I am frequently asked, “What makes a good comp?” In appraising it is important to make sure that your comparables (comps) are similar to the property being appraised (aka subject property). Location should be the first consideration when choosing comparables. Then, comps should be similar to the subject property in terms of sales price, age, gross living area, site (land), location, style, condition, room count, and amenities (i.e., basement, garages, decks, patios, fireplaces, etc.).
For mortgage appraisals, lenders typically require appraisers to use three closed sales and two other listings (these two can be pending and/or active) as comparables. Lenders now require that two of the sales be closed within the last 90 days. The comps should bracket (one on either side with the subject in the middle) the subject property’s major characteristics in terms of sales price, age, and Gross Living Area (GLA).
Example of Lender’s Typical Requirements
Sales price
The lender typically requires that one of the three closed sales be below the subject property’s sales price and at least one other be above its sales price. If at all possible, differences should be no greater than 10%.
Age
The comparables should be built within 10-15 years of the subject property unless it is new construction. New construction should be compared to other properties built within the last 5 years.
Gross Living Area (square footage)
The Gross Living Area of the comps should bracket the subject property’s GLA by no more than 20%.
Further Requirements
Room Count
The room count consists of total number of rooms, number of bedrooms, and number of bathrooms. These are only above-grade rooms and bathrooms are never counted in the total room count. For example, 7, 3, 2.5 means 7 rooms total, 3 bedrooms (counted in total room number), 2.5 baths.
Site
The size of the land parcel of the comps should be similar to the subject property. Utility (usefulness) of the sites should also be similar. For example, if the subject property is a ¼ acre, open and level site, it does not have the same utility as a ¼ acre, sloping and rocky site.
Location
For suburban locations, guidelines state that comps should be less than 1 mile from the subject. In urban locations comp distance should not exceed ½ mile.
Styles
Comparables should be similar in style to the subject property.
One of the closed sale comparables must match the subject property in regards to condition, bathroom count, basement (finished or not, full, partial, none, crawl), central air, garage count, and other amenities.
Of course, these are all guidelines in an ideal world. Value adjustments are made whenever there is a difference between the subject property and the comparables. Whether guidelines can be met or are exceeded, adjustments must be supported within the subject property’s market.
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