Property comparables, called “property comps” for short, play a significant role in the home appraisal process. Whether you are a seller, a buyer, a real estate agent, or a loan officer, using accurate property comps is essential for determining a listing price, financing for a mortgage loan, and assessing how much equity is in the home.
Read on to learn what property comps are, how appraisers choose their property comps, and why using accurate comparable sales benefits all the parties involved in the real estate deal.
What Are Property Comps?
Property comps are a set of homes with similar characteristics to the one being sold, including location, square footage, condition, age, style, bedroom and bathroom count, number of floors, and amenities and improvements, which make the purchase price of these homes ideal for price comparison.
For instance, if you are buying or selling a three-bedroom, two-bathroom, two-story house, an appraiser would pick property comps based on the sold property prices of other three-bed, two-bath, two-story houses, ideally within a one-mile radius and sold within the past few months.
Using Pre-Appraisal Tools for Accurate Property Comps
At Kairos Appraisal Services, our pre-appraisal tools provide a home value reality check before the appraisal takes place. Kairos’ pre-appraisal tools, available on our Pocket Appraisal website, give homebuyers and homeowners a realistic value forecast of the property they’re looking to purchase, sell, or refinance with the actual comps that licensed appraisers will review.
Before the official appraisal is ordered, you can submit important information that you’d like the appraiser to have at their disposal, including home improvement costs, new construction plans, photos, and more, all through the Pocket Appraisal site. This information on the property helps expedite the appraisal and ensures that the appraiser will have everything they need to produce the most accurate appraisal report possible.
Kairos Pocket Comps Tool
The Pocket Comps Tool, one of the interactive tools offered on the Pocket Appraisal site, helps you find a realistic property value in less than five minutes. This tool provides a list of local comparable properties and includes property data and photos, allowing for side by side comparisons. You can then select the most similar comps to your property, and the Pocket Comps Tool will instantly adjust the home’s expected value—we’ve made it that easy!
This tool can provide a realistic home value based on actual property comps that a licensed appraiser would choose from. Unlike other sites that offer approximate home values (and often inflated home values), like Zillow, Pocket Comps does not use an algorithm or automated value model, so you can trust that the home value you are given is more precise. This is why we suggest using Pocket Comps for your home or with your borrowers: No algorithm understands the local neighborhood as well as the homeowner does.
How Appraisers Pick Property Comps
Appraisers use a very methodical approach to picking comparable properties. Fannie Mae, Freddie Mac, and the FHA have specific guidelines on what constitutes an appropriate comp for a home appraisal.
For each report, the appraiser selects at least three closed home sales to use as comps. Appraisers may also include active or pending listings to show the climate of the current market, which potentially impacts property values.
Appraisers will try to match the subject property with other properties that are as much alike as possible. Ideally, they’re other homes that the buyer might have considered if the subject property were not available for sale.
These are the specific factors that go into how appraisers pick property comps:
- Location: A home’s location is always the number one most important factor in real estate. A location is permanent, and no renovations or upgrades can change where the house is situated.
- Age: Construction materials, home design, and appliances change with time. A home built in the 1950s that has not been updated would be worth less than a similar one built in the 2000s.
- Style and lot size: You can’t compare a one-story home with a tri-level home, and a classic Tudor-style house should be compared with another Tudor rather than with an ultra-modern style. Lot sizes should also be similar in acreage and layout.
- Updates and features: When assessing homes with unusual features and updates—for instance, pools, ADUs, waterfront, or horse stables—it can throw off a property’s value. So when it comes to comps, appraisers must consider these characteristics.
- Number of bedrooms and bathrooms: How many above-ground bedrooms and bathrooms a home has must be the same, especially as this is one of the main things buyers search for. And we say above-ground because basement bedrooms and bathrooms have a lesser value.
- Zoning and neighborhood features: Comps should have similar zoning and features, because what’s around the property plays a big part in determining its value. A house next to a busy road would be valued differently than one next to a quiet lake.
After appraisers select property comps and compare them with the subject property, they’ll make adjustments based on differences in upgrades, square footage, features, the sold home date, and more. Then they’ll calculate the subject property’s adjusted value. That is how comps are used to determine a home’s actual value.
How Accurate Comps Benefit All in Real Estate
Using accurate property comps helps to paint the most precise picture of what a home is worth. This benefits the mortgage lender, ensuring that they’re not issuing a loan for more than the home’s value, and also benefits all the other parties involved in the real estate transaction.
Starting with the home seller, it allows them to list their home at the right price point from the start. This saves the seller time and money, because if their price is too high, they will have a hard time attracting buyers. If the home is priced too low, on the other hand, they could be leaving money on the table.
For homebuyers, having accurate comps upfront helps ensure that they are not overpaying to buy a home. Also, if they are financing their home purchase and the property is appraised for less than the sales price, that can be a problem. If the seller isn’t willing to negotiate, they may have to put more money down, or it can cause the mortgage loan to fall through altogether.
Real estate agents benefit from having accurate property comps because it allows them to advise their seller clients on the ideal listing price. For their buyer clients, agents can be sure that they are submitting reasonable offers on their behalf.
Loan officers also have much to gain from using Kairos’ Pocket Comps tool. Let’s say they have a borrower who thinks the house they’re buying is worth a certain amount because that’s what they found on Zillow. By having appropriate comps and a realistic home value at their fingertips, they can manage their client’s expectations early on and avoid potential issues with financing before the home even gets appraised. And this tool is a great resource for their refinance customers, too!
Finding comps can give you an estimated home value, and the more accurate those comps are, the more realistic its assessed value will be. Having an estimated value in your hands before the appraisal is conducted can set expectations early on in the process and get buyers, sellers, agents, and loan officers all on the same page. But remember, only a qualified real estate appraiser can determine a property’s actual value, and only after an official appraisal is completed.
Questions?
At Kairos Appraisal, our 4.9-star average customer rating is attributed to our customer service, our technology, and our talented team of appraisers. For more information about the appraisal process, click here to read additional articles.
