real estate professional? What is your strategy for choosing the most relevant sales? Have you ever been given “comps” that are far away or nothing like the subject? And it becomes clear that these “comps” were selected for the simple reason that they sold for higher amounts? How do you handle this situation?