Comparable Analysis (Find True Value)
Master the art of comps and never overpay for property again
The $50,000 Comparable Analysis:
Two investors look at the same $400k house. Investor A sees the listing price and thinks it’s fair market value. Investor B runs a proper comparable analysis, discovers similar homes sold for $350k-$365k, and realizes the house is overpriced by $35k-$50k. Investor A pays asking price. Investor B offers $360k based on comps, gets accepted, and instantly gains $40k in equity. The difference? 30 minutes of proper comparable analysis using the same process that professional appraisers use daily.
1. Understanding Comparables: The Foundation of Value
Comparable sales (comps) are the backbone of real estate valuation. But not all sales are created equal. Professional appraisers follow strict criteria to ensure comparables actually reflect market value:
📊 What Makes a Valid Comparable Sale
A comparable sale is a recently sold property that is similar to your subject property in key characteristics. For a sale to be a valid comp, it must meet specific criteria:
🏠 Property Type Match
Requirement: Same property type and style
Example: Single-family detached vs detached, condo vs condo
Why critical: Different property types have different value drivers
✅ Good comp: 3BR ranch vs 3BR ranch
❌ Poor comp: Single-family vs townhouse
📅 Time of Sale
Requirement: Sold within last 6 months (3 months preferred)
Why critical: Markets change quickly, old sales don’t reflect current value
Market adjustment: 0.5-1% per month for appreciation/depreciation
✅ Excellent: Sold last month
⚠️ Acceptable: Sold 4 months ago (adjust for market changes)
❌ Poor: Sold over 6 months ago
📍 Location Proximity
Requirement: Within 1 mile radius (0.5 miles preferred)
Same subdivision: Best comparables
Different areas: May require location adjustments
✅ Best: Same subdivision/street
✅ Good: Within 0.5 miles, similar neighborhood
⚠️ Acceptable: 0.5-1 mile, similar quality area
❌ Poor: Over 1 mile or different market area
📐 Size Similarity
Square footage: Within 20% of subject property
Lot size: Relatively similar (major differences need adjustment)
Bedroom/bathroom count: Similar configuration
Subject: 2,000 sq ft house
✅ Good comp: 1,600-2,400 sq ft (±20%)
⚠️ Needs adjustment: 1,500 sq ft or 2,500+ sq ft
🏗️ Construction Quality
Age: Built within 10-15 years of each other
Quality: Similar construction grade and finishes
Condition: Similar overall condition and updates
Subject: 1995 builder-grade home
✅ Good comp: 1990-2005 similar quality
⚠️ Needs adjustment: 1980 fixer-upper or 2020 luxury
💰 Arms-Length Transaction
Normal sale: Motivated buyer and seller, market exposure
Avoid: Family sales, foreclosures, estate sales
Full marketing: Listed on MLS for reasonable time
✅ Valid: 45 days on market, normal negotiation
❌ Invalid: Family sale below market, foreclosure auction
🥇 The Comparable Quality Hierarchy
Not all valid comps are equally valuable. Professional appraisers rank comparables by reliability:
Tier 1: Gold Standard Comps
- Same subdivision, sold within 30 days
- Nearly identical size and style
- Similar condition and updates
- Normal market sale with full exposure
Reliability: 95-100%
Adjustment needed: Minimal
Tier 2: Strong Comps
- Within 0.5 miles, sold within 90 days
- Size within 10% of subject property
- Same general quality and age range
- Minor differences in features/condition
Reliability: 85-95%
Adjustment needed: Minor to moderate
Tier 3: Acceptable Comps
- Within 1 mile, sold within 6 months
- Size within 20% of subject property
- Similar neighborhood quality
- Notable differences requiring adjustments
Reliability: 70-85%
Adjustment needed: Moderate to significant
Tier 4: Supporting Data Only
- Beyond 1 mile or over 6 months old
- Significant size/style differences
- Different market conditions
- Use only to support trends, not value conclusions
Reliability: Below 70%
Use: Market trend confirmation only
2. The Professional 6-Step Comparable Selection Process
This is the exact process that licensed appraisers use to select and analyze comparable sales. Master this system and you’ll value properties like a professional:
🔍 Step-by-Step Professional Process
Market Area Definition
Define the boundaries of your subject property’s market area based on:
- Geographic boundaries (roads, rivers, city limits)
- School district boundaries
- Neighborhood characteristics and price ranges
- Driving time and access patterns
💡 Real Example:
Subject: 3BR home in Maple Grove subdivision
Market area: Maple Grove + adjacent subdivisions within same school district, similar price range ($300k-450k), within 1 mile radius
Tools: MLS map search, school district maps, neighborhood boundaries
Initial Comparable Search
Cast a wide net to find all potential comparables within your defined market area:
- Search sold properties in last 6 months
- Filter by property type and general size range
- Include properties 20% larger/smaller than subject
- Gather 15-25 potential comparables
💡 Search Parameters:
Subject: 2,000 sq ft, 3BR/2BA ranch, built 1995
Search criteria: 1,600-2,400 sq ft, 2-4 BR, ranch style, built 1985-2005, sold last 6 months
Initial results: 23 potential comparables found
Tools: MLS search, Zillow sold history, county records
Comparable Verification & Screening
Verify each sale and eliminate invalid comparables:
- Confirm sale details and actual closing price
- Verify arms-length transaction (no family sales)
- Check for unusual circumstances (foreclosure, estate)
- Eliminate sales outside quality criteria
🚫 Eliminate These Sales:
Family/Related Party Sales
Below-market sales between relatives
Distressed Sales
Foreclosures, short sales, estate liquidations
Quick Flips
Bought and resold within 6 months
Unusual Financing
Seller financing with below-market terms
💡 After Screening:
Started with: 23 potential comparables
Eliminated: 8 sales (3 foreclosures, 2 family sales, 3 outside criteria)
Remaining: 15 valid comparables for analysis
Detailed Comparable Analysis
Analyze each remaining comparable for key differences that affect value:
- Square footage and room count differences
- Lot size, location, and view differences
- Condition, age, and update differences
- Feature differences (garage, pool, basement)
📋 Analysis Framework:
Physical Characteristics
- Square footage (+/- per sq ft)
- Bedroom/bathroom count
- Garage spaces
- Basement/attic space
- Lot size and landscaping
Quality & Condition
- Construction quality level
- Overall condition rating
- Kitchen/bathroom updates
- Flooring and finishes
- HVAC and mechanical systems
Location Factors
- Street location (busy vs quiet)
- View and privacy
- Proximity to amenities
- School district quality
- Neighborhood prestige
Value Adjustments
Calculate specific dollar adjustments for differences between each comparable and your subject property:
- Research market data for adjustment amounts
- Apply adjustments systematically to each comp
- Calculate adjusted price per square foot
- Verify adjustments make logical sense
💰 Common Adjustment Amounts:
Square Footage
Typical: $75-150 per sq ft
Luxury: $150-300 per sq ft
Example: +200 sq ft = +$20,000
Bathroom Addition
Half bath: $8,000-15,000
Full bath: $15,000-30,000
Master suite: $20,000-40,000
Garage Spaces
Per space: $8,000-15,000
Attached vs detached: $5,000-8,000
Size matters: 2-car vs 3-car
Kitchen Updates
Minor update: $10,000-20,000
Major remodel: $20,000-40,000
High-end luxury: $40,000-80,000
Condition Differences
Excellent vs good: 5-10%
Good vs average: 5-8%
Average vs poor: 10-20%
Location Premiums
Cul-de-sac: $5,000-15,000
Waterfront: $25,000-100,000+
Busy street: -$10,000 to -$25,000
Value Conclusion
Analyze adjusted comparables to determine the most probable market value:
- Review adjusted sale prices for tight clustering
- Weight the best comparables most heavily
- Consider market trends and current conditions
- Arrive at a defensible value conclusion
📊 Value Conclusion Example:
Top 3 Adjusted Comparables:
Comp A: $347,500 (Tier 1 – same subdivision)
Comp B: $351,200 (Tier 1 – same subdivision)
Comp C: $344,800 (Tier 2 – 0.3 miles away)
Value Conclusion: $349,000
Reasoning: Tight clustering around $348k, with strongest weight given to Comps A & B from same subdivision. Subject property is in excellent condition, supporting upper end of range.
3. The Science of Value Adjustments
Adjustments separate amateur from professional analysis. Getting these right is what makes your comps defensible to lenders, appraisers, and skeptical sellers:
🔬 How to Calculate Accurate Adjustments
Method 1: Paired Sales Analysis
Most accurate method: Find two very similar sold properties that differ primarily in one feature
📈 Paired Sales Example:
Property A
2,000 sq ft, 3BR/2BA, 2-car garage
Sold: $340,000
Property B
2,000 sq ft, 3BR/2BA, 3-car garage
Sold: $355,000
Difference: $15,000 for extra garage space
Adjustment: +$15,000 for 3rd garage space
Confidence: High (direct market evidence)
Method 2: Cost Approach
For additions/improvements: Calculate cost to add feature, then apply depreciation
💰 Cost Method Example:
Feature: Full bathroom addition
Construction cost: $25,000
Market value add: 70% of cost = $17,500
Why less than cost: Over-improvement for neighborhood
Method 3: Market Survey
For common features: Survey multiple sales to identify patterns
📊 Market Survey Example:
Feature studied: Updated kitchen vs original
Sample size: 12 similar sales
Average premium: $22,000 for updated kitchen
Range: $15,000-$30,000 depending on quality
⚖️ Professional Adjustment Rules
🎯 The 25% Rule
Total adjustments should not exceed 25% of comparable sale price
Why: Heavy adjustments indicate poor comparable selection
Example: $300k sale should have under $75k in total adjustments
🔄 Bracket Rule
Final adjusted values should bracket your expected value range
Why: Proves your conclusion is supported by market data
Example: If expecting $350k, adjusted comps should range $340k-$360k
📏 Size Rule
Never adjust for size differences over 25%
Why: Large size differences indicate different market segments
Example: Don’t use 1,500 sq ft comp for 2,500 sq ft subject
✅ Logic Test
All adjustments must pass the logical investor test
Question: “Would a buyer actually pay this much more for this feature?”
Example: $50k adjustment for swimming pool in cold climate = illogical
4. Professional CMA Calculator
Use this tool to perform a complete Comparative Market Analysis like professional appraisers:
🏠 Complete CMA Analysis Tool
Subject Property Details:
Comparable Sales (Enter 3-6 comparables):
Comparable 1:
Comparable 2:
Comparable 3:
Market Adjustment Parameters:
5. Reading Between the Lines: Why Sales Prices Lie
Not every sale reflects true market value. Professional appraisers know how to spot and avoid misleading comparables:
🚩 Red Flag Sales to Avoid
💰 Motivated Seller Sales
What it is: Seller had unusual motivation to sell quickly at below-market price
Common Scenarios:
- Job relocation: Must sell within 30 days, accepts low offer
- Divorce settlements: Need quick sale to split assets
- Financial distress: Behind on payments, must sell fast
- Estate sales: Heirs want quick liquidation
- Investor flips: Quick turnaround, minimal profit acceptable
How to Identify:
- Very short time on market (under 14 days)
- Sale price well below list price
- Multiple price reductions in short period
- Listing notes: “motivated seller,” “quick close needed”
🏦 Distressed Property Sales
What it is: Property sold under financial distress, not reflecting normal market conditions
Types of Distressed Sales:
- Foreclosure auctions: Bank selling to recover loan balance
- Short sales: Bank accepting less than owed amount
- REO sales: Bank-owned properties, often discounted
- Tax lien sales: Government selling for unpaid taxes
- Probate sales: Court-ordered sales, often below market
How to Identify:
- Seller listed as bank or government entity
- Property sold “as-is” with no warranties
- Cash-only sales with quick close requirements
- Listing agent notes mention foreclosure/short sale
👨👩👧👦 Non-Arms Length Sales
What it is: Sales between related parties that don’t reflect true market negotiation
Non-Arms Length Scenarios:
- Family sales: Parent selling to child at favorable price
- Corporate transfers: Company selling to employee at discount
- Investor to investor: Portfolio sales at bulk discount
- Developer sales: Builder selling to investors at pre-market rates
- Gift transactions: Nominal consideration ($1 sales)
How to Identify:
- Same last name for buyer and seller
- Corporate entity to individual transfers
- Extremely low sale prices ($1, $10, etc.)
- No marketing period or MLS listing
🔄 Quick Flip Sales
What it is: Property bought and resold within short timeframe, often with artificial value inflation
Quick Flip Red Flags:
- 90-day flips: Bought and resold within 3 months
- Minimal improvements: Cosmetic work claiming major value add
- Inflated improvements: $10k work claiming $50k value increase
- Market manipulation: Seller and buyer working together
How to Identify:
- Previous sale within 6 months of current sale
- Large price increase without substantial improvements
- Property photos showing minimal actual renovation
- Flipper/investor seller with quick turnaround history
✅ What Makes a Gold Standard Comparable
🏠 Property Characteristics
- Same property type and architectural style
- Size within 10% of subject property
- Similar age, condition, and quality level
- Comparable lot size and location features
- Similar update level and features
📅 Sale Timing
- Sold within last 3 months (6 months maximum)
- Market conditions similar to current
- No major market events between sale and analysis
- Seasonal considerations accounted for
📍 Location Quality
- Same subdivision or within 0.5 miles
- Similar neighborhood characteristics
- Same school district and quality level
- Comparable access to amenities
- Similar traffic patterns and noise levels
💼 Transaction Quality
- Arms-length transaction between unrelated parties
- Normal marketing period (30-90 days on market)
- Conventional financing (no seller financing)
- No unusual circumstances or motivations
- Full market exposure through MLS
6. Case Study: The $75,000 Comparable Analysis Save
How proper comparable analysis saved an investor from a massive overpayment:
🏠 The Property: 1425 Oak Street
Listed Property Details:
- List Price: $485,000
- Size: 2,200 sq ft, 4BR/3BA
- Built: 1998, excellent condition
- Features: 3-car garage, updated kitchen
- Lot: 0.3 acres, cul-de-sac location
Seller’s Value Claims:
- “Recently appraised for $480k”
- “Comparable homes selling for $450k-$500k”
- “Extensive updates worth $60k”
- “Prime location commands premium”
🔍 The Professional Analysis Process
Step 1: Initial Comparable Search
Search criteria: 1,800-2,600 sq ft, same subdivision + 1 mile radius, sold last 6 months
Initial results: 18 potential comparables found
Seller’s “comps”: 3 properties over $450k, but poor comparables
Step 2: Comparable Verification
❌ Seller’s Poor Comparables:
1247 Elm St – $465k: 2,800 sq ft (27% larger), waterfront premium, luxury finishes
892 Pine Ave – $475k: Different subdivision, new construction, 4,000 sq ft lot vs 13,000
1156 Maple Dr – $455k: Sold 8 months ago, 5BR/4BA, finished basement
✅ Valid Comparables Found:
1389 Oak St – $398k: 2,100 sq ft, same street, similar condition, 2-car garage
1502 Birch Ln – $415k: 2,250 sq ft, same subdivision, excellent condition, updated
1633 Cedar Way – $385k: 2,050 sq ft, 0.2 miles away, good condition, 2-car garage
Step 3: Value Adjustments
Comp 1: 1389 Oak St ($398k)
Sale price: $398,000
Size adjustment: +100 sq ft × $110 = +$11,000
Garage adjustment: +1 space = +$12,000
Adjusted value: $421,000
Comp 2: 1502 Birch Ln ($415k)
Sale price: $415,000
Size adjustment: -50 sq ft × $110 = -$5,500
Garage adjustment: +1 space = +$12,000
Adjusted value: $421,500
Comp 3: 1633 Cedar Way ($385k)
Sale price: $385,000
Size adjustment: +150 sq ft × $110 = +$16,500
Garage adjustment: +1 space = +$12,000
Condition adjustment: +0.5 level = +$7,500
Adjusted value: $421,000
Step 4: Value Conclusion
📊 Adjusted Comparable Range:
Comp 1 adjusted: $421,000
Comp 2 adjusted: $421,500
Comp 3 adjusted: $421,000
Tight clustering around: $421,000
🎯 Market Value Conclusion:
Indicated market value: $420,000
List price: $485,000
Overpricing: $65,000 (15.5%)
💰 The Financial Impact
❌ Without Proper Analysis:
Investor trusts seller’s claims
Pays asking price: $485,000
Immediate equity position: -$65,000
Years to break even: 5-7 years
✅ With Professional Analysis:
Offers based on comps: $420,000
Negotiated final price: $425,000
Immediate equity gain: $35,000
Total savings vs list price: $60,000
🎓 Key Lessons:
- Seller’s comps were garbage: Wrong size, wrong location, wrong timing
- List price was fantasy: 15.5% above market value
- Professional analysis worked: Tight comp clustering proved value
- Negotiation power: Data-backed offer couldn’t be refuted
- Time investment: 3 hours of analysis saved $60,000
⚡ Your Comparable Analysis Challenge
Master the CMA Process (25 minutes):
Use the calculator above and practice with this real scenario:
🏠 Practice Property: 789 Maple Avenue
List Price: $375,000
Property: 1,850 sq ft, 3BR/2BA, built 1994
Features: 2-car garage, average condition, 0.25 acre lot
Location: Established neighborhood, good schools
Available Comparable Sales:
Comp A: $355k, 1,750 sq ft, 3BR/2BA, excellent condition, 2-car garage, sold 2 months ago
Comp B: $385k, 2,000 sq ft, 3BR/2.5BA, good condition, 3-car garage, sold 1 month ago
Comp C: $340k, 1,800 sq ft, 3BR/2BA, average condition, 1-car garage, sold 3 months ago
Complete Your Analysis:
COMPARABLE ANALYSIS WORKSHEET:
- SUBJECT PROPERTY: 789 Maple Avenue
- List Price: $375,000
- Size: 1,850 sq ft, 3BR/2BA, 2-car garage
- Condition: Average
- Built: 1994
- COMPARABLE SELECTION:
- Which comps will you use and why?
- Comp A: Use/Don’t Use – Reasoning: ________________
- Comp B: Use/Don’t Use – Reasoning: ________________
- Comp C: Use/Don’t Use – Reasoning: ________________
- ADJUSTMENT CALCULATIONS:
- Comp A Analysis:
- Sale Price: $355,000
- Size adjustment: _____ sq ft difference × $___/sq ft = $_____
- Condition adjustment: _____ levels × $_____ = $_____
- Garage adjustment: _____ spaces × $_____ = $_____
- Other adjustments: _____________________
- ADJUSTED VALUE: $_____
- Comp B Analysis:
- Sale Price: $385,000
- Size adjustment: _____ sq ft difference × $___/sq ft = $_____
- Bathroom adjustment: _____ half baths × $_____ = $_____
- Condition adjustment: _____ levels × $_____ = $_____
- Garage adjustment: _____ spaces × $_____ = $_____
- Other adjustments: _____________________
- ADJUSTED VALUE: $_____
- Comp C Analysis:
- Sale Price: $340,000
- Size adjustment: _____ sq ft difference × $___/sq ft = $_____
- Garage adjustment: _____ spaces × $_____ = $_____
- Time adjustment: _____ months × $_____ = $_____
- Other adjustments: _____________________
- ADJUSTED VALUE: $_____
- VALUE CONCLUSION:
- Adjusted comparable range: $_____ to $_____
- Most reliable comp: _____ (reasoning: _____________)
- Market value estimate: $_____
- List price analysis: $375,000 list vs $_____ market value
- Price recommendation: $_____
- NEGOTIATION STRATEGY:
- Opening offer: $_____
- Justification: ________________________________
- Maximum offer: $_____
- Walk-away point: $_____
- MARKET CONDITIONS:
- Current market trend: ________________________
- Days on market average: _____ days
- Seller motivation indicators: _________________
- Recommended approach: _______________________
- CONFIDENCE LEVEL:
- Analysis confidence: ___/10
- Reasoning: ____________________________________
- Additional data needed: _______________________
- KEY INSIGHTS LEARNED:
- 1. ________________________________________
- 2. ________________________________________
- 3. ________________________________________
- 4. ________________________________________
🎯 Comparable Analysis Mastery
Valid comparables must be similar in size, location, condition, and sale timing
The 6-step appraisal process ensures professional-quality analysis
Avoid distressed sales, quick flips, and non-arms length transactions
Accurate adjustments require market data, not guesswork
Tight clustering of adjusted values proves your analysis is correct
Professional comparable analysis can save tens of thousands on every purchase
✅ Comparable Analysis Mastery Quiz
Question 1:
What is the maximum age for a comparable sale to be considered current and reliable?
Question 2:
According to the 25% rule, total adjustments to a comparable should not exceed what percentage of the sale price?
Question 3:
Which type of sale should be avoided when selecting comparables?
Question 4:
What is the most reliable method for calculating value adjustments?
Question 5:
In the 6-step appraisal process, what should you do if adjusted comparable values don’t cluster tightly?
Question 6:
What distance should comparables ideally be from the subject property?
🎯 Ready to Complete Lesson 14?
Take the quiz to finish this lesson and earn progress toward your Real Estate Certification.
Students achieving 90%+ across all lessons qualify for potential benefits with lending partners and employers.
