What the Sales Comparison Approach Means for Your Loan
When you apply for a mortgage, the appraiser will determine your home's value by comparing it to similar properties that sold recently. This process, called the sales comparison approach, forms the backbone of nearly every residential appraisal.
The appraiser starts with at least three comparable sales, ideally from the past 12 months. These "comps" should be as similar to your property as possible in terms of size, age, condition, and location. Think of it like comparing cars of the same make, model, and year to determine fair market value.
Say you're buying a 2,000-square-foot ranch built in 1995 in a suburban neighborhood. The appraiser will look for other ranch homes of similar size and age that sold recently in your area. If one comparable sale was 2,200 square feet, the appraiser might subtract $15,000 from that sale price to account for the extra 200 square feet.
How Appraisers Make Adjustments
Every difference between your property and the comparable sales requires an adjustment. The appraiser must explain each adjustment and assign a dollar amount that reflects how the market values that difference.
Location gets rated as Neutral, Beneficial, or Adverse compared to the comparable sales. A home backing to a busy highway might get an Adverse location rating, while one on a quiet cul-de-sac could be Beneficial. The appraiser then adjusts the comparable sales up or down based on these location differences.
View receives the same Neutral, Beneficial, or Adverse rating system. A property with mountain views will likely get a Beneficial rating, while one facing a parking lot might be Adverse. The appraiser must quantify how much the market pays for better or worse views.
Condition and quality differences also require adjustments. If your home has been recently updated while a comparable sale needed significant repairs, the appraiser will adjust that sale price downward to reflect the condition difference.
Special Rules for Sales Concessions
Sales concessions can significantly impact the appraisal process. These include seller-paid closing costs, buyer agent bonuses, or other incentives that artificially inflate the sales price.
The appraiser must identify and adjust for these concessions. If a comparable sale included $8,000 in seller-paid closing costs, the appraiser might reduce that sale price by $6,000 if market data shows concessions typically reduce the effective sales price by 75% of their face value.
Normal closing costs that sellers typically pay don't require adjustments. If sellers in your area routinely pay transfer taxes or certain fees, those costs won't trigger concession adjustments since they're standard market practice.
Market Condition Adjustments
Appraisers must analyze market trends over the past 12 months and adjust comparable sales for any market changes between when those properties went under contract and your appraisal date.
If the market has been appreciating at 6% annually, a comparable sale that closed six months ago might receive a 3% upward adjustment. Conversely, if values have been declining, older sales might be adjusted downward.
The appraiser uses data from multiple listing services, public records, and market indices to support these adjustments. They can't simply guess at market trends - they need factual data to back up their analysis.
Requirements for New vs. Established Developments
The rules change depending on whether you're buying in an established neighborhood or a new development. For established subdivisions, appraisers should use sales from within your subdivision when they're the best indicators of value.
New subdivisions face stricter requirements. The appraiser needs at least one sale from inside your development (when available) and at least one from outside. If your subdivision is so new that no sales exist yet, the appraiser can use all outside sales but must explain the development's marketability.
At least two of the comparable sales must involve transactions where the builder wasn't involved. This prevents builders from manipulating values through related-party sales.
What Documents Support the Appraisal
The appraiser must research and document the sale and listing history for both your property and all comparable sales. This includes any current purchase contracts, listings in the past 12 months, and sales or transfers in the past three years.
For comparable sales, the appraiser checks for any sales or transfers in the year before each comparable sold. This helps identify potential flip situations or other factors that might affect the sale's reliability.
Your lender will review this sale history as part of their underwriting process. They're looking for red flags like rapid resales at inflated prices or suspicious transaction patterns.
Common Problems That Complicate Appraisals
Rural properties often present challenges because comparable sales may be older, farther away, or less similar than ideal. The appraiser must justify using these less-than-perfect comparables and make appropriate adjustments.
If you're buying a unique property - perhaps a custom home on acreage - finding truly comparable sales becomes difficult. The appraiser might need to use properties that differ significantly in style or lot size, requiring larger adjustments.
Market volatility can also create problems. In rapidly changing markets, six-month-old sales might not reflect current conditions, forcing appraisers to rely on more recent but potentially less similar properties.
Properties with unusual features face additional scrutiny. A home with a swimming pool in an area where pools are rare, or a property with significant acreage in a suburban setting, requires careful analysis to determine how the market values these unique characteristics.
The appraiser's job becomes more complex when dealing with distressed sales, estate sales, or other non-arm's length transactions among the comparable sales. These situations require additional explanation and may need to be discounted or excluded entirely.
References
For the official guidelines, see 5605.6: Sales comparison approach in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
Bulletin 2025-7
, which announced the policy requirements for Uniform Appraisal Dataset (UAD) 3.6. Sellers may submit to the Uniform Collateral Data Portal
®
appraisal reports that use UAD 3.6 before the mandatory effective November 2, 2026 version of this section and
Section 5605.7
.
Freddie Mac requires that all appraisal reports include a sales comparison approach. This section contains requirements related to:
Sales and financing concessions
Market Area analysis and market condition adjustments
Condition and quality
Selection of comparable sales and analysis
Sale and listing history
For special appraisal requirements for HeritageOne
®
Section 4504.9
.
(a)
Adjustments
Each comparable sale must be analyzed for similarities and differences between it and the subject property. When the appraiser’s analysis concludes an adjustment is necessary, the appraisal report must include adjustments for differences and indicate the dollar amount of the adjustment to reflect the value of the differences to the market.
The appraisal report must contain an explanation of the basis and rationale for all adjustments (or, if necessary, lack of adjustments).
Comparable sales must be adjusted to the subject property except for sales and financing concessions that must be adjusted based on their effect on the sales price of the comparable sale. Large adjustments typically occur in rural markets, and with unique properties, due to limited market activity. Freddie Mac does not have limitations on gross or net adjustment percentages. See subsection
(c)
below for market condition adjustment requirements.
(b)
Sales and financing concessions
The appraisal report must identify how the sales were verified and whether concessions were granted.
Sales or financing concessions may be offered by interested parties to the transaction (e.g., the builder, developer, property seller or real estate agent).
Adjustments to the comparable sales must be made for special or creative financing or sales concessions. No adjustments are necessary for costs that are normally paid by property sellers as a result of tradition or law in a Market Area; these costs are readily identifiable since the property seller pays these costs in virtually all sales transactions.
Adjustments to a comparable sale with a concession(s) must reflect the actual effect on the sales price of that comparable sale; that effect may be equal to, lower than or higher than the actual amount (or value) of the concession.
Note: For Seller treatment of concessions, see
Section 5501.6
.
(c)
Market Area analysis and market condition adjustments
The market trend (increasing, stable or declining) must be based on factual data from information sources, such as, but not limited to, market data, home price indices, multiple listing services, public records and/or models. The market trend identified in the appraisal report must reflect the overall movement of the market based on a minimum of 12 months of data.
A specific market condition adjustment to a comparable sale may differ from the identified market trend since the determination of whether to make an adjustment to a comparable sale is based on market changes between the contract date of the comparable sale and the effective date of the appraisal.
Example:
The 12-month trend indicates a positive overall trend, although the market was stable (or declining) between the contract date of the comparable sale and the effective date of the appraisal report. (See
Exhibit 44, Market Condition Adjustments
.)
Comparable sales with a contract date that is recent in relation to the effective date of the appraisal report may not have a market condition adjustment, given the inability to identify a change in the market.
The appraisal report must contain the market analysis that supports the market trend and any adjustments made for market conditions.
(d)
Location
For appraisal report forms that are required to be completed using the UAD, the appraisal report form must include a rating of the location of the subject property and each comparable sale by providing a rating of either “Neutral,” “Beneficial” or “Adverse.”
The location rating (which will be abbreviated as N, B, or A in the appraisal report form) describes the overall effect of the location of the subject property within the Market Area on the value and marketability of the subject property and is not a rating of the overall Market Area. See Appendix D – Field Specific Standardization Requirements of the Uniform Appraisal Dataset Specification (“UAD Specification”) for additional requirements regarding location.
Rural locations often have less real estate sales activity than more populated areas. Property sales in rural locations often involve a variety of property types and may have relatively large parcels compared to other locations. Given the potential challenges with appraising properties in rural Market Areas, the appraiser must be knowledgeable about the varying conditions that characterize properties in a particular geographic area.
When appraising properties in rural Market Areas, the appraisal report may contain older comparable sales, comparable sales that are a considerable distance from the subject property or comparable sales that are not ideally similar to the subject property. The appraisal report must include justification and support in the appraisal report for the use of any such comparable sales and make appropriate adjustments to account for the differences between the comparable sales and the subject property.
Example:
If the subject property is a ranch-style home on a large parcel of land (e.g., 44 acres), the most relevant comparable sales may be two-story homes on smaller parcels (e.g., 6–12 acres) that are some distance from the subject property (e.g., 8–18 miles away).
(e)
View
For appraisal report forms that are required to be completed using the UAD, the overall view associated with the subject property and each comparable sale must be rated as either “Neutral,” “Beneficial” or “Adverse.” The UAD view rating (which will be abbreviated as N, B or A in the appraisal) describes the overall effect of the view associated with the subject property on the value and marketability of the subject property. See Appendix D – Field Specific Standardization Requirements of the UAD Specification for additional requirements regarding view.
Section 5606.1
for additional information related to UAD requirements.
(f)
Condition and quality
Adjustments must be made for differences in condition and quality between the subject property and each comparable sale The appraisal report may contain an adjustment for differences in quality and condition between the subject property and a comparable property, even though the properties have the same UAD quality or condition rating. In this case, an explanation must be provided in the appraisal report.
Section 5605.5
for information related to property condition and quality of construction,
Section 5606.1
for information related to UAD requirements and
Exhibit 36, Condition and Quality Ratings and Level of Updating Definitions
.
(g)
Selection of comparable sales and analysis
The appraisal report must contain a minimum of three comparable sales as part of the sales comparison approach. The appraisal report may include more than three comparable sales, including contract sales (pending sales) and/or current listings, to support the opinion of market value.
The appraisal report should include comparable sales that closed within 12 months; however, older comparable sales may be used. The appraisal report must provide commentary on the reasons for using any comparable sales that are more than six months old.
The proper selection of comparable properties minimizes both the need for, and the size of, any adjustments. This typically includes characteristics such as:
Site
When choosing comparable sales, it’s important to identify the Neighborhood in which the subject property is located and determine whether the Neighborhood represents the Market Area or the Market Area is larger than the Neighborhood. The appraiser may need to use comparable sales from outside the subject property’s Market Area, and, in such cases, location adjustments may be necessary. When comparable sales are located outside the Market Area, the appraisal report must contain commentary explaining the rationale for the selected comparable sales.
There may be no similar comparable sales for a subject property because of the uniqueness of the subject property or other conditions.
Comparable sales may be taken from a competing Market Area if they are better than the comparable sales in the subject’s Market Area.
(i)
Comparable sale requirements for properties in established subdivisions, established Planned Unit Developments (PUDs) and Established Condominium Projects
For properties in established subdivisions, units in established PUDs or units in Established Condominium Projects, the appraisal report should contain comparable sales from within the subject subdivision or project when they are the best indicators of value for the subject property.
Section 5705.8
for specific requirements regarding selection of comparable sales for units in a Cooperative Project.
(ii)
Comparable sale requirements for properties in new subdivisions, new PUDs and recently converted or New Condominium Projects
To demonstrate the marketability and develop an opinion of market value for properties in new subdivisions, units in new PUDs or units in recently converted or New Condominium Projects, the appraisal report must contain:
At least one comparable sale from inside the subject subdivision, PUD or project, when available. Additionally:
The comparable sale from inside the subject subdivision, PUD or project can be a sale by the builder or developer of the subject property
If there are no closed comparable sales from inside the subject subdivision, PUD or project, contract sales from inside the subject subdivision, PUD or project may be used to satisfy this requirement.
The use of contract sales must be in addition to the three actual closed sales from outside the subject subdivision, PUD or project.
If the subject subdivision, PUD or project is so new that a closed sale or a contract sale is not available, comparable sales from outside the subject subdivision, PUD or project may be used.
In this case, the appraisal report must contain commentary on the marketability of the new subdivision, PUD or project and justification supporting the use of the comparable sales from outside the new subdivision, PUD or project.
At least one comparable sale from outside the subject subdivision, PUD or project
Resales from inside the subject subdivision or project are preferable as comparable sales and should be given significant consideration, as they provide a reliable indicator of the market value of units within the subdivision, PUD or project.
At least two comparable sales must be sales in which the builder or developer of the subject property was not involved in the sale transaction.
Section 5705.8
for specific requirements regarding selection of comparable sales for units in a Cooperative Project.
(h)
Sale and listing history
The appraisal report must demonstrate the appraiser researched, verified and analyzed:
Any current agreement for sale for the subject property
Any offering for sale of the subject property in the 12 months before the effective date of the appraisal
Any sales or transfers of the subject property in the three years before the effective date of the appraisal
Any sales or transfers of each comparable sale in the year before the date of sale of the comparable sale
The Seller’s determination of the acceptability of each appraisal should include an analysis of the sale and listing history. The Seller must confirm the sale price trend relative to the appraiser’s opinion of market value is reasonable and representative of the market.
For purchase transactions, the Seller should analyze the appraisal report and the current contract for sale for the subject property.
For both purchase and refinance transactions, the Seller’s underwriting analysis of the appraisal report should include any current listing or offering for sale for the subject property, the sales history of the subject property and comparable sales and the current ownership of the subject property.
To reduce the Seller’s risk of liability resulting from fraudulent or inaccurate appraisals, the Seller should analyze the subject property and comparable sales and evaluate the time elapsed between the date(s) the property was acquired and the date(s) resold, or the date of the current resale contract, if applicable.
If the sales history of the subject property or comparable sales indicates current or prior sale prices may be excessive, and resale dates occurred shortly after the property seller’s acquisition of the property, the appraisal report should provide evidence to justify and support a rapidly appreciating real estate market, significant improvements that resulted in a corresponding increase in the property value or a previous sale that was below market value due to a distress or tax sale.
