When determining a property’s market value, an appraiser does more than look at the home’s size or condition. Recent sales of comparable properties are a very good indicator of what buyers have actually paid in the same market. But what are comparable sales, and how does an appraiser decide which properties are appropriate?
Knowing about appraisal comparables can assist homeowners and home buyers grasp the method behind the appraisal value.
What are Comparable Sales?
What are comparable sales? They are recently sold properties that are similar to the property being appraised. These are known as “comps” and are helpful in estimating the market value of a home.
A variety of factors can be compared by an appraiser, including:
- Location
- Property size
- Lot size
- Age and condition
- Number of bedrooms and bathrooms available in the house.
- Quality of construction
- Features and upgrades
- Sale date
The more similar the property is to the subject property in these terms, the more useful it is likely to be.
What is the Comparable Sales Meaning in an Appraisal?
The comparable sales meaning is essentially the use of comparable recently sold properties as evidence to estimate the market value of a property.
This information is key in the sales comparison approach appraisal method. An appraiser doesn’t just take the average of homes that are recently sold in the same vicinity as the home being appraised, they compare the differences between the subject home and each of the homes they are comparing.
If a comparable has an extra garage or kitchen renovation, for instance, the appraiser will take those factors into account when evaluating the sale price.
How Do Appraisers Choose Comparables?
Choosing the right appraisal comparables requires more than selecting the three homes closest to the property.
An appraiser takes into account if a property is competing with the subject property in the market. Location is significant but so are other features.
A nearby house that’s different in size, age or neighborhood might not be as useful for comparison.
It’s typically the appraiser’s job to find properties that offer the most comparable evidence of the subject property’s market value.
How Far Back Do Appraisers Look for Comps?
One common question is, how far back do appraisers look for comps?
Recent sales are preferred as they are more reflective of the market. But, no one time period fits all properties or markets.
When there are not sufficient recent comparable transactions, an appraiser might include older transactions in the comparison if they are appropriate and adjust for market changes.
Some neighborhoods and property types may be better equipped to provide suitable sales.
How Many Comps Does an Appraiser Use?
Another frequently asked question is: how many comps does an appraiser use?
This number may change with the property, market and sales data available. While a number of similar properties might be included in an appraisal, the appraiser’s job is not to get to a certain number.
It is better to have quality and relevance than quantity. Less evidence may be found in a number of properties that differ widely from one another than in a few properties that are very similar.
Comparable Sales for Home Appraisal
Comparable sales for home appraisal are helpful because property-to-property variability can exist within a community.
An appraiser might review the most recent sales and make comparisons with the subject, taking into consideration changes in place, condition, size, location, amenities, and other factors that might impact the value.
The final opinion of value represents the appraiser’s analysis and not just the most expensive or cheapest comparable sale price.
Conclusion:
Understanding what are comparable sales can help make the appraising process easier to comprehend. Appraisers research recent sales of properties and choose to compare properties that give meaningful insights into what the subject property is worth.
A home may be deemed a suitable comp based on location, condition, size, features, sale date, market conditions, etc. The method of the appraisal, called a sales comparison approach appraisal, thus requires analysis and adjustments, not just comparing sale prices.
Frequently Asked Questions
What are comparable sales?
Comparable sales are recently sold properties that are similar to the property being appraised and are used as evidence when estimating market value.
What is the purpose of appraisal comparables?
They help an appraiser understand what buyers have recently paid for similar properties in the relevant market.
How far back do appraisers look for comps?
Appraisers generally prefer recent sales, but older sales may be considered when suitable recent comparables are unavailable.
How many comps does an appraiser use?
The number varies. Appraisers focus on finding relevant and reliable comparable properties rather than simply using a fixed number.
What factors make a good comparable sale?
Location, size, condition, age, features, property type, and sale date can all affect whether a sale is a useful comparable.
Are nearby homes always good comps?
No. A nearby property may have significant differences that make it less useful for the appraisal.
What is the sales comparison approach?
It is an appraisal method that estimates value by analyzing recent sales of similar properties and adjusting for relevant differences.
Are listing prices used as comparable sales?
Listing prices can provide market context, but completed sales generally provide stronger evidence because they represent actual transactions.
Why do appraisers adjust comparable sales?
Adjustments account for differences between the comparable property and the subject property, such as size, condition, or features.
Why are comparable sales important for a home appraisal?
They provide market-based evidence that helps the appraiser develop a supported opinion of the property’s value.
