How to pull comps like an appraiser

The right comps make all the difference. How do appraisers pull comps? I scraped the surface of this topic a few days ago in a class I taught, and I wanted to unpack it a bit further today. There is sometimes a striking difference between how appraisers and agents approach this topic, so being on the same page a bit more will probably be an advantage. I hope this helps. I’d love to hear your thoughts below.

choosing comps like an appraiser - by sacramento appraisal blog

These following steps sound very detailed, but applying them is really a matter of making quick decisions during an MLS search.

7 steps when pulling comps in a neighborhood

  1. Start with Tight Boundaries: Pull sales and listings from the very immediate neighborhood first. It’s better to start out smaller rather than begin with a wide area such as a one-mile radius or an entire MLS area. I recommend using the Polygon tool in Sacramento MLS so you can actually draw exact neighborhood boundaries to be sure you are only getting data from those boundaries. After all, if you search by radius, you’ll inevitably pull in data that doesn’t really reflect the immediate neighborhood. Practically speaking, if you don’t know where to draw boundaries, just start searching as close as possible to the subject street, try not to cross major streets or school district lines, and keep an eye out for big age pulling comps 2 - image bought and used with permission by sacramento appraisal blogdifferences in the neighborhood since values might change for newer homes. Sometimes an aerial view on Google Maps can be helpful because you can see a clear difference where one tract starts and another begins because the roof colors are different.
  2. View all Recent Sales & Listings: Look at all sales over the past 3-6 months as well as current listings. This will help give you a quick understanding of the neighborhood price spectrum and which types of houses have sold at the top and bottom of the market. If there are few recent sales, be sure to go back one year or so for reference just so you are sure about what the market has done over time. For instance, if there are only fives sales over the past 90 days, it’s easy to miss the market if you only look at these sales. What if the these five properties sold too low? Or what if the most recent sales were lower in light of the cyclical real estate market (softer sales in the Fall). Remember that current listings might tell us if the market is different from previous sales. If the listings are higher, maybe the market increased. If the listings are lower, maybe the market has softened. Or if the listings are the same, but they aren’t selling, the market has probably softened. You can also look at expired listings also to get a sense of the temperature of the market.
  3. Use an “Apples to Apples” Approach to Search for Similar Homes: Now it’s time to dig into similar-sized homes. I recommend searching by square footage since that is what tends to guide most buyers. You can add and remove about 10% on each side of the square footage. This means if your house is 1800 sq ft, a good range is probably 1600-2000 sq ft. Of course sometimes data is sparse, so you simply need to work with what you have. But comparing something that is significantly different in size really isn’t a good methodology. In cases like that it’s probably better to use an older similar-sized sale rather than a newer and much different property. The key is to use an “apples to apples” approach, meaning you are trying to find the most similar properties to the subject property. If the subject property was not available, what properties would a buyer realistically consider purchasing? (that’s what a good comp is). If your house has three bathrooms, try to pull some sales with three bathrooms and a similar square footage. If you have a pool or converted garage, find other homes with the same feature. When the comps are very similar to your property, you don’t have to guess at how the market responds to upgrades or certain amenities because the proof is already there in the sales. Of course sometimes there aren’t any recent truly similar sales, so it’s important to go back in time to find something similar, or even search a different size of property in the neighborhood to understand how the market has responded to a certain feature. Once you find other sales of any size in the neighborhood with a pool, converted garage, or whatever you are looking for, you can then compare these sales to other similar-sized sales at the time. How much more or less did the house with the pool or converted garage sell for? This can help you glean some context for how much a particular feature might be worth.
  4. Search Older Similar Sales: Be sure to look back over the past year or so in the neighborhood so you can see what similar-sized sales have sold for. This will only take a minute in MLS, and it will help create a deeper context for you to understand the market. It can sometimes reinforce the strength of your list price or value to be sure your current price/value makes sense in light of historic trends in the neighborhood. If you are dealing with a custom home or unique location, you might need to consider sales over multiple years.
  5. tight and expanded search in tahoe park - sacramento appraisal blogSearch the Expanded Neighborhood: If you started with very tight boundaries in your initial search, you can expand it a bit more. I’m not saying to go outside of what buyers would consider the neighborhood market, but only to maybe include more area if you didn’t already. If a buyer would typically search throughout the entire larger neighborhood, then look for comps in this larger area now. The benefit of starting out small is that you are sure to research value very close to the subject property, which helps you not pull in data from further away that might not reflect the immediate neighborhood.
  6. Pull from Outside the Neighborhood (if needed): If sales are really sparse in the immediate neighborhood, you may need to find comps in competitive areas. Don’t do this step first though because it’s important to understand values in the immediate neighborhood first (even by using older sales, current listings, and expired listings). Of course the problem is it can be easy to “cherry pick” higher sales from other subdivisions. This can happen on purpose or by accident. A different tract might sell for more or less than the subject tract, so exercise caution to study whether the other tract really does have similar prices or not. Would a buyer shopping on the subject street also be shopping in the other tract? Better yet, would a buyer pay the same price in both areas?
  7. Avoid Using the Wrong Price per Sq Ft: There is always a price per sq ft range in a neighborhood, so it’s important to not simply choose one random price per sq ft figure and use it to come up with a value or list price. For instance, imagine a 2500 sq ft house that sold at $500,000, which would make the price per sq ft $200 (500,000 / 2500 = 200). At times it’s easy to see the metric of $200 and begin applying it to other homes right away. Yet what if the other homes aren’t similar in size, upgrades, appeal, condition, or location? The reality is if I was pulling comps for a 2000 sq ft home, I might find out that similar-sized sales really have a price per sq ft range of $210-225K instead of the $200 figure that was only good for the 2500 sq ft home. This is an easy mistake to make, and it underscores how important it is to be aware of price per sq ft ranges in a neighborhood. Rather than impose a price per sq ft on a property, search similar sales to discover what the price per sq ft range is for that size of property.

NOTE: Obviously some appraisers might not pull comps exactly like this. After all, there isn’t a standard set of steps appraisers must follow. Do what works best for you, and if something here resonates with you, that’s great.

Question: Any other tips, insight, or stories to share? I’d love to hear what you do, whether you are an appraiser or real estate agent.

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Comments

  1. says

    Great post as usual Ryan. Since you asked, the only thing I have to add is that anyone can pull or search for comparables all day long, but it takes a great deal of experience to recognize the best comparables when they see them. The best comparables are those that require the fewest adjustments and the least subjective adjustments. It might be better to select a comparable that needs a time or living area adjustment over a comparable with differences in location, quality, or condition. Also, the comparables selected need to build a strong case for the value of a property. Simply selecting three comparbles that are very close, but all superior to the subject does not make a strong case for the lower end of the value range. This is where bracketing comes into play and things can get complicated. Happy hunting!

    • says

      Thank you very much Gary. I welcome your tips and anyone else. Sometimes the comments in a blog post can contain really valuable (or better) information. I agree with you. The goal is to find comps that don’t require adjustments. If massive adjustments have to be made, are they really that similar? Thanks.

  2. Larie St. John says

    Thanks Ryan! Enjoyed the post, good info.

    I would add that I always do a street search, spelling/searching on specific street names in the subject immediate neighborhood, with no other criteria. In my area, Agents may not enter the correct map reference, or zip code, or… on their listing, which could cause a good comp to be left out in a search using map criteria.

    Thanks for your posts!

    • says

      Thanks so much Larie. I appreciate your tip. This underscores that each MLS system is going to be a little different, so that may influence the best way to search for a property too.

  3. says

    Great article Ryan. This is very similar to what we do in search for comparables. I will add that we have to really pay attention to School Districts in our area. In many markets here, there are school districts that have much higher values than others. There can be a situation where a house is one block away from the subject but if they are in a different school district that sale will not be the most suitable or similar comparable. I

  4. says

    Excellent writing once again! I really enjoy reading your blogs as they are packed with more reliable, relevant information that 100 other blogs I read…… Thank you Ryan.

  5. says

    I start most of my searches with a larger area and a years worth of data but that is because I first compile and analyze high, low and predominate values and get an overall trend for market direction before I get down to picking comps. Starting with a tight neighborhood boundary will almost always have too few sales and limit your perspective. Seems like you are taking a short cut. I do not think the average buyer approaches the market that way. As I see it most buyers approach the market by considering a wider range of neighborhoods before narrowing their focus. This is what I try to emulate. Starting with a very tight neighborhood implies that the buyer knows they want to live right there. I think this is a more limited assumption and defines a subset of potential buyers. That said, when it comes time to actually pick the comps I use the map feature of the MLS and try to bracket the subject gla, site, condition with the most proximate and recent sales. Having a larger initial neighborhood boundary does not unnecessarily limit the data pool and also does not preclude me from picking the most proximate comparables. It also allows the flexibility to look around for data to bracket any atypical amenity the subject might have. Anyway, that is just how I do it. Your milage may vary. Nicely written article Ryan, even if I don’t agree with some of the methodology. #Turners-Appraisals

    • says

      Thanks Mike. I really appreciate your constructive criticism. You worded that well, and it really makes sense too. I should clarify what I do is choose a stack of potential comps in the immediate area, expand my search, and then choose additional ones in the larger area (still the neighborhood). This works best for the way my mind works, and I like the focus on smaller first to be sure I am seeing what is nearby before what is further away. I am not a buyer, so I am not trying to emulate the way a buyer would search for properties. I simply do want to be sure I am not missing if there is something special value-wise about the subject street or surrounding streets. That’s why I give a first strong look at the immediate neighborhood, and then give a broader look to the larger neighborhood. Whatever the case, the end result can be the same for either of us so long as we are taking a good look at everything. It’s not a short cut by any means. It simply sounds like a different path to get to the same place. I would recommend to any onlookers to reverse the steps if needed if that is going to work best.

  6. says

    I agree with you Ryan, starting close is a better way to go. Trying to emulate a buyer is not a good idea. Buyers tend to not know what they are looking for until they find it. Ask any agent. Buyers don’t say, “I’m looking for a 1400 to 1800 sf ranch.” They say, “I’m looking for the best property that I can get for my approved loan amount and I’m looking in this area because of school or work.” The reason that we start close and expand out is because the human brain cannot analyze a large quantity of data well. If we have 60 results on our first search, it is hard to tell what the best comparables are. By starting close we can select the best comparables that are close and then fill any needed holes or necessary bracketing as we move outward. We might even narrow our search parameters as we move outward to look for say an upper limit or a lower limit. I think it is a mistake to start our search wide. I did it for years until I was shown better.

  7. says

    I start my search within a mile radius and for sales within the last 90 days. Being in a tight suburban market it usually is easy to find comps. Our sales contracts allow for a Realtor® to be able to disclose the contract prices and concessions to an appraiser before a property has closed to assist us if we have tight numbers.

  8. Katie Butler says

    Solid information. If my client is ready to make an offer, I also pull the pending sales and try to contact the listing agent to see if they are in contract above, below or at the list price. If a similar property were to close for significantly less while your client is in contract, it would appear as though you didn’t do thorough research. I like to have all my bases covered!

    • says

      Thanks Katie. Good for you to try to find out. It really can make a difference, though it’s not always possible to get that info. I find many agents will give out the number though if the deal is about to close (or if I know the agent well enough). At the least it’s helpful when an agent will hint around whether the number is above or below list price (and these days if there are any concessions padded into the contract price).

  9. Janet says

    I agree with Mike Turner, I look at the big picture and then scale back. Possibly because most of our subdivisions are not very big and there are seldom more then a couple comps in the subdivision, if there is one. I am surprised that nobody mentioned whether homes were 1 story or 2 story because that definitely makes a difference and also with or without a basement and also age.

    I basically search the whole county or city, depending where it is, using 10-15% larger and smaller, all ranches or 1.5/2 story homes, with or without basements, depending on the subject and within 10 yrs older or younger then the subject. I don’t feel you can compare a new home or one that was built in the last 5 years to one that is 20 plus years old. Our MLS will pin the map with other sales, so I also check closeby sales to see if there are anything comparable close.

    • says

      Thanks Janet. It sounds like you’re doing a great job. I appreciate your methodology too. I think I like to start the other way (small to large), but at the end of the day we are essentially both covering our bases by seeing the entire market and the competitive market. That’s the goal. I agree with you on the importance of single story vs two-story, and good point on age because there is usually a value difference between new vs older.

    • Janet says

      Hey Janet, I could have written what you said myself. Not only are our names the same, but sounds like we appraise the same way too! I totally agree, you have to look at 1 story vs 2 story, with or without a basement and the age. I start using everything and use that data for my 1004MC and then choose the best comps from there.

      • says

        Thanks Janet. There is always so much to consider. Just the other day I was asked to weigh how much attention I give things like condition, age, size, etc…. when pulling comps. I really couldn’t give a percentage for each like the person wanted me to because we simply have to consider all the big things like buyers do.

  10. says

    I love how beneficial you are to the real estate community nationwide with these posts. They are sure to help the real estate newcomer along with those veterans needing a reminder of how to get the job done right. Certain markets make pulling comps VERY difficult. Especially in rural areas like we all have on the outskirts of towns where unique homes make for unique pricing. Keep up the great blog posts Ryan.

    • says

      Thank you so much Mike. I really appreciate it. You are so right about pulling comps being difficult. If only it was as easy as some think it is…..

      On a side note, I know one thing that helps me is to be able to quickly graph sales so I can see the market visually. This has actually revolutionized my ability to see the market because it helps give me a visual context. If any onlookers are ever interested in graphing, I’m happy to mention a few resources for you.

        • says

          Thanks so much. Here are a few resources:

          1) My blog: I put together a blog post for how to do a quick scatter graph in Excel. This is valuable to know and I make graphs using Excel (or a free version called Gnumeric) almost every single day. http://sacramentoappraisalblog.com/2014/10/02/convincing-sellers-to-not-overprice-their-homes-by-making-graphs/

          2) Don’s 1004MC program: An appraiser developed an Excel program so appraisers can fill out a certain sheet in the appraisal called the 1004MC. While this sheet is totally irrelevant to agents, the program actually makes some very quick graphs that might be useful. I love the exporting very specific data from certain neighborhood boundaries so I can make quick graphs with this program. I can show all sales and even show a price per sq ft spectrum. There are some graphs that won’t be useful to you and you’ll have to skip over the data for appraisers too. I think there is a one-time cost of maybe $70 or so. I’ve been using this program for years and it’s a great tool to see the market visually. I think Don’s website might be down at the very moment, but here is a link: http://donsappraisals.com/

          3) Trendsheet: An appraiser in Arizona actually made a program called Trendsheet. This program can make specific graphs to show the market too. There are examples on his site for what type of graphs it can make. You can check out the type of graphs here and then scroll down his page to find Sacramento Metrolist for the program he designed for the Sacramento area. http://www.choicevaluation.com/trendsheet4overview/ (or directly here: http://www.choicevaluation.com/trendsheet4-canorthern). Right now this program is listed at $139 (one-time fee).

          NOTE: I do not get anything by mentioning these programs. I simply use both here and there in what I do. I like having quick graphs at my disposal whenever I want. I do make graphs on my own too in every report, but there is something to be said about quick and dirty ones to be able to see the market visually and explain it too.

          3) Trendsheet:

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