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).

In plain English:  it isn’t relevant ” at least directly ” for pricing their home.

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).

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

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

One. Timing. Specifically, 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.

See also, “Bracketing, Explained.”

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.

Leave a Reply