In real estate, “comps” is shorthand for comparable sales: recently sold homes similar enough to a given property that their prices offer a reliable guide to what that property is worth. When buyers, sellers, agents, appraisers, and lenders talk about what a house should sell for, they are almost always working from comps. The logic is simple. A reasonable buyer will not pay significantly more for a home when equivalent houses nearby just sold for less, so the prices those nearby houses fetched set the realistic range for the next sale.
That approach, known formally as the sales comparison approach, has been the backbone of residential valuation for decades. It drives the number a seller prints on a listing, the offer a buyer puts on the table, and the figure a bank’s appraiser writes in a formal report.
What Makes a Sale a Good Comp
Not every recent sale qualifies. The closer a sold property matches the home being valued, the more weight its price carries. A weak match on any single factor can make a sale misleading rather than helpful.
Recency
Sales data goes stale quickly. Industry practice favors sales that closed within the past three to six months, because older transactions may not reflect current interest rates, inventory, or buyer demand. Federal Housing Finance Agency research found that comparable sales used in appraisals are typically about six months old at the time of the report, and even that gap can introduce meaningful distortion: expected time adjustments average between roughly 2.5 and 9 percent of the sale price.1FHFA. Underutilization of Appraisal Time Adjustments In a fast-appreciating market, a sale from eight months ago may already be irrelevant.
Location
A common rule of thumb is to look within one mile in urban areas, two miles in suburban areas, and up to five miles in rural settings. These are lender conventions, not hard rules. The Uniform Standards of Professional Appraisal Practice do not set a specific distance limit for comparable sales. What matters is that the comp sits in a similar neighborhood with similar demand. A house a block away but across a school district boundary may be less comparable than one two miles away in the same district.
Physical Match
Square footage, bedroom and bathroom count, lot size, garage capacity, and overall layout all matter. A 1,400-square-foot ranch and a 3,200-square-foot colonial are not comparable even if they share a zip code. A half-acre lot and a five-acre parcel cannot be compared meaningfully even if the houses sitting on them are identical.
Property Type
Single-family homes, condominiums, townhomes, and multi-unit buildings trade in different markets with different buyer pools. A condo sale is not a useful comp for a single-family home. This filter gets applied first, before anything else.
Condition
Two houses with identical floor plans can differ dramatically in value based on condition. Fannie Mae’s Uniform Appraisal Dataset requires appraisers to assign standardized condition ratings from C1 (new construction, no depreciation) through C6 (substantial damage affecting safety or structural integrity).2Fannie Mae. Property Condition and Quality of Construction of the Improvements A recently renovated C2 home and a dated C5 fixer-upper need significant adjustments if they are used as comps for each other. Distressed sales — foreclosures and short sales — also tend to close below market and can skew valuations if included without careful treatment.
How Adjustments Reconcile Differences
Few comps match a subject property exactly, so appraisers adjust the comp’s sale price to answer a specific question: what would this comp have sold for if it had been identical to the subject?
The direction of each adjustment follows a simple rule. If the comp has something the subject lacks, like a pool, the appraiser subtracts from the comp’s price, because the pool helped drive that higher sale price. If the subject has a feature the comp lacks, like a finished basement, the appraiser adds to the comp’s price, because the comp would have sold for more with that feature.
To figure out what a specific feature is worth, appraisers often use paired sales analysis. They find two sales nearly identical except for one difference — one has a garage, the other does not — and the gap between the two prices isolates the value of that feature. If local market data shows additional living space is valued at roughly $50 per square foot, a comp that is 200 square feet larger than the subject gets a $10,000 downward adjustment.
After all adjustments, each comp produces an “adjusted sale price” that theoretically represents what it would have sold for if it matched the subject. The appraiser then weighs these adjusted figures, leaning hardest on the comps that required the fewest adjustments, to arrive at a value opinion.
Where Comp Data Lives
The richest source of comp data is the Multiple Listing Service, a cooperative formed by real estate brokers to share listings and sale results. Brokers join as participants, and their agents join as subscribers underneath them. The MLS tracks listing prices, final sale prices, days on market, and property details, but access is generally limited to members and their clients.3RESO. What Is an MLS and How Many MLSs Are There If you are working with an agent, they can pull MLS data for you. Without one, you are relying on less complete alternatives.
County recorder and assessor offices maintain public records of deeds and recorded sale prices, which anyone can search, often online and free of charge. These records are useful but typically lack the interior details and condition notes that make a comp truly informative. Third-party real estate websites aggregate MLS feeds and public records for the general public, but their data frequently lags professional systems and may not reflect price concessions or seller credits that changed the real transaction price.
The Non-Disclosure State Problem
Roughly a dozen states, including Texas, Montana, Kansas, and Wyoming, do not require sale prices to be recorded in public records. In these non-disclosure states, the only reliable way to get actual sale prices is through someone with MLS access. Without that, you are left estimating from list prices with a discount or premium applied, or using assessed values, which are set for tax equity and often diverge significantly from market value. Getting accurate comp data in these states without an agent is genuinely difficult.
How Buyers and Sellers Use Comps
When a seller and their agent set a listing price, they typically build a comparative market analysis, or CMA. This is the same comp-based approach appraisers use, performed by an agent rather than a licensed appraiser, and it is less formal. The agent pulls recent sales of similar homes, applies rough adjustments for differences, and arrives at a suggested price range.
Buyers use the same data in reverse. Before making an offer, a buyer’s agent pulls comps to check whether the asking price aligns with recent sales. If comps suggest the home is listed $20,000 above market, that gives the buyer leverage to negotiate down. If comps support the asking price or show values trending upward, lowballing becomes harder to justify.
CMA adjustments are less rigid than appraisal adjustments. An agent might add $5,000 for a finished basement or subtract for an aging roof based on local experience rather than strict paired sales analysis. The underlying framework is the same: find the most similar sales, adjust for differences, and land on a number both sides can evaluate against real evidence.
Comps in a Mortgage Appraisal
When a lender finances a home purchase, it needs assurance that the property is worth at least what it is lending against. The Financial Institutions Reform, Recovery, and Enforcement Act requires that appraisals for federally related transactions be performed in writing, by qualified appraisers, in accordance with uniform professional standards.4eCFR. 12 CFR Part 323 – Appraisals Almost every mortgage-financed home purchase triggers a formal appraisal built on comps.
Fannie Mae’s guidelines require the appraiser to report the three-year sales history of the subject property and the twelve-month sales history of each comparable sale used.5Fannie Mae. Sales Comparison Approach Section of the Appraisal Report FHA appraisals go further, requiring at least three settled sales plus a minimum of two active listings or pending sales in changing markets, and they evaluate the property’s physical condition more aggressively, checking for safety hazards, structural soundness, and code compliance.6Department of Housing and Urban Development. Rescission of Outdated and Costly FHA Appraisal Protocols
If the appraisal comes in at or above the contract price, the transaction moves forward smoothly. If it comes in below, the consequences get serious.
When the Appraisal Comes In Low
An appraisal gap is the difference between the contract price and the appraised value. The lender will only finance based on the appraised value, so if you agreed to pay $350,000 but the appraisal says the home is worth $325,000, someone has to cover that $25,000 difference or the deal falls apart.
You generally have a few options:
- Renegotiate the price. Ask the seller to lower the contract price to match the appraisal, or meet somewhere in the middle. Sellers often agree in a buyer’s market and have less reason to in a competitive one.
- Pay the gap out of pocket. You bring additional cash to closing beyond your down payment. This requires having the funds and being willing to pay more than appraised value.
- Walk away. Most purchase contracts include an appraisal contingency that lets you cancel without losing your earnest money if the home does not appraise. If you waived that contingency to strengthen your offer, walking away gets expensive.
VA buyers get an extra layer of protection. Federal regulations require VA purchase contracts to include an amendatory clause stating that the buyer will not forfeit earnest money or face any penalty if the appraised value comes in below the contract price.7eCFR. 38 CFR 36.4303 – Reporting Requirements FHA loans carry a similar protection through their own amendatory clause.
Challenging an Appraisal
If you believe the appraisal used poor comps or contains errors, you can request a reconsideration of value through your lender. Federal interagency guidance directs lenders to establish clear, accessible processes for borrowers to raise concerns about valuations.8Federal Register. Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations The CFPB has noted that borrowers can point to factual errors, inadequate comparable properties, or evidence of prohibited bias as grounds for challenging an appraisal.9Consumer Financial Protection Bureau. Mortgage Borrowers Can Challenge Inaccurate Appraisals Through the Reconsideration of Value Process
A reconsideration works best when you bring concrete evidence: comparable sales the appraiser missed, corrections to square footage or feature errors, or documentation that a comp used in the report was a distressed sale that should have been excluded. Vague complaints about the number being too low rarely produce a revised value.
The Limits of Comps
Comps are backward-looking by design. They tell you what buyers paid last month, not what they will pay next month. In a market shifting quickly, from rising rates cooling demand to a major employer leaving town, recent sales data may already be outdated by the time you use it.
Comps also struggle in markets with limited inventory. Rural areas, unique properties, and neighborhoods with few recent sales may not produce enough comparable transactions to generate a reliable estimate. When an appraiser has to reach further in distance or time to find comps, each one requires larger adjustments, and larger adjustments mean less certainty. The comp-based approach still applies to a log cabin on ten acres. It just gets harder to trust.