By Fatskills Exam Guides Team — the exam nerds behind 28,500+ quizzes and 2.1M practice questions across 500+ global exams.
A Simple Guide for Appraisers, Agents, and Underwriters
The sales comparison approach is the most widely used method for residential appraisals. But selecting the right comparables and making appropriate adjustments requires skill, market knowledge, and adherence to strict guidelines.
Fannie Mae defines a comparable sale as one that shares similar physical and legal characteristics with the subject property, including site size, room count, finished area, style, and condition.
Key Selection Criteria:
The Ideal Comparable: Would require no adjustments—but this is rarely possible in real-world appraising.
Adjustments reflect the market's reaction to differences between the subject property and each comparable. The goal is to answer: "What would this comparable have sold for if it were exactly like the subject property?"
The Formula:
Comparable Sale Price +/- Adjustments for differences = Indicated Value for Subject
The Golden Rule: Adjustments must be market-based, not arbitrary rules of thumb. Using a flat $20 per square foot adjustment when market analysis indicates $100 is inappropriate.
The Situation:
Subject Property: 2,200 sq. ft., 3 bedrooms, 2 baths, good condition
Comparable A: 2,000 sq. ft., sold for $350,000
Market Analysis: Paired sales indicate $100 per sq. ft. for GLA differences
The Adjustment:
Difference: 200 sq. ft. (subject larger)
Adjustment: +$20,000 (200 × $100) to Comparable A
Adjusted value: $370,000
Why This Works: The adjustment reflects what the market actually pays for additional square footage, not an arbitrary number.
Subject Property: No pool
Comparable B: Sold for $375,000 with a pool
Market Analysis: In this neighborhood, pools add $15,000 to value, but cost $35,000 to install
Subtract the pool's contributory value: -$15,000
Adjusted value: $360,000
Key Insight: Adjustments reflect contributory value (what buyers pay), not replacement cost. A $35,000 pool rarely adds $35,000 to sale price.
Subject Property: 2.5 bathrooms
Comparable C: 2.0 bathrooms, sold for $340,000
Market Analysis: Paired sales show half-baths add $8,000 in this market
Difference: 0.5 bath (subject has one more half-bath)
Adjustment: +$8,000 to Comparable C
Adjusted value: $348,000
Note: Full baths typically add more value than half-baths. Adjustments should reflect market data for each.
The Situation: Comparable D sold for $400,000, but the seller paid $10,000 in closing costs for the buyer—a sales concession.
The Issue: The $400,000 sale price includes non-realty items (financing costs). The true real estate value is lower.
Fannie Mae's Rule: Adjustments must reflect the market's reaction to concessions. If analysis shows the full concession amount affected price, a dollar-for-dollar adjustment is acceptable. Positive adjustments for concessions are not acceptable.
Subtract the concession impact: -$10,000
Adjusted value: $390,000
Documentation: The appraiser must report concession amounts if reasonably available and explain the adjustment rationale.
The Situation: The subject appraisal effective date is June 2026. The best comparable sold in January 2026—six months earlier. Market data shows values increasing 0.5% per month.
The Analysis: The appraiser must determine whether market conditions changed between the comparable's contract date and the effective date.
Monthly trend: +0.5%
Six months: +3.0%
Adjustment to Comparable: +$12,000 (on $400,000 sale price)
Supporting Evidence: Time adjustments must be supported by paired sales, price indices, or other market data—not guesswork.
Subject Property: Attached 2-car garage
Comparable E: Attached 1-car garage, sold for $325,000
Market Analysis: Paired sales show an additional garage bay adds $10,000 in this market
Difference: 1 garage bay
Adjustment: +$10,000 to Comparable E
Adjusted value: $335,000
Note: Garage adjustments vary widely by market. In urban areas with limited parking, garages may add more value. In rural areas, less.
Subject Property: Updated kitchen and baths, new paint, good condition (C3)
Comparable F: Sold for $385,000, dated finishes, original kitchen (C4)
Market Analysis: In this market, updated homes sell for a 10% premium over dated but functional homes
Condition adjustment: +$38,500 to Comparable F (10% of sale price)
Adjusted value: $423,500
Note: Condition ratings in the Uniform Appraisal Dataset (UAD) must be consistent—C3 vs. C4, for example—and adjustments must reflect those differences.
New Subdivisions
For new construction, Fannie Mae requires:
At least one settled comparable from the subject subdivision
At least one settled comparable from outside
A third from either location
Rural Properties
When comparables are scarce, sales from considerable distance may be used if they're the best indicators. The appraiser must explain why they were selected.
Foreclosures and Short Sales
These can be used if they're the best available comparables. The appraiser must address their prevalence and consider condition differences—foreclosures are often in worse condition.
Fannie Mae requires "fact-based and objective comment(s) that detail the work performed and data sources utilized for the market supported adjustments."
Unacceptable:
"Adjustment made for square footage."
Acceptable:
"Adjustment of $100 per square foot derived from paired sales analysis of three pairs of similar homes in the subject neighborhood where the only significant difference was GLA. Sales data from MLS, confirmed with listing agents."
After adjustments, the appraiser must reconcile the indicated values into a single opinion of value.
The Grid:
Reconciliation Considerations:
Which comparable required the fewest adjustments?
Which is most similar in location and features?
Which is most recent?
Are there trends in the adjusted values?
Final Value Opinion: $365,000 (weighted toward Comparables 1 and 3, which required fewer subjective adjustments).
Adjustments must be market-based, not arbitrary rules of thumb
The best comparable requires the fewest adjustments—but all adjustments must be supported
Documentation is everything—explain your data sources, your analysis, and your reasoning
No two properties are identical—adjustments are the tool that makes comparison possible
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