Comparable sales, commonly called “comps,” are essential data points in real estate appraisals used to estimate a property’s fair market value. Appraisers compare the subject property to recently sold, similar homes in the nearby area to determine what buyers are currently paying for comparable properties. This process, known as the Sales Comparison Approach, is the leading method for valuing residential real estate, especially in mortgage lending.
Appraisers select comps based on several criteria:
- Proximity: Typically within the same neighborhood or a one-mile radius, ensuring similar market conditions.
- Recency: Sales generally from the past 90 days, as market conditions can change rapidly.
- Similarity: Comparable size, number of bedrooms and bathrooms, age, condition, lot size, and features like pools or finished basements.
Because no two homes are identical, appraisers adjust the sale prices of comps to account for differences. For instance, if a comp has a swimming pool but the subject property does not, the appraiser subtracts the estimated value of the pool from the comp’s sale price to make it comparable.
These adjusted values from multiple comps help the appraiser establish a well-supported market value for the subject home. This valuation influences the sale price negotiation, mortgage approval, and refinancing terms.
Compared to a real estate agent’s Comparative Market Analysis (CMA), appraisal comps are performed by state-licensed appraisers, focusing strictly on sold properties, and carry legal weight with lenders. CMAs are broader, including active and pending listings, and serve as pricing guidelines rather than official valuations.
Understanding comps helps buyers avoid overpaying, sellers set realistic prices, and lenders assess loan risks. If there are no suitable comps nearby, appraisers may use alternative methods, like the cost approach or expand their search area.
For more detailed information, explore related topics such as Appraisal Contingency and Refinance Appraisal.
References:
- Consumer Financial Protection Bureau, “What is a home appraisal?” https://www.consumerfinance.gov/owning-a-home/explore-renting-or-buying/what-is-an-appraisal/
- Fannie Mae, “Sales Comparison Approach” https://www.fanniemae.com/singlefamily/sales-comparison-approach
- NerdWallet, “What Are Real Estate Comps?” https://www.nerdwallet.com/article/mortgages/real-estate-comps