In real estate, a comp (short for “comparable sale”) is a recently sold home that is similar enough to the property being valued that its sale price serves as evidence of what that property is worth today. Buyers, sellers, agents, and appraisers all rely on comps because they turn a pricing conversation from opinion into data. If three similar houses on nearby streets closed around $350,000 in the past year, that figure anchors what the subject property should sell for.
The property being evaluated is called the subject property. Everything else in a comp analysis is built around making a fair comparison to it.
Why Comps Matter
Price a home well above what recent comps support, and offers don’t come. Offer well below comp-supported value, and you lose the house. Lenders care too, because they need to know the home securing a mortgage is actually worth the loan amount. That’s why comps show up in two very different documents: an agent’s informal market analysis and a licensed appraiser’s formal report.
Federal law requires that appraisals for most mortgage transactions be done by state-certified or state-licensed appraisers following uniform standards.1eCFR. 12 CFR Part 225 Subpart G – Appraisal Standards for Federally Related Transactions Residential transactions of $400,000 or less are exempt from that certification requirement, though lenders can still order a certified appraisal based on their own risk policies.
What Makes a Property a Good Comp
Not every recent sale down the street qualifies. Appraisers and agents filter sales through several criteria before leaning on them.
How many. Fannie Mae and Freddie Mac require at least three settled comparable sales in an appraisal report, though most appraisals include more.
How recent. Fannie Mae’s selling guide calls for comps that closed within the last 12 months, with more recent sales carrying more weight because they better reflect current market conditions.2Fannie Mae. Comparable Sales
Where. Same-neighborhood comps are preferred. Appraisers report the exact distance in miles and direction from the subject property. There is no hard one-mile rule in Fannie Mae’s guidelines, despite the common belief; in rural or low-density areas, the appraiser often has to go farther out to find a true market match.2Fannie Mae. Comparable Sales
Physical match. Square footage, bedroom and bathroom count, lot size, age, and condition should all line up reasonably well. A 1,200-square-foot ranch and a 3,500-square-foot colonial on the same block are not good comps for each other, regardless of how close they sit.
External Influences on Value
Location isn’t just the address. A home backing a busy highway, sitting under power lines, or neighboring a commercial lot may trade at a discount compared to an otherwise identical home on a quiet street. Appraisers call this kind of value loss external obsolescence and measure it through paired sales analysis, which compares two similar properties where only one is affected by the negative factor and tracks the price difference.
Foreclosures and Short Sales
People often assume distressed sales get excluded automatically. They don’t. Fannie Mae’s guidelines say foreclosures and short sales are acceptable comps when market data shows they’re the best available sales.2Fannie Mae. Comparable Sales The appraiser has to address how common these sales are in the neighborhood and adjust for differences in condition. A foreclosure that sat vacant through a winter with burst pipes is not an apples-to-apples match for a well-kept home, and the report has to account for that gap.3Appraisal Institute. Guide Notes – Section: Distressed Sales as Comparables
How Appraisers Adjust Comp Prices
No two homes are identical, so raw sale prices never transfer directly. The appraiser adds or subtracts dollar amounts from each comp to account for differences with the subject property. Adjustments always happen to the comp, never to the subject.
A simple example. A comp sold for $400,000 and has 200 more square feet than the subject property. If local market data shows each additional square foot adds about $50 in value, the appraiser subtracts $10,000 from that comp. If the subject property has a two-car garage and the comp has a one-car garage, value gets added to the comp. After adjustments run across every meaningful difference, the adjusted sale prices get reconciled into a single value estimate.
Local experience matters here. A pool might add $30,000 in one neighborhood and $5,000 in another, and those numbers come from actual sales in the area, not a universal chart.
Seller Concessions
When a seller covers a portion of the buyer’s closing costs or pays for a rate buydown, those concessions push the recorded sale price above what the home would have fetched on its own. Freddie Mac’s guidance says the adjustment should reflect how the market actually reacted to the concession, not a mechanical dollar-for-dollar deduction. A $10,000 concession might have inflated the price by $8,000 or $12,000 depending on local buyer behavior.4Freddie Mac Single-Family. Considering Financing and Sales Concessions: A Practical Guide for Appraisers Fannie Mae also caps how much a seller can contribute based on the buyer’s down payment, and amounts above the cap get deducted from the sale price for underwriting.5Fannie Mae. Interested Party Contributions (IPCs)
Where Comp Data Comes From
A comp analysis is only as good as the data behind it. The Multiple Listing Service is the main professional source. Licensed brokers are required to report status changes, including final sale prices, to their local MLS within a set window after closing.6National Association of REALTORS®. Model Rules and Regulations for an MLS Separately Incorporated but Wholly-owned by an Association of REALTORS MLS data tends to be more current and detailed than public records, with listing photos, days on market, and concession terms all attached to the sale price.
County tax assessor and recorder offices add another layer. Deed transfers and recorded sale prices become public record, which helps verify MLS data and catches sales that happened outside the MLS, such as transfers between family members or off-market deals. Consumer real estate websites aggregate much of this public data for anyone researching values in an area.
Off-market sales take extra work. When a property sells without an MLS listing, the appraiser may contact the buyer, seller, or closing attorney to confirm the terms and verify the deal was arm’s-length. Without that verification, the sale may not be reliable enough to use.
CMA Versus Appraisal
Real estate agents compile a Comparative Market Analysis (CMA) to help a client set a listing price or evaluate an offer. A CMA is informal and the agent isn’t a licensed valuation professional. An appraisal is the formal valuation a lender orders before funding a mortgage, performed by a licensed or certified appraiser following uniform standards. Both lean on comps. Only one carries legal weight with a lender.
When Comps Don’t Support the Price
An appraisal gap happens when the appraised value lands below the agreed purchase price. This is where comps have the most visible effect on a deal, and it’s more common in fast-moving markets where bidding wars push contract prices past what recent closed sales can justify.
A buyer facing a gap generally has four options:
- Renegotiate the price down to the appraised value. Sellers often resist, but the appraisal gives the buyer leverage.
- Cover the gap in cash. The lender bases the loan on the appraised value, so the buyer pays the difference on top of the down payment.
- Walk away. If the purchase agreement includes an appraisal contingency, the buyer can cancel and recover the earnest money.7My Home by Freddie Mac. Understanding Contingency Clauses in Homebuying
- Ask for a reconsideration of value. The lender can submit additional data to the appraiser. For FHA loans, the lender may submit up to five alternative comparable sales, and the borrower gets one chance to initiate a separate reconsideration request.8HUD.gov. Appraisal Review and Reconsideration of Value Updates
Waiving the appraisal contingency to look more competitive has become common in hot markets. It’s a real gamble. Without it, you’re contractually obligated to close even if the appraisal comes in $30,000 short.
When No Comp Analysis Happens
Not every mortgage requires a traditional appraisal. Fannie Mae’s “value acceptance” program lets certain loans close without one, relying on automated underwriting data and prior appraisal history for the property. Properties valued at $1,000,000 or more, manufactured homes, co-op units, new construction, and investment property purchases are all ineligible.9Fannie Mae. Value Acceptance When a waiver is used, no independent appraiser has confirmed that recent comps support the price. In a stable market with strong data, that risk may be modest. In a shifting one, running your own comps before signing is worth the hour it takes.