Comparing Honey Crisps to Braeburns

One of the more quizzical looks Realtors get is when they (try to) explain to a prospective home Seller that their neighbor’s house isn’t a “Comp” (Comparable Sold Property) for pricing theirs.

For the uninitiated, a Comp is one of the three homes Realtors and appraisers use to determine fair market value; once the relevant Comp’s are identified, step #2  is to go through a formal “compare-and-contrast” process between the subject home and each of the Comp’s called  a “CMA” (Comparative Market Analysis).   See, “Bracketing, Explained.”

So, why doesn’t the neighbor’s house make the cut?

Because one (or more) of the following usually apply:

One.  It sold too far back.

To be a Comp, the sale must be within the last six months.

Two.  The neighbor’s house has yet to sell — that is, it’s “Active” or “Pending.”

While a neighboring home that is currently for sale may very well compete with another house on the block, because there’s no established sales price yet, by definition, it’s not a Comp.

Three.  The neighboring home is too different.

As I like to put it, “you can compare a Honey Crisp apple to a Braeburn apple . . .  but not to an orange.”

In non-layman’s terms, the maximum adjustment allowed between the subject home and the Comp is about 20%.

Beyond that, the adjustments become so big that they become unreliable.

So, if the neighboring home is significantly bigger or smaller; in dramatically different condition; or a completely different housing style — it doesn’t qualify.

Bad — and Good — Apples

None of the foregoing is to say that the value of neighboring homes doesn’t affect yours.

Thankfully, at least in real estate, one bad apple seldom spoils the bunch — it takes a couple of bad apples to do that.

However, once multiple foreclosures or derelict properties appear on a block, they pull down values — whether they’re Comp’s or not.

Conversely, if the neighborhood is clearly on the upswing, that can be very helpful.

But strictly for the purposes of determining a list price for a specific home, a neighboring home that’s too different or sold too far back isn’t one of the three homes that go into the CMA.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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