How do agents pick the right comps for a listing?

Pick comps the way the appraiser will

Your list price will eventually meet an appraiser, unless the buyer pays cash. When it does, the appraiser follows lender rules about which sales count. If your comparable sales (comps) would not survive those rules, your price is a guess with a nice brochure.

For loans sold to Fannie Mae, the rules are in Selling Guide section B4-1.3-08. They were written for appraisers, but they are the best free comp checklist an agent will ever get.

A comparative market analysis (CMA) and an appraisal are different products. Still, the closer your CMA follows the appraiser's logic, the fewer surprises you get in escrow. Nobody throws a party for a surprise in escrow.

What Fannie Mae's comp rules say

• Stay close. Sales from the subject's own subdivision or project should be used when possible. The guide calls sale activity from within the neighborhood the best indicator of value.
• Match the house. Comps should have similar physical and legal characteristics to the subject.
• Use the last 12 months. Closed sales from the last 12 months should be used. Older sales are allowed when the report explains why.
• Newest is not always best. The guide says the best comps may not be the most recent ones. An older sale with a time adjustment can beat a newer sale that needs a pile of adjustments.
• Competing neighborhoods are allowed, honestly. Sales from a competing neighborhood can be used, but the appraiser must not expand the neighborhood boundaries just to take them in, and the differences have to be addressed.
• Three closed sales minimum. Current listings and contracts can support the analysis, but at least three closed comps must be reported.

The least adjusted comps carry the most weight

The comps that tell you the most are the ones that need the fewest changes to look like your listing. If a sale matches on size, bedrooms, lot, view and condition, there is very little room for opinion. Every adjustment you add is one more thing to argue about.

That is why I rank comps from least adjusted to most adjusted. The top of the list carries the price. The bottom is the supporting cast.

Condition deserves extra attention. In the markets I work, buyers react to condition more than to age. A remodeled 1960s ranch can outsell a tired 2005 house down the street. If your listing has a new kitchen and the comp still has the original almond appliances, they are not twins just because the year built is close.

Location works the same way. A sale on your listing's own street needs no location adjustment at all. If the street is too short to have enough sales of its own, treat it like the rest of its pocket of the neighborhood, and treat every comp from that pocket the same way. Consistency is what makes a comp grid believable to a buyer, an appraiser and an underwriter who has never seen the block.

When you do adjust, measure it. Look at what the market paid for the difference using paired sales: two sales that are alike except for one main feature. A rule of thumb like a flat amount per bedroom is how listings end up with three price reductions and a fresh coat of hope.

Comp mistakes that come back to bite at the appraisal

• The trophy comp. The highest sale in the zip code, two neighborhoods over, with a view your listing does not have. It flatters the seller, and the appraiser will not lean on it.
• Borrowed boundaries. Crossing a major street, school line or freeway because prices are better on the other side. That is the exact stretch Fannie Mae tells appraisers not to make.
• Average price per square foot times your size. This ignores that homes of different sizes often sell at different prices per foot. It is a shortcut, not an analysis.
• Ignoring the listings. Active listings are what buyers compare yours to this week. They do not set value, but they set the competition.
• Stale timing. A sale from eight months ago in a market that has shifted needs to be brought forward to today, not taken at face value. Lenders usually want recent sales, but an older sale adjusted to today and to the house can still tell you something.
• Counting the cottage. A detached ADU or studio is not part of the main house's square footage. Compare it as its own feature.

A comp checklist for your next listing

1. Start inside the subdivision or tract. Widen only when you run out of good sales, and write down why you widened.
2. Filter for closed sales in the last 12 months. Note the contract date, not only the closing date.
3. Match living area, bedrooms and baths, lot size and usable lot, and street or view location.
4. Rate condition honestly from photos and remarks, including your own listing's.
5. Rank the sales from least to most adjusted. Price off the top of the list.
6. Check active and pending listings to see where you will sit against the competition.
7. Adjust older sales for market change, using the most recent data that holds up rather than a lazy year-long average.
8. Save your comp list with notes. If questions come up, you can send a clean packet through the lender instead of a story.

Facts over feelings. The seller's favorite sale is not a comp just because they liked the house at the open house.