Real estate comparables — How they affect your home appraisal value?

Real estate comparables are homes that are similar to your home in terms of design, appeal, quality, square footage, basement and or location. There are around 25 different criteria that appraisers will look for when appraising your home. Do you know what the five most important criteria are when selecting comparable?

The five most important criteria when selecting real estate comparables


This refers to the actual location as in the distance of your home from the comparable sale. What school district is your home located in? What homes make up your neighborhood? Most banks will want the appraiser to locate comparable sales within ½ mile from your home if you are located within the city. If your home is located in a suburban area on the outskirts of town, your bank will want comparable sales that are within 1 mile from your home. If you are located in the county and the zoning is noted as rural, then your bank will want your homes within 5 miles from your home. Sometime, the bank doesn’t get what they want because in some cases, the appraiser will not be able to locate comparable sales within this distance. If this is the case, the appraiser will either select two or so sales that support the area and two outside the area to lend support to the design and appeal or other important factors.

Location can also refer to exactly where your home is located. If your home backs to a major lake or river, this may impact values significantly. If your home backs to a lake or river, railroad tracks or transmission towers, the appraiser will try and locate comparables that offer similar locations. Sometimes, comparable sales on one side of the lake will sell for more than the other side of the lake, depending on the depth of the lake or access to other amenities.

Square footage:

The size of your home will be compared to other homes in your area. If your home is the smallest homes in the area or the larger home in the area, the appraiser will usually locate one or two comparables that support the immediate market area and one or two comparable sales that support the square footage of your home, even if the home is outside the immediate market area.

Design and appeal:

The appraiser will locate homes that offer similar design and appeal to your home. For example, if your home is a 1 story home with a basement, this is what the appraiser will look for to compare to your home. If your home is a log home, the appraiser will attempt to locate at least two log homes in your area to compare to your home. Many times, log home designs will be limited in the immediate area. For this reason the appraiser will have to go outside the immediate area to provide support for homes like this.

Lot size:

Lot size can be tricky. Sometimes, I’ve been to short sales and foreclosures with homes that offer larger lot sizes, but they do not conform to the market. In other words, there are no other sales with larger lots that are in the immediate market area, but there are plenty of sales of similar style and age of homes. In this case, the appraiser will use comparable sales in the immediate area to support the design and appeal and the square footage. If the appraiser can find a home or two to bracket the lot size, they will. Even if they do find a home that brackets the lot size, the appraiser will make the final decision if your lot size plays an important part in the value. In most cases, the home and the square footage, bedroom count, etc will be given more emphases than the land. This is because the bank will want to loan money on the structure that you live in, not the land. Land can offer differing sizes, but offer similar functionality. For example, you have two lots. One lot offers 5,000 square feet. It is a flat level lot that can be accessed from two sided. The lot across the street offers a 10,000 square foot lot, but half of the lot is pure rocks and is not accessible. In this case, the person who purchases the larger lot might just pay more taxes with no added benefit of a larger lot.

Functional issues such as heat source, floor plans and garaging and outbuildings.

These all fall in the same category, as they are not as important as the criteria above, but they are important. In many cases, banks will want at least one comparable sale that is similar to the subject in terms of the heat source, floor plan, garaging and outbuildings. If the appraiser can’t find sales that support these items, they will not be able to give them any value. Many times, I’ll get a second appraisal request in regards to just finding homes that offer similar heat source and/or similar outbuilding, etc.

How do real estate appraisers find real estate comparable sales?

Real estate comparables are used to determine the value of your home. Your real estate appraiser will log into a database MLS (Multiple Listing Service) with all of the sales of homes in your area. Once they have logged into the database, they will select the homes that are most similar to your home.

Realtors and appraisers use the same MLS database to find real estate comparables for your home. The multiple Listing Service (MLS) is a list of homes that are listed and sold via this database. Other real estate comparable sales can be found via public website databases and free on-line databases, but most of the time, realtors and appraisers will not use this data, because they do not have enough easily accessible information regarding the condition and quality of the property.

How does an appraiser select real estate comparables?

Selecting comparable sales can be tricky at times. The appraiser will look at your home to determine what your home is and what your home has to offer the market. Next, the appraiser will select comparable sales via the MLS. Let me give you an example. If your home is typical for the market area and your home offers a 1 story home with no basement, comp selection is simple. I’ll select 4 comparable sales and 2 listings that are located within the immediate area that offer similar square footage, design and appeal and lot size.

If your home does not conform to the market, then I’ll have to use some of the sales in the immediate area to lend support for the immediate market area. Next, I will expand the market area in order to locate comparable sales that are similar to your home.

If your home offers an in-ground swimming pool, I will locate at least one sale within an in-ground swimming pool. If you’ve just built a larger outbuilding on your property, I will look for homes with secondary outbuildings. Even if the comparable sales are over one mile from the subject, I’ll use it to offer support for the outbuilding. I will also have to give consideration to the homes in the immediate area, so if there are no outbuildings in the area and I have to go outside the area to find support for your outbuilding, I may have to give most of the emphases to the homes in the area, regardless of the outbuilding or sometimes, I may split the difference and give some emphases to the sales in the area and some emphases to sales outside the area that lend support for the outbuilding based on the other data in the market area.

If you’ve converted your three bedroom home to a two bedroom home, I’ll have to go through the same process of comparable selection. Ideally, I’ll find other two bedroom homes within 1 mile from your home. But If I can’t I’ll find two homes that offer the most similar square footage that support the immediate area, but may offer three bedrooms and I’ll find at least two homes that offer two bedroom homes as yours to support similar appeal.

What if the appraiser can’t find one of the amenities that your home offers? If it is not one of the biggies such as square footage, age, design and appeal, lot size, or location, etc, the amenities will not be given any value or given little value because it can not be supported.

In some cases, the appraiser will compare homes with amenities that add no value to the home. For example, in some market areas, there will be a mix of two bedroom homes and three bedroom homes with the same square footage with no major price difference. In this case, the appraiser will not adjust for a two bedroom home vs. a three bedroom home.

Do real estate listing matter when determining home value?

Some appraisers think that listings don’t matter when determining the value of your home. This is not correct. The appraiser will or should review listings in your area. If they find listings and pending sales in the area that are similar to your home, they should use them. Even if they do not use them in the appraisal, sometimes, listings will help the appraiser or the realtor set the value of the property. Let me give you an example. If there are no “real” comparable sales that have closed or that have sold, then the appraiser can look at listings. If you have 3 listings located on the same street as yours and all of the listings are similar, then these listings will help the appraiser determine other comparable sales that further support the listings in your area. The appraiser will take the listings and the sales outside the area and determine what’s most important when determining the value. The appraiser will always have to give most emphases to the closed sales in your market area, but they should be within reason from the listings in your area. If they’re not, the appraisal for your home will get flagged and reviewed.

Here’s what the underwriter will ask. Why is the value of the subject property significantly different from the listings in the area? What comparable sales did the appraiser use to lend support for homes in the area? The underwriter will ask for older sales in the area and to explain why the sales and listings are not supporting each other. So, do listings matter? You bet, even if the appraiser does not use the listings, they may be an indication of the values in your area. So when an appraiser says that listings don’t matter, they’re wrong, because even if they don’t use the listings, they should review and consider them when determining your home value.