How Appraisers Choose Comparable Sales

If you read an appraisal report, the comparable sales are usually the heart of it. These are recent sales of similar properties that the appraiser uses to estimate what your home would sell for. Homeowners often have strong opinions about which sales should or should not have been used, so it helps to understand how appraisers make those choices.

What makes a good comparable

A comparable sale is useful when a typical buyer of your home would have considered that property as a realistic alternative. Appraisers look for sales that are similar in the features that drive price in your market. The most important factors are usually:

• Location. Same neighbourhood or community, or one that buyers treat as equivalent.
• Time. Sold recently, generally within the past several months, so it reflects current conditions.
• Property type and style. A bungalow compared with bungalows, a condo with condos, an acreage with acreages.
• Size. Similar above-grade living area.
• Age and condition. Similar era of construction and level of updating.
• Site. Similar lot size and characteristics, such as backing onto a park, a busy road or a river.
• Features. Garage, basement development, number of bathrooms and other features buyers pay for.

No sale matches perfectly. The goal is to find the sales that require the fewest and smallest adjustments.

Why the closest sale isn't always best

Homeowners sometimes ask why the house down the street was not used. Usually it is because that house was not actually similar. It may have been much larger, completely renovated, sold under unusual circumstances, or sold too long ago. A sale two kilometres away that closely matches your home is often a better guide than a dissimilar sale next door.

Location still matters a great deal. In Winnipeg, crossing a major road or a river can mean a different school catchment, a different buyer pool and different prices. Appraisers who work locally know where those boundaries fall.

Sales that may be excluded

Some transactions do not reflect normal market conditions and are usually given little or no weight:

• sales between family members or related parties
• sales by a lender after a foreclosure, or other forced sales
• sales where the property was in very different condition at the time
• sales that included significant personal property or special terms

How adjustments work

Once comparables are selected, the appraiser adjusts each sale price to account for differences from your home. The adjustment reflects what buyers in that market pay for the difference, not what the feature cost to build.

For example, suppose a comparable sold for $400,000 and is similar to your home except that it has a double detached garage and yours has none. If the market shows that buyers pay roughly $20,000 more for a double garage in that area, the comparable is adjusted down to $380,000 to estimate what it would have sold for without the garage. The same process applies to size, condition, basement development and other features.

Adjustments are always applied to the comparable, not to your home. The question is always: what would this comparable have sold for if it were more like the subject property?

Where adjustment amounts come from

Appraisers estimate adjustments from market evidence. One common technique is paired sales analysis: finding two sales that are nearly identical except for one feature, and looking at the price difference. Appraisers also use their experience of local markets, cost information and broader statistical analysis. Good reports explain the basis for significant adjustments.

Reconciling to a single value

After adjusting three or more comparables, the appraiser usually has a range of indicated values. They do not simply average them. Instead they give the most weight to the comparables that needed the fewest and smallest adjustments, since those are the most reliable indicators. The final value reflects that judgement.

Small towns and rural properties

In Winnipeg there are usually plenty of sales to choose from. In smaller communities, such as Altona, Plum Coulee or Manitou, there may be only a handful of relevant sales in a year, and acreages are even scarcer. In those cases appraisers widen the search to similar nearby communities or look further back in time, then adjust for location and market change. A careful report explains those choices so the reader understands why each sale was used.

Active and pending listings

Appraisers also look at current listings and pending sales. Listings do not show what a buyer paid, but they show the competition your home faces and can confirm whether the market is moving. They are supporting evidence rather than primary comparables.

What if I know of a better comparable?

If you know of a recent, similar sale that was not considered, share it. For lender appraisals, the request usually goes through your lender. For private assignments, contact the appraiser directly. The appraiser will review it and explain whether it changes the conclusion. See our article on what to do if your appraisal comes in low for more.

Market conditions and time adjustments

When a comparable sold several months ago and prices have moved since, the appraiser may adjust it for market conditions. If values in a neighbourhood have risen steadily, an older sale is adjusted upward to reflect what it would sell for today. In a softening market, the adjustment goes the other way. Appraisers estimate these trends from resales of the same properties, from changes in median prices and from the relationship between list and sale prices. Manitoba markets tend to move at a steadier pace than some larger Canadian cities, but even modest changes add up over a year, so time adjustments are a regular part of the work.

Local knowledge makes the difference

Choosing comparables well depends on knowing how buyers move through a market. Burley Appraisals has worked in Winnipeg and the Pembina Valley for more than 35 years. Order an appraisal or call us with questions.

Frequently asked questions

This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your situation.