Appraisers select comparable sales ("comps") based on proximity, recency, and physical similarity to the subject property, generally prioritizing location (within 1 mile), sale date (ideally < 6 months), and property characteristics (size within 20%, similar age/condition/style). These parameters, often verified through Fannie Mae guidelines, ensure the most accurate valuation by minimizing adjustments.
These comps are recently sold properties used to assist in determining the value of a similar property. Typically, an appraiser will select a minimum of three recently closed sales that closely resemble the subject property in terms of location and relevant characteristics.
Key factors in the sales comparison approach include location, recently sold listings, features, age, and condition. The method is effective when there are ample comparable properties available for analysis in stable market conditions.
How far out do appraisers go for comps? Ideally, appraisers will use comparable sales located within 1 mile of the subject property. However, you may have to go farther out geographically to find appropriate comp sales, especially if you work in a rural area.
According to the rule of three comparables, a real estate agent should compare your property to at least three similar properties to estimate its value. This is a general rule of thumb when selling a house.
The "3-3-3 rule" in real estate isn't a single guideline but refers to different strategies: for buyers, it's about financial readiness (3 months savings, 3 months reserves, 3 property comparisons) or a financial affordability check (30% income, 30% down, 3x income); for agents, it's a marketing habit (call 3, note 3, share 3) or prospecting (talking to everyone within 3 feet). There's also a developer rule (1/3 land, 1/3 build, 1/3 profit), though it's considered outdated by some.
Appraisers will get as reasonably close as possible to the subject when selecting comparables. Generally, in urban areas, comparables should sit within a mile of the subject.
Appraisals estimate the market value of a home. Often, the appraisal matches the purchase price and the deal goes forward without issue. But sometimes the appraisal comes in higher than the purchase price.
Market value is the most frequently sought value in real property appraisals and can have various definitions. Most often, it is defined as the most probable price a property should sell for under typical conditions.
How do home appraisers in California determine the value of a house? The short answer is, they compare each property to similar homes that have sold recently in the same area (subtracting or adding value as needed). Based on this evaluation, the appraiser will determine an estimate value for the home.
When choosing comparable sales, the appraiser should examine the market area of the subject property, assess its characteristics, and identify similar comparable sales. Market area is defined as the geographic region, for a subject property, from which most demand comes and in which most of the competition is located.
How Far Back Do Appraisers Look for Comps? Time adjustments draw scrutiny. Most agency assignments expect appraisers to use the most recent closed sales available, typically within the prior 12 months when possible.
The "3-day appraisal rule" refers to requirements under the Equal Credit Opportunity Act (ECOA) for mortgage lenders to provide borrowers with a free copy of the appraisal (and other valuations) at least three business days before loan closing, and to notify them of this right within three business days of application; borrowers can waive the pre-closing timing, but the lender must still provide it promptly. This ensures borrowers see the property's value before committing to the loan, though the lender must also provide it promptly upon completion, even if the loan doesn't close.
The "7% rule" in real estate typically refers to a quick screening tool where an investor checks if a rental property's gross annual rent is at least 7% of its purchase price, indicating a potentially solid income investment, though it's not a substitute for detailed analysis; however, other "7 rules" exist, like those focusing on agent performance (top 7% of agents do most business) or key investment principles (due diligence, diversification, market awareness, clear strategy) for long-term success.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Criteria for Choosing Comparables
Properties should also have similar amenities, like garages or pools. We also need to consider the age and condition of the property. Houses of a similar age and maintenance state will more accurately reflect market value.
For example, you have a purchase agreement to buy a house at $300,000, yet the appraiser returns a fair market value of only $290,000. That's a $10,000 shortfall — or “gap” — in the appraised value that can impact the mortgage lender's decision to issue the agreed-upon loan amount.
Appraisers who follow ANSI guidelines will: