Comparables (Appraisals)
What are Comparables (Comps) in Real Estate?
Comparables, or “comps,” are recent sales of similar nearby properties that appraisers, lenders and investors use to estimate a property’s market value. The property being valued is called the subject property. An appraiser adjusts each comp’s sale price for its differences from the subject, and the adjusted prices point to the subject’s value.
This is the sales comparison approach, sometimes called the comparable method of valuation, and it is the main way homes and other small residential properties are appraised. Because it rests on what buyers actually paid for similar properties, it gives lenders and buyers a transparent, market-based value. Investors also use rent comparables, meaning similar rentals nearby, to estimate market rent for a rental property.
How Do Appraisers Choose Comparables?
Appraisers generally follow similar guidelines when selecting comparable properties for an appraisal. A good comp is typically:
- Recently sold: A closed sale, commonly within the last six months and sometimes up to twelve. Older sales may need an adjustment for changing market conditions.
- Nearby: Often within a mile in urban and suburban areas, and farther in rural areas where sales are sparse. Appraisers prefer the same neighborhood and try not to cross boundaries that affect value, such as major roads or school district lines.
- The same property type: Single-family homes compared with single-family homes, condos with condos, and 2–4 unit buildings with 2–4 unit buildings.
- Similar in size and layout: Comparable living area, bedroom and bathroom count, and lot size.
- Similar in age, quality and condition: Built in a similar era, with similar finishes and upkeep, such as a comparably updated kitchen or roof.
- An arm’s-length sale: Sold on the open market between unrelated parties, not a transfer between relatives or a sale made under pressure.
Appraisers usually include at least three closed sales and often add active or pending listings to show where the market is heading. They draw on the local MLS and public records and may confirm details with the agents involved.
How Do Appraisal Adjustments Work?
No comp is identical to the subject, so the appraiser adjusts the comp’s sale price for each meaningful difference. The rule is to adjust the comp, not the subject: if the comp has a feature that makes it better than the subject, its value is subtracted from the comp’s price; if the comp is inferior, the difference is added.
Here is a simplified example with one comp. The dollar amounts are for illustration; real adjustments come from local market data.
| Feature | Subject property | Comparable sale | Adjustment to comp |
|---|---|---|---|
| Sale price | — | $310,000 | — |
| Bathrooms | 2.5 | 2 | +$8,000 |
| Living area | 1,850 sq ft | 2,000 sq ft | −$9,000 (150 sq ft at $60) |
| Garage | 1-car | 2-car | −$6,000 |
| Kitchen | Original | Updated | −$12,000 |
| Market conditions | Current | Sold 5 months ago in a rising market | +$4,000 |
| Net adjustment | −$15,000 | ||
| Adjusted sale price (indicated value) | $295,000 |
The comp sold for $310,000, but after adjusting for its larger size, bigger garage and updated kitchen, and for the subject’s extra half bath and today’s higher prices, it indicates a value of $295,000 for the subject. The appraiser repeats this for each comp, then reconciles the results into one opinion of value, giving the most weight to the comps that needed the smallest adjustments. Large total adjustments are a sign that a comp is not very similar.
Sales Comparison vs. Cost and Income Approaches
Appraisers can estimate value three ways. Comps drive the first, and comparable data also feeds the other two, such as land sales in the cost approach and market rents in the income approach.
| Approach | How it estimates value | Most useful for |
|---|---|---|
| Sales comparison | Adjusted sale prices of comparable properties | Homes and other 1–4 unit residential properties |
| Cost | Land value plus the cost to build the improvements new, minus depreciation | New construction and unusual properties with few comps |
| Income | The income the property produces, converted into a value | Rental and commercial properties |
As-Is vs. After-Repair (ARV) Comps
Investors buying a property to renovate usually need two values, and each relies on a different set of comps:
- As-is value: What the property is worth today, based on sales of similar properties in similar condition, which often means dated or distressed homes.
- After-repair value (ARV): What the property will be worth after the planned work, based on sales of similar properties already renovated to a comparable standard. See after-repair value.
Renovated comps matter for fix and flip deals because an ARV is only as strong as the sales behind it. If the best renovated sales nearby top out at a certain price, a more expensive finish is unlikely to push the appraised ARV much higher. The appraiser values the property subject to completion of the planned repairs, so give your lender a detailed scope of work and budget that shows the finish level you’re building. For more on the two values, read AIV and ARV in real estate lending.
Common Problems with Comps
- Few recent sales: In slow or small markets, appraisers may have to use older sales or look farther away, which adds adjustments and uncertainty.
- Rural areas: Sales are spread out and lots vary widely, so comps are farther away and less similar. Some lenders use RUCA codes to classify rural locations.
- Unique properties: Unusual designs, very large lots or mixed uses have few true comparables.
- Distressed sales: Foreclosures, short sales and other distressed sales often close below market value, so appraisers generally avoid them unless they make up a large share of local sales.
- Condition mismatches: Using renovated sales for an as-is value, or dated sales for an ARV, produces misleading numbers.
- Fast-moving markets: When prices shift quickly, even recent sales can lag the market.
- Judgment calls: Adjustments involve appraiser discretion, so two appraisers can reach different values for the same property.
How Comps Affect Your Investment Loan
Lenders size investment loans from appraised values, through measures such as loan-to-value and loan-to-ARV, so the comps in the appraisal directly affect how much you can borrow. When comps come in weak, the loan can shrink and the cash you need to close can grow.
For example, suppose a lender caps a rehab loan at 70% of ARV, a hypothetical figure used only for illustration. An ARV of $300,000 supports a loan of up to $210,000. If the renovated comps support only $280,000, the cap falls to $196,000, and a deal that needed the full $210,000 now requires $14,000 more cash from the investor.
- Pull your own comps: Before you make an offer, check closed sales, not list prices, for both as-is and renovated properties.
- Verify the data: Confirm sale prices, dates and property details rather than relying on a single website.
- Document the plan: A detailed scope of work helps the appraisal reflect the finished product.
- Build in a cushion: Leave room in your numbers for an appraisal that comes in below your estimate. The fix and flip ROI calculator makes it easy to test a lower ARV.
Comparables and LYNK Mortgage
LYNK Mortgage is a direct private lender to real estate investors, and a third-party appraisal is required before closing. On fix and flip loans, leverage is based on loan-to-cost and after-repair value, so well-supported renovated comps work in your favor; see the fix and flip loans page for current numbers.
Start with an instant online term sheet that takes only a soft credit pull. A dedicated loan officer handles every deal, and fix and flip, bridge and construction loans typically close in 7–15 days.