Archive for the ‘1004’ Category

5 Tips for Analyzing and Understanding Comparables

Monday, November 1st, 2010

Property values can be great fodder for everything from smiles to frowns and on rare occasion even lead to shouting matches. Understanding the procedure in estimating value is crucial to understanding how the components of value establishment work together. As in any science there is a protocol to aggregating, evaluating, calculating, and disseminating information which leads to the opinion of value and in real property appraisals the outcome is sensitive to say the least.

For the sake of this short article let us try and follow real estate appraisers who have thousands of hours as apprentices, hundreds of hours of classroom training and are under constant scrutiny by every party involved to a transaction in addition to governing boards and regulators. We will make use of available services like Zillow to help us easily find properties to which our property will be compared for sales value.

Appraisers supply their full report to the client’s lender on a form called the Uniform Residential Appraisal Report (URAR) which is Fannie Mae’s form 1004 for single family homes and a 1007 for condominiums. It is a standardized report which loan officers and underwriters are trained to read and comprehend because the valuation determined by the appraiser is crucial to the loan to value of the mortgage. This valuation is determined primarily by recently sold properties, similar in construction and size, called comparables. Industry insiders generally refer to these as “comps”.

Every URAR should have at least three comps and appraisers who take the time to return five or six comps are doing everyone a favor. As you may imagine it can be more difficult to find recently sold properties similar in construction and size in rural areas than it is in suburban areas with larger neighborhoods. In fact lenders and appraisers occasionally become at odds with one another over the lack of acceptable comps in rural markets.

Comparable Sales on Zillow


Finding comparables in suburban areas is relatively simple even for the novice. While appraisers have access to powerful database programs like RedLink the novice user can visit to find recently sold properties in the market area of the subject property. In the image to the right are three properties, close in distance and similar in construction and size to our subject property.

You may also simple perform a search engine search on the property address. Using your favorite search engine like Yahoo! simply search for the address of the subject property. This generally returns information which can be valuable in your investigation. One of the results generally returned in a Yahoo! search is a map of the location along with a list of local businesses, schools, houses of worship, government facilities, and other points of interest. Perhaps you will discover your property of choice is in the back yard of a federal prison.


One of the most important factors of using recent sales for comps is the sale date. Every lender wants to see sales within the last six months, will accept sales in the last 12 months and requires a good explanation for using sales older than 12 months to establish values. The image is from Zillow and is found simply by searching on a property address for any property.

Almost as important as the sales date is the distance from the subject property. To establish the most accurate value we cannot skip over recently sold properties to get to other properties with a sales price better supporting our goals. In any event lenders prefer sales within one mile of the subject property. Once again it stands to reason this is simpler to achieve in suburban areas than in rural areas where homes are often miles apart.

Note the number of bedrooms, bathrooms, square footage, year built, and other features mentioned in the comparable sales report. You may click on the Zillow link for each recently sold property to find even more information about the comparable to make sure it is the best comp for your purposes.


Now that you have your comparables you should do a little more investigation to make sure these are the most reliable comps to your subject property. Almost every county in the nation now has their county tax records online. While tax records are not reliable for transaction purposes they may provide information valuable to you in your investigation. Even if they are not online a quick visit to the county records department will help you find the tax assessor’s value and notes on the properties in question. Assistants are on hand to help you in your research.


Since you know the property address do yourself a huge service and do a visual inspection of the site. Generally in neighborhoods with a Home Owner’s Associations you will not find too many surprises about the condition of the construction but you may see properties which look identical on paper are completely unmatched where the site (lot) is concerned. If home A is on a clear lot with a gently rising slope and home B is in a valley where you only see the roof from the street that is going to make a difference in the sales worthiness and value of the property.

During your visual inspection journey you may also find other evidence which may help better support the value of your subject property. You may see a for sale sign in the yard of a similar property with a “sold” rider on it. This information could be highly valuable as it may only have been recorded in the last few days meaning it did not show up in your initial search. More recent sales means more accurate value. Take notes as you drive about everything from condition of the neighborhood to proximity to commercial and industrial zones.

Remember, your appraiser can only view the inside of the subject property to see what improvements have been done to the interior. Things like new imported marble hearths and cut stone counter-tops may be inside those other properties where the subject property has no hearths and laminated counter-tops.


Understanding the comparables selected by a professional appraiser is simple. Since they all use standardized procedures in valuation you can easily follow along with what they have done to establish the values of the comps. While there are multiple methods appraisers use to establish value we are generally going to see the Sales Comparison Approach. Other methods include the Cost Approach and the Income Approach which are beyond the scope of this article.

In the Sales Comparison Approach the appraiser looks for values just as we did in tip number one. In reality they have much more experience and a powerful set of tools used to help in their search but nevertheless are looking for the same things we did: recent sales of similar properties. The appraiser uses a part of the URAR referred to as “the grid” where she records her findings. In the grid will be somewhere between three and six properties listed by address and physical attributes. At the bottom of each column will be adjustments for improvements, age and other factors.

Properties in the grid on the report which require the least amount of adjustments are considered to be the “most similar”. These properties are given the most weight in value comparison in most cases. You may see properties with value adjustments over 10% the lender may ask for further explanation or an additional comp even if it means a slightly older sale or increased distance.


While these five tips will help greatly in understanding how comps are sourced and used this article only scratches the surface. Continue your education by reading some of the appraiser’s posts on Zillow and around the Internet. Valuation is a highly important subject which cannot be fully mastered in just a matter of moments yet this article should have supplied the reader with enough thought starters to continue their research and find the answers to their questions. Remember we did not cover important information such as the value of subterranean space to above ground space, how to determine what makes a room a bedroom or the value of property improvements like pools, detached garages and landscape construction.