Why Comparable Sales Matter for Your Mortgage
When you apply for a mortgage, the lender orders an appraisal to determine your home's market value. The appraiser's job is to find recent sales of similar properties — called "comparable sales" or "comps" — to establish what your property is worth. This appraisal directly affects your loan amount, since Fannie Mae won't lend more than the appraised value.
The appraiser looks for properties that share key characteristics with yours: similar square footage, bedroom and bathroom count, lot size, age, condition, and style. They also consider location factors like school districts, flood zones, and neighborhood amenities. The goal is finding sales that represent what a buyer would pay for your specific property in today's market.
Say you're buying a 2,000-square-foot ranch built in 1995 in a suburban neighborhood. The appraiser will search for other ranch homes of similar size and age that sold recently in your area. They'll avoid using a 1960s split-level or a brand-new colonial, even if those properties are nearby, because they don't appeal to the same type of buyer.
How Appraisers Select Your Property's Comparables
Appraisers start their search within your immediate market area — the geographic region where most buyers looking at your property would also shop. This typically means your subdivision, neighborhood, or a radius of a few miles depending on the area's density.
The appraiser needs at least three closed sales from the past 12 months. However, they might use an older sale if it's more similar to your property than recent ones. For example, they might choose a nine-month-old sale of an identical floor plan over a one-month-old sale that requires multiple adjustments for differences in size, condition, or features.
If your property sits in an area with limited sales activity, the appraiser can expand their search radius. They must explain why they went outside your immediate neighborhood and make adjustments for any location differences. Rural properties often require this approach due to sparse sales data.
Distance matters for comparability. The appraiser must report the exact distance in miles and direction from your property to each comparable sale. A property 0.5 miles away carries more weight than one 3 miles away, all else being equal.
Special Rules for New Developments
If you're buying in a new subdivision, condo project, or planned unit development (PUD), different rules apply. The appraiser must use at least one comparable sale from within your development and at least one from outside it. This helps demonstrate market acceptance of the new community.
For the third required comparable, the appraiser can choose from inside or outside your development. Sales within your development are preferred, as long as the builder wasn't involved in those transactions. Resales by individual homeowners provide better market evidence than builder sales.
If your property is among the first to sell in a brand-new development with no closed sales yet, the appraiser can use two pending sales contracts from your development plus three closed sales from competing developments. This situation requires extra documentation to prove market acceptance.
For very small developments with 2-20 units and no sales history, the appraiser must find comparable developments of similar size and type. They need to explain why these competing projects represent good comparisons and demonstrate market acceptance of your development's concept.
When Foreclosures and Short Sales Get Used
Appraisers can use foreclosed properties and short sales as comparables if they represent the best available market data. This often happens in neighborhoods where distressed sales make up a significant portion of recent activity.
The appraiser must address how prevalent these distressed sales are in your area and their impact on property values. They cannot assume a foreclosure is in the same condition as your property. A foreclosed home might have deferred maintenance, vandalism, or other condition issues that affect its sale price.
If you're buying in a neighborhood where 30% of recent sales were foreclosures, this becomes part of your property's market reality. The appraiser needs to analyze whether these sales reflect true market value or represent a temporary distortion.
What Documents Support the Comparable Sales Analysis
The appraiser gathers sales data from multiple sources to verify each comparable sale. They typically use public records, multiple listing service (MLS) data, and sometimes settlement statements for verification.
For new developments where sales data isn't yet in public records, the appraiser might need to get information directly from the builder. They can verify these sales using settlement statements from the builder's files, but they must note this verification method in the appraisal report.
The appraiser must also analyze any sales concessions or upgrades for each comparable sale. If a comparable property sold with the seller paying $5,000 in closing costs, this affects the true sale price and requires adjustment in the analysis.
Common Issues That Complicate Comparable Sales
Market timing can create challenges for finding good comparables. In rapidly changing markets, a six-month-old sale might not reflect current conditions. The appraiser needs to make time adjustments to account for market appreciation or decline.
Unique properties present the biggest challenge. If you're buying a custom home, historic property, or unusual architectural style, finding truly comparable sales becomes difficult. The appraiser might need to use properties that require significant adjustments or expand their search area considerably.
Seasonal markets can also complicate the analysis. In resort areas or regions with distinct selling seasons, the appraiser might need to look back more than 12 months to find adequate comparable sales data.
Properties in transition neighborhoods — areas experiencing gentrification or decline — require careful analysis. Recent sales might not represent the current market if conditions are changing rapidly.
References
For the official guidelines, see B4-1.3-08: Comparable Sales in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
No spam · Unsubscribe anytime
Original Fannie Mae Guideline Text
B4-1.3-08, Comparable Sales (06/04/2025)
Age of the Comparable Sales
Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS
Use of Foreclosures and Short Sales
Uniform Appraisal Dataset (UAD) 3.6 Policy
Selection of Comparable Sales
The appraiser is responsible for determining which comparables are the best and most appropriate for the assignment. Fannie Mae expects the appraiser to account for all factors that affect value when completing the analysis. Comparable sales should have similar physical and legal characteristics when compared to the subject property. These characteristics include, but are not limited to, site, room count, finished area, style, and condition. External factors, including Federal Emergency Management Agency (FEMA) designated flood zone, should be given consideration when selecting comparables.
When choosing comparable sales, the appraiser should examine the market area of the subject property, assess its characteristics, and identify similar comparable sales. Market area is defined as the geographic region, for a subject property, from which most demand comes and in which most of the competition is located. This does not mean comparable sales must be identical to the subject property, but instead should be competitive and appeal to the same market participants that would also consider purchasing the subject property. If the available comparable sales are not similar, the appraiser needs to decide whether an expansion of the market area search is appropriate. If this occurs, the appraiser must provide commentary to explain the rationale for selecting comparable sales outside the subject's market area and make location adjustments if warranted.
Comparable sales from within the same market area (including subdivision or project) as the subject property should be used when possible and must be used in certain instances (see below). Sale activity from within the neighborhood is the best indicator of value as sales prices of comparable properties from the same location should reflect the same positive and negative location characteristics.
Fannie Mae does allow for the use of comparable sales located in competing market areas, as these may simply be the best comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the comparables are from a competing neighborhood and address any differences that exist. The appraiser must also provide an explanation as to why they used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject's neighborhood.
If a property is located in an area in which there is a shortage of truly comparable sales, either because of the nature of the property improvements or the relatively low number of sales transactions in the neighborhood, the appraiser might need to use properties that are not truly comparable to the subject property. In some situations, properties that are not truly comparable may simply be the best available and the most appropriate for the appraiser’s analysis. The use of such sales is acceptable if the appraiser adequately documents the analysis and explains why they were used. (For additional information, see
.
When describing the proximity of the comparable sale to the subject property, the appraiser must be specific with respect to the distance in terms of miles and include the applicable directional indicator (for example, “1.75 miles NW”). The distance between the subject property and each comparable property is to be measured using a straight line between the properties.
Minimum Number of Comparable Sales
A minimum of three closed comparables must be reported in the sales comparison approach. Additional comparable sales may be reported to support the opinion of market value provided by the appraiser. The subject property can be used as a fourth comparable sale or as supporting data if it was previously closed. Contract offerings and current listings can be used as supporting data, if appropriate. See Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDs below for exceptions to this policy.
In no instance may the appraiser create comparable sales by combining vacant land sales with the contract purchase price of a home (improvements only). While these transactions cannot be used to meet the required minimum three closed comparables, these transactions, which are often completed as part of a construction-to-permanent loan transaction, may be included as additional support with appropriate commentary.
Age of the Comparable Sales
Comparable sales that have closed within the last 12 months should be used in the appraisal; however, the best and most appropriate comparable sales may not always be the most recent sales. For example, it may be appropriate for the appraiser to use a nine month old sale with a time adjustment rather than a one month old sale that requires multiple adjustments. An older sale may be more appropriate in situations when market conditions have affected the availability of recent sales, and the changing market conditions causing their use must be explained in the report.
Additionally, older comparable sales that are the best indicator of value for the subject property can be used if appropriate. For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales if they explain why they are being used.
Additional Requirements for New (or Recently Converted) Condos, Subdivisions, or PUDS
If the subject property is located in a new (or recently converted) condo project, subdivision, or PUD, it must be compared to other properties in the same market area and to properties within the subject condo project, subdivision, or PUD. This comparison should help demonstrate market acceptance of new developments and the properties within them. Generally, a subdivision is considered new when there are limited or no resales or the builder or developer is involved in the marketing or sale of the properties. See
and for the definition of a new condo project or PUD.
At a minimum, the appraisal report for these properties must include the following:
At least one settled comparable sale from the subject condo project, subdivision, or PUD. (A resale is preferable if it is verifiable and does not involve the subject builder or developer).
At least one settled comparable sale from outside the subject condo project, subdivision, or PUD.
A third settled comparable sale can be from inside or outside of the subject condo project, subdivision, or PUD. Settled comparable sales or resales from within the subject condo project, subdivision, or PUD are preferable to settled sales from outside the condo project, subdivision, or PUD provided the builder or developer of the subject property is not involved in those transactions.
In the event there are no settled comparable sales inside a new condo project, subdivision, or PUD because the subject property transaction is one of the first units to sell, the appraiser may use two pending sales in the subject project, subdivision, or PUD in lieu of one settled sale. The appraiser must also use at least three settled comparable sales from projects, subdivisions, or PUDs outside of the subject project, subdivision, or PUD.
If the subject property is part of a newly built or recently converted condo project, subdivision, or PUD that has 2-20 units and there are no settled or pending sales, the appraiser may use comparable sales from a competing project, subdivision, or PUD. The requirements in the following table apply.
✓
The appraisal report must...
Use competing projects, subdivisions, or PUDs of a similar size and type.
Explain why the comparable sales were chosen and demonstrate market acceptance.
Describe how the condo project, subdivision, or PUD chosen compares to the subject property.
Note: If the subject property is not the first unit under contract in the condo project, subdivision, or PUD, the appraiser must include one under contract sale from the subject's project, subdivision, or PUD as a supplemental exhibit.
To meet the requirement that the appraiser utilize one comparable sale from inside the subject project, subdivision, or PUD, the appraiser may need to rely solely on the builder of the property they are appraising, as this data may not yet be available through typical data sources (for example, public records or multiple listing services). In this scenario, it is acceptable for the appraiser to verify the transaction of the comparable sale by viewing a copy of the settlement statement from the builder’s file.
When providing builder sales from competing projects that are not presently available through traditional data sources, the appraiser must verify the sale from the applicable settlement statement and indicate on the appraisal report that the settlement statement was the document utilized for verification. Additionally, the appraisal must include discussion and analysis of sales concessions and upgrades for the subject property relative to concessions and upgrades for each builder sale. (For special appraisal considerations regarding condo projects, see
.)
Rural Properties
Rural properties often have large lot sizes, and rural locations can be relatively undeveloped. Therefore, there may be a shortage (or absence) of recent truly comparable sales in the immediate vicinity of a subject property. If the appraiser's analysis of the market data shows the best indicators of value for the subject property are a considerable distance away, those comparable sales can be used if it produces credible assignment results. The appraisal must include an explanation of why the particular comparables were selected.
Use of Foreclosures and Short Sales
It is acceptable to use foreclosures and short sales as comparables if the market data indicates they are the best and most appropriate sales available. The appraiser must address in the appraisal report the prevalence of such sales in the subject’s neighborhood and their impact. The appraiser must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it. The appraiser cannot assume it is equal to the subject property. For example, a foreclosure or short sale property may be in worse condition when compared to the subject property, especially if the subject property is new construction or was recently renovated. For appraisals that are required to be UAD compliant, the appraiser must identify the financing type as REO sale or short sale, as appropriate. (For specific information regarding comparable sale adjustments, seeFannie Mae and Freddie Mac Uniform Appraisal Dataset Specification, Appendix D: Field-Specific Standardization Requirements.
Uniform Appraisal Dataset (UAD) 3.6 Policy
Lenders using UAD 3.6 must follow the requirements in the
.
