When it comes to real estate appraisal, one of the most essential aspects of determining a property’s value is the selection of comparable sales, or “comps.” But what exactly makes a property a comparable sale? Here, we’ll break down the basic guidelines for choosing comps, giving you insight into how appraisers arrive at a fair and accurate property value.
1. Location, Location, Location In real estate, location is critical. Ideally, a comparable sale should be located within the same neighborhood as the subject property—often within a one-mile radius in urban areas. But if there aren’t any recent sales in the immediate area, appraisers may broaden their search to include “competing” neighborhoods. This is where a geographically knowledgeable, local appraiser can really make a difference, using insights into subtle neighborhood nuances that can impact property values.
2. Similar Design Design is another key factor in selecting comps. Homes with similar architectural styles tend to share market appeal and construction costs. For example, ranch-style homes often cost more to build than multi-story homes with the same square footage due to larger foundations and roofs. So, if the subject property is a ranch, it’s best to select other ranch-style homes as comps. The same goes for two-story homes and other distinct designs.
3. Age, Condition, and Effective Age Age and condition of a property often go hand-in-hand in comp selection, but it’s important to distinguish between a home’s actual age (when it was built) and its effective age (how “old” it feels based on condition and updates).
Appraisers usually look for comparables within a similar actual age range—10-20 years for older properties and 5-10 years for newer builds. However, condition can impact a home’s effective age. An older home that’s been extensively updated (think new roof, electrical, plumbing, and finishes) may have a much lower effective age than its actual age, making it comparable to newer homes. Conversely, a newer home that’s had minimal maintenance or wear-and-tear may have a higher effective age, making it more comparable to older properties in similar condition. Effective age provides a more accurate reflection of a property’s utility, appeal, and marketability in the eyes of potential buyers.
4. Gross Living Area (GLA) Gross Living Area (GLA) refers to the total above-grade, finished living space, an essential factor in comp selection. Appraisers seek comps with a GLA within 20-25% of the subject property to maintain consistency in size. Accurate GLA data is critical; it’s important for MLS listings to specify above-grade versus below-grade space and room counts. Any discrepancies in GLA can lead to inaccurate valuations, affecting the appraisal outcome.
5. Similar Utility The utility of a property, meaning the number of bedrooms, bathrooms, garage spaces, basement finishes, and other functional features, should align between the subject and comparable properties. For instance, a comp with fewer bedrooms or no garage could skew valuation when compared to a fully equipped property. Appraisers look for properties with similar utility to provide an equitable comparison.
The Bottom Line Choosing the right comps requires a combination of knowledge, analysis, and market expertise. By following these guidelines, appraisers strive to deliver the most accurate valuation possible, balancing factors like location, design, age, condition, and utility. This process helps ensure that the selected comps genuinely reflect the subject property’s value in the current market.
In real estate, accurate comps can mean the difference between a successful transaction and a missed opportunity. So, next time you review an appraisal, you’ll know what to look for in those comparables!