Comparable sales are similar homes that have sold nearby, and the price that they have sold for. Comparable sales are used by appraisers to help them in giving an estimation of value for a home.As a rule of thumb, you typically start with your home and go outward for comparable sales within a one mile radius. Keep in mind the closer the better and more desireable for an appraiser/lender. Also you do not want to cross major freeways, rivers, rail roads, etc.
The higher your loan to value ratio, the closer the lender will scrutinize the appraisal. For example, a buyer with 20% down may be given more leeway with the distance of a comparable, where as a buyer seeking 100% financing may have a harder time with a rural property. From the lenders prospective, borrowers with large down payments are seen as financially responsibility and less likely to buy an over-valued home.
When determining what are comparable sales, an appraiser or lender looks at several factors. These include finished square footage, total square footage, number of bedrooms and bathrooma, garage size, lot size, and year built. Also, the homes should be in the same or similar subdivisions.
Sometimes, you can look up comparable sales yourself. Some counties publish property sales on their websites. Also, there are a number of free 3rd-party websites that allow you to see comparable sales in your area.
Comparable sales are also often used to determine if it is likely that an appraiser will be able to appraise your property at a certain amount, before they complete an actual appraisal.
This is useful when you are trying to determine if you have enough equity in your home to refinance.
Some, but not all, appraisers will do this free of charge if your loan officer asks them.
The lender will review the appraisal to ensure the comparable sales used are acceptable before closing on your loan. A couple of items they will look at will be the distance from the subject property, the last sale date, the style and square footage, and the overall condition.
An appraiser needs to be aware of the surroundings of the property he or she is appraising to make sure they are using quality comparable homes in the appraisal report. For instance the appraiser does not want to use a comparable house that is next to a hazardous waste facility if the subject property is not close to the hazardous waste facility. Also, the appraiser would not want to use a comparable home that is on a golf course or on the lakefront when the subject is not on the golf course or on the lakefront as well. Using these diffing types of comparable homes can taint the true value of the appraisal on the subject property and are generally unacceptable by the lender unless there are extremely strong compensating factors.
