Definition
Comparables, often referred to as Comparable Sales, are properties that share similar characteristics with the subject property being sold or appraised. These may include aspects like location, property type, size, age, condition, and financing terms. Comparables are fundamental in evaluating the market value of a property using the Sales Comparison Approach, one of the three main appraisal methods.
Examples
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Residential Property: A subject property is a 2-bedroom, 1-bathroom condo unit located in downtown. Comparables might include other 2-bedroom, 1-bathroom units in the same or nearby buildings that were sold recently under similar market conditions.
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Commercial Property: A subject property is a 10,000 square foot retail space in a suburban shopping center. Comparables would be other retail spaces with a similar square footage, within a comparable shopping district, that have recently been sold or leased.
Frequently Asked Questions
What criteria are used to select comparables?
Comparables should ideally match the subject property’s type, size, location, condition, age, and financing terms. The goal is to find properties that would attract similar buyers in similar conditions.
How many comparables are typically used in an appraisal?
While the number can vary, typically appraisers use three to six comparables to conduct a thorough analysis and arrive at the most accurate value estimate.
How recent should the comparable sales be?
Comparable sales should be relatively recent, typically within the last six months to a year. The more current the sales data, the more relevant it is likely to be in reflecting current market conditions.
What adjustments need to be made when using comparables?
Adjustments are often made for any differences between the comparables and the subject property. For instance, if a comparable property has an extra bathroom or a larger lot size, adjustments are made to account for these variations.
- Sales Comparison Approach: A valuation method that compares the subject property to comparable properties that have recently sold in the same area.
- Appraisal: The process of developing an opinion of value for real property.
- Market Value: The most probable price that a property should fetch in a competitive and open market.
Online Resources
- Investopedia - Comparable Sales
- American Society of Appraisers (ASA)
- Appraisal Institute
- National Association of Realtors (NAR)
- Federal Housing Administration (FHA)
References
- The Appraisal of Real Estate, 15th Edition, Appraisal Institute
- Real Estate Principles: A Value Approach, 5th Edition by David C. Ling and Wayne R. Archer
- Property Valuation: The Five Methods by John McGreal
Suggested Books for Further Studies
- The Appraisal of Real Estate by the Appraisal Institute
- Real Estate Principles: A Value Approach by David C. Ling and Wayne R. Archer
- Property Valuation by John McGreal
- Real Estate Market Valuation and Analysis by Joshua Kahr and Michael C. Thomsett
- The Valuation of Real Estate by Franck Steven
Real Estate Basics: Comparables, Comparable Sales Fundamentals Quiz
### What are comparables used for in real estate?
- [x] To estimate the value of a subject property.
- [ ] To determine tax assessments.
- [ ] For mortgage interest calculation.
- [ ] None of the above.
> **Explanation:** Comparables are used to estimate the value of a subject property by comparing it with similar properties that have been recently sold.
### How many comparables are typically used to appraise a property?
- [ ] One
- [x] Three to six
- [ ] Seven to ten
- [ ] Over ten
> **Explanation:** Typically, appraisers use three to six comparables to ensure a thorough and accurate analysis when estimating the value of a property.
### Which of the following is not a criterion for selecting comparables?
- [ ] Location
- [ ] Property type
- [x] Previous owner
- [ ] Condition
> **Explanation:** The previous owner is not a typical criterion used for selecting comparables as it does not impact property value.
### Can adjustments be made for differences between the subject property and the comparables?
- [x] Yes, adjustments are made to account for differences.
- [ ] No, comparables must be exactly the same.
- [ ] Adjustments are optional.
- [ ] Only physical attributes can be adjusted.
> **Explanation:** Adjustments are made to account for any differences between the subject property and the comparables, ensuring an accurate valuation.
### What is the ideal timeframe for recent sales to be considered reliable comparables?
- [ ] 3 months
- [x] 6 months to a year
- [ ] 2 years
- [ ] 5 years
> **Explanation:** Comparables should be relatively recent, typically within the last six months to a year, to reflect current market conditions.
### What is another common term for 'comparables'?
- [ ] Listings
- [ ] Real estate agents
- [x] Comps
- [ ] Valuators
> **Explanation:** 'Comparables' are also commonly referred to as 'comps' in real estate terminology.
### For comparables, which property attribute requires adjustment if dissimilar?
- [x] Number of bathrooms
- [ ] Paint color
- [ ] The landscaping design
- [ ] Number of previous owners
> **Explanation:** Adjustments should be made if there are differences in the number of bathrooms, as it affects the property's value.
### Why is using recent sales data important for selecting comparables?
- [ ] It helps to ensure accuracy.
- [ ] It reflects current market conditions.
- [ ] It is required by appraisal standards.
- [x] All of the above
> **Explanation:** Using recent sales data ensures the accuracy of appraised value, reflecting current market conditions and complying with appraisal standards.
### Which valuation method is primarily based on using comparables?
- [x] Sales Comparison Approach
- [ ] Income Approach
- [ ] Cost Approach
- [ ] Replacement Approach
> **Explanation:** The Sales Comparison Approach primarily relies on using comparables to estimate the market value of a subject property.
### Where might one find a list of comparable properties?
- [x] Multiple Listing Service (MLS)
- [ ] Local newspaper
- [ ] Office bulletin board
- [ ] Personal recommendations
> **Explanation:** Comparable properties can be found on the Multiple Listing Service (MLS), a database that provides detailed information about recently sold properties.
