What Happens When There Are Almost No Good Comparable Sales?
By Jacob Geringer, Certified Residential Appraiser With More Than 26 Years of Experience
One of the most common misconceptions about residential appraisal is that every property should have three nearly identical homes that recently sold right around the corner.
Sometimes that happens.
Often, it doesn't.
After more than 26 years appraising residential real estate, I've worked on many properties where the real challenge wasn't calculating adjustments. It was determining which sales actually provided meaningful evidence of value when no obvious comparables existed.
This can happen with acreage properties, custom homes, unusual floor plans, rural properties, extensively renovated homes, unique locations, oversized houses, homes with significant outbuildings, or simply in markets where very few properties have recently sold.
When good comparable sales are scarce, an appraiser doesn't simply choose the three closest transactions and hope they work.
The analysis becomes more important.
What Makes a Sale a Good Comparable?
A comparable sale isn't simply a house that sold nearby.
The purpose of comparable-sale analysis is to understand how the market has responded to properties that compete, or would reasonably compete, with the property being appraised.
Depending on the assignment, an appraiser may consider characteristics such as:
Location
Property type
Design and style
Gross living area
Age
Condition
Quality of construction
Site size and utility
Basement characteristics
Garage capacity
Renovations and improvements
Amenities
Views or location influences
Functional utility
Market appeal
Date of sale
No comparable has to be identical to the subject property.
In fact, truly identical properties are rare.
The question is whether a sale provides relevant market evidence and whether meaningful differences can be recognized and analyzed.
Sometimes the Closest Sale Isn't the Best Sale
When homeowners look for comparable sales themselves, they often begin with distance.
“What sold on my street?”
That's a reasonable starting point, but proximity alone doesn't make a property comparable.
Imagine a custom 3,500-square-foot home on three acres.
A house sold two doors away, but it's a 1,600-square-foot ranch on a quarter-acre lot.
Five miles away, another custom home sold with similar acreage, living area, quality, and amenities.
Which transaction provides better evidence?
The answer isn't automatically the house next door.
Depending on the market, the more distant sale may reflect the subject property's likely buyer pool much more closely.
This is one of the reasons comparable selection requires more than drawing a circle around the property.
The Appraiser May Need to Expand the Geographic Search
When good sales don't exist in the immediate neighborhood, one option is to expand the search area.
But this shouldn't be done arbitrarily.
An appraiser needs to consider whether buyers looking at the subject property would reasonably consider homes in the expanded area.
That may involve analyzing similarities and differences in:
School districts
Municipalities
Neighborhood characteristics
Access and commuting patterns
Property types
Price ranges
Lot sizes
Development patterns
Market appeal
For some suburban properties, buyers may search within a relatively narrow geographic area.
For acreage, rural, luxury, or unusual properties, buyers may routinely consider a much larger area.
The appropriate geographic range depends on the competitive market, not simply a predetermined mileage limit.
Sometimes the Search Must Go Further Back in Time
Another possibility is expanding the date range.
Suppose the subject is located in a neighborhood where only one reasonably similar property has sold during the last six months.
An older sale may provide useful evidence if it is otherwise highly comparable.
But an older transaction can't automatically be treated as though it occurred yesterday.
The appraiser must consider what has happened in the market since that sale.
Have prices increased?
Declined?
Remained relatively stable?
Has inventory changed?
Has buyer demand shifted?
Have financing conditions or seller concessions changed?
When older sales are necessary, market-condition analysis becomes especially important.
Sometimes an older but highly similar sale provides better evidence than a recent transaction involving a substantially different property.
Expanding Distance and Time Doesn't Mean Lowering the Standard
This distinction is important.
When comparable sales are scarce, expanding the search doesn't mean:
“Anything will work.”
It means the appraiser may need to look farther geographically or historically to find transactions that reflect the characteristics buyers actually consider important.
Every expansion creates another question that needs to be analyzed.
If I use a sale farther away, I need to understand whether the location is competitive.
If I use an older sale, I need to understand whether market conditions have changed.
If I use a property with meaningful physical differences, I need to determine whether those differences affect buyer behavior.
Scarcity of data doesn't eliminate the need for support.
It increases it.
Unique Homes Often Require a Broader Search
The more unusual a property is, the less likely it becomes that an ideal comparable will exist nearby.
Consider a home with:
Five or ten acres
A large detached workshop
An unusually large garage
Custom architecture
A substantially larger living area than surrounding homes
High-end construction quality
Extensive renovations
An unusual floor plan
Equestrian improvements
Multiple outbuildings
A particularly desirable or adverse view
A combination of characteristics rarely found together
The appraiser may have to determine which characteristics are most important to the property's competitive position.
Perhaps no sale has everything.
One comparable may provide good evidence for acreage.
Another may be similar in size and quality.
Another may demonstrate how buyers respond to the subject's location.
A fourth may be an older sale from the subject's immediate market.
Rather than expecting one sale to answer every question, the appraiser considers the body of market evidence.
This Is Where “Bracketing” Can Become Useful
When perfect comparables don't exist, it can be useful to analyze sales that fall on different sides of an important property characteristic.
Suppose the subject contains 3,000 square feet.
One comparable has 2,700 square feet.
Another has 3,300.
Or perhaps the subject sits on five acres, while available sales include properties with three acres and seven acres.
The goal isn't simply to surround every characteristic with larger and smaller numbers.
Rather, this type of analysis can help the appraiser understand how the subject fits within the range of properties buyers have actually purchased.
When supported by the market, that can provide valuable context.
Adjustments Become Important—but They Aren't Magic
A common assumption is that almost any property can become a good comparable if enough adjustments are made.
That's not necessarily true.
Adjustments are intended to reflect market-recognized differences between the subject and comparable properties.
They aren't a tool for turning fundamentally unrelated properties into equivalent ones.
If a sale differs substantially in location, quality, design, condition, acreage, and buyer appeal, making a long series of adjustments doesn't automatically make it reliable.
At some point, the differences may become too significant.
This is why comparable selection comes before adjustment.
The better question is not:
“Can I adjust this sale?”
It is:
“Does this sale provide meaningful evidence about the subject property in the first place?”
The Market Has to Support the Differences
When comparable sales are limited, it's tempting to assign simple dollar amounts to differences.
An extra acre equals X.
A garage stall equals Y.
A finished basement equals Z.
Residential markets rarely operate that neatly.
An adjustment should reflect how buyers appear to respond to the characteristic within the relevant market.
That response may vary substantially.
An additional acre in one location may be highly desirable.
In another market, additional land beyond a certain point may contribute much less.
A detached workshop may be a major selling feature for one buyer pool and provide relatively limited appeal to another.
A finished basement may contribute differently depending on its quality, layout, walkout access, bathroom facilities, and the expectations of buyers in that price range.
The appraiser's job is to interpret market reaction, not simply assign a universal price to each feature.
Active Listings Can Help Explain the Competition
Closed sales are particularly important because they show transactions that actually occurred.
But when sales are scarce, current listings and other relevant market activity can provide additional context.
Active listings can help answer questions such as:
What alternatives do buyers currently have?
How is the subject positioned against competing properties?
What are sellers asking?
How long have competing homes been on the market?
Have prices been reduced?
Is inventory increasing or decreasing?
Pending activity may also provide useful indications about current demand, although the amount of transaction information available can vary.
These properties don't automatically replace closed-sale evidence, but they can help the appraiser understand the market surrounding the subject.
Prior Sales of the Subject Can Sometimes Provide Context
Depending on the assignment and circumstances, the subject property's own transaction history may also be relevant.
If the home previously sold, that transaction may provide information about how the market viewed the property at an earlier point in time.
But a prior sale can't simply be updated by applying a general appreciation percentage.
The appraiser must consider what has changed since then.
Was the transaction arm's length?
Has the property been renovated?
Have additions been constructed?
Has its condition changed?
Has the surrounding market changed?
A previous sale may be useful evidence, but like every other piece of information, it requires analysis.
Sometimes There Is More Than One Competitive Market
One of the more interesting situations occurs when a property could reasonably appeal to multiple groups of buyers.
Imagine a home with substantial acreage near a suburban area.
Some buyers may compare it with other acreage properties.
Others may prioritize the home's size, school district, or proximity to employment and compare it with large subdivision homes.
Which market is correct?
Potentially both may provide information.
The appraiser needs to understand how buyers actually search and what alternatives they consider.
That can require looking beyond conventional neighborhood boundaries.
After decades in appraisal work, I've found that understanding the buyer pool is often one of the most important parts of solving a difficult valuation problem.
Rural Properties Can Be Particularly Challenging
Rural residential appraisal provides a good example of why rigid comparable rules can be problematic.
Properties may differ significantly in:
Acreage
Road access
Outbuildings
Land utility
Topography
Agricultural use
House size
Construction quality
Age
Condition
Distance from employment centers and amenities
Sales may also occur less frequently.
Finding three properties that match every characteristic within a small radius and recent period may simply be impossible.
The solution isn't to pretend those differences don't exist.
It's to identify the most relevant available evidence and explain how that evidence relates to the subject.
Luxury and Custom Homes Present a Similar Problem
Custom and higher-end properties can create a different version of the same challenge.
A custom home may contain a combination of features that hasn't recently appeared in another nearby sale.
Perhaps it has superior construction quality, extensive outdoor improvements, an unusual site, multiple garages, a pool, and a highly customized interior.
There may be no direct substitute.
In these situations, the appraiser may need to analyze several different sales, each contributing information about different elements of the subject's competitive position.
The final opinion shouldn't depend on finding a mythical “perfect comp.”
It should emerge from a reasoned reconciliation of the strongest available evidence.
A Large Adjustment Doesn't Automatically Make a Comparable Wrong
Homeowners sometimes become concerned when they see adjustments in an appraisal report.
They may assume that if a comparable required an adjustment, it wasn't really comparable.
But differences are expected.
If every property were identical, there would be little need for appraisal analysis.
The more useful questions are:
Why was the sale selected?
What differences exist?
Does the market support how those differences were analyzed?
How much weight should that sale receive in the final conclusion?
A comparable requiring meaningful adjustment may still provide useful evidence.
But generally, the appraiser must consider the overall reliability of that sale relative to the other available evidence.
Not Every Comparable Deserves Equal Weight
This is another important point.
An appraisal isn't necessarily:
Comparable 1 + Comparable 2 + Comparable 3 ÷ 3.
Some sales provide stronger evidence than others.
One comparable may be nearly identical in location, condition, and quality but somewhat older.
Another may be recent but located farther away.
A third may be nearby but substantially smaller.
The appraiser considers the strengths and weaknesses of each.
The final reconciliation should reflect the quality and relevance of the evidence, not simply an arithmetic average of adjusted sale prices.
More Comparables Don't Automatically Mean a Better Appraisal
If three sales are difficult to find, why not use ten, fifteen, or twenty?
Sometimes additional sales are useful.
But quantity alone doesn't improve an analysis.
Ten weak comparables don't necessarily provide better evidence than four well-selected ones.
Additional sales should help answer a valuation question, demonstrate a market pattern, support an adjustment, bracket an important characteristic, or provide meaningful context.
The goal isn't to fill the report with transactions.
The goal is to identify the transactions that help explain how the market is likely to view the subject property.
What If There Truly Aren't Any Perfect Comparables?
Then the appraiser works with the best available market evidence.
That's an important distinction.
A comparable does not have to be perfect to be useful.
Real estate isn't manufactured in a laboratory.
Homes differ.
Neighborhoods differ.
Lots differ.
Renovations differ.
Buyers differ.
The appraiser's role is to identify relevant differences, investigate whether the market recognizes them, and determine how much confidence each piece of evidence deserves.
In difficult assignments, transparency becomes particularly important.
The appraisal should make clear why certain sales were considered relevant and how the available evidence was interpreted.
Why Appraisal Experience Matters More When the Data Gets Thin
When dozens of nearly identical properties have recently sold in the same subdivision, the market provides a substantial amount of direct evidence.
When there are only a handful of remotely similar transactions, judgment becomes more important.
After more than 26 years of residential appraisal work, I've learned that difficult assignments often aren't solved by finding one magical comparable.
They're solved by asking better questions.
Where would buyers search for an alternative?
Which property characteristics are driving buyer behavior?
Is geographic proximity more important than physical similarity?
Would buyers accept a different location to obtain similar acreage?
Is an older sale more informative than a recent but substantially different one?
Has the market changed since that older property sold?
Which differences can be supported by market evidence?
Which sale requires the fewest assumptions?
Those are appraisal questions—not database questions.
A Difficult Property Doesn't Mean It Can't Be Appraised
Homeowners sometimes worry that an unusual property is “impossible to appraise.”
Usually, that's not the right way to think about it.
A lack of ideal comparable sales makes the assignment more challenging, but the appraiser's job is to research the relevant market and develop a supportable opinion from the available evidence.
That may require:
A broader geographic search
A longer historical search
Additional market research
Analysis of competing listings
Greater attention to individual property characteristics
More detailed adjustment support
Careful consideration of the likely buyer pool
Clear explanation of comparable selection and reconciliation
In other words, less obvious data usually requires more analysis—not less.
The Bottom Line
When there are almost no good comparable sales, an appraiser doesn't simply choose the three closest houses.
The search may need to expand geographically, historically, or both.
The appraiser may need to examine different segments of the market, analyze older transactions, consider current competition, study buyer behavior, and determine which available sales provide the strongest evidence.
Most importantly, the appraiser must distinguish between a property that is merely different and a property that is genuinely competitive.
After more than 26 years appraising residential real estate, one principle continues to matter:
The best comparable isn't always the closest, newest, or most similar on paper. It's the sale that provides credible evidence of how the market responds to the property being appraised.
Have a Property That's Difficult to Compare?
At 24 Hour Appraisal Group, we provide independent residential appraisal services backed by more than 26 years of appraisal experience.
If your property is unusual, located in an area with limited sales, sits on acreage, includes custom improvements, or simply doesn't have obvious comparable properties nearby, a professional appraisal can provide a more detailed analysis of the available market evidence.
We provide residential appraisal services for estate and probate matters, divorce, refinancing, PMI removal, pre-listing planning, tax matters, financial planning, and other valuation needs.
Contact 24 Hour Appraisal Group to discuss your property and appraisal needs.
