What If There Are No Comps To Price A Listing?
Sometimes when speaking at real estate agent meetings I will be asked what an agent can do when there are no comps to price a listing. Finding good sales can sometimes be difficult but it has to be done in order to accurately list a home for sale.
I am a big believer that if agents can mirror the process that appraisers go through when performing an appraisal their results will be more similar. This can hopefully help reduce the likelihood that the mortgage appraiser’s final value opinion will be drastically different than the contract price.
Agents sometimes box themselves into a corner by not knowing where to look for comps or not knowing what they can use as comps. Similar nearby homes that have recently closed are the best comps to use but what if you can’t find any, then where do you look?
When You Think There Are No Comps To Price A Listing Follow These 6 Tips
Today I’m going to share with you what appraisers do when they cannot find similar and nearby sales to use as comps. Please leave a comment below and let me know your thoughts or any questions you might have.
1) Instead of staying in the immediate subdivision, expand into the surrounding neighborhood- If
there are good sales within the subject’s subdivision then, by all means, use them but sometimes this is not the case.
Rather than stay within the subdivision you can expand out into the nearby neighborhood. This can be an adjacent subdivision or nearby area that has similar homes.
You will want to make sure that your search criteria adequately define the physical characteristics of the property you are pricing. This involves bracketing the age, size, condition, quality, and features of the house to make sure that you are comparing apples to apples.
2) Go a little further back in time- It’s okay to initially search for sales that have occurred within the past 90 days but if there are none then you can incrementally go further back in time.
Reaching back for sales a month at a time will help you stay focused on using the most recent sales. I personally will not go over one year except in rare situations. If you cannot find any sales within the past 12 months then you will want to go to the next step.
3) Go to another competing neighborhood- If a search of the subject’s subdivision and the adjacent neighborhood does not turn up any sales then you will want to look for other competing neighborhoods.
A competing neighborhood, also known as a competitive market area, is one that a buyer would go to if they could not find a home in the subject neighborhood. It would have homes that are similar in style, age, quality, price range, and school systems.
This is where some agents get tripped up because sometimes these competing neighborhoods are further away than agents think they can go. Fannie Mae does not have distance requirements but they do note that appraisers have to document why the comparables were used.
If appraisers can use sales that are outside of the immediate neighborhood then agents should be able to look there as well. This is not, however, an excuse to go to another neighborhood with higher values in order to “support” a higher list price to accommodate a seller or for some other reason.
4) Look at pending sales- Pending sales can provide insight into what is currently happening within a certain neighborhood or sub-market.
Appraisers cannot get by with only using pending sales so I don’t think agents should only look at pending sales. They should be used along with closed sales to gauge the temperature of the market.
Not all pending sales are the same. The best kind of pending sale is one that has had everything completed such as financing, appraisal, credit, etc. and they are just waiting to close.
Pending sales give a current snapshot of what is going on at the current time. This, combined with closed sales can provide a powerful picture of how your listing “fits” into the market and it can help you decide where to price it at.
5) Look for private sales in public records or on FSBO sale sites- I don’t think this is something that many agents take the time to do.
Searching the MLS is definitely easier but if you cannot find good recent sales then you may want to try this. Sifting through county records can be tedious but it may help you find the piece of the puzzle you need to accurately price your listing.
Sometimes the online “For Sale By Owner” sites list homes they have recently sold. If this is the case it may help you locate recent sales to use in your CMA, however, details of the sale should be verified to make sure they were arm’s length transactions.
6) Look at expired or withdrawn listings- It’s true that many listings are overpriced, however as a 
group these properties can still help paint a picture of value in the area.
If a listing is overpriced and does not sell that can give you an idea of what the upper end of the market is. How can this help?
It can be a litmus test for a high list price that the seller suggests. We all know that some sellers are headstrong on what they would like their home listed for, however, if you are armed with expired listing information that proves their suggestion is too high this can help you avoid your listing expiring or being withdrawn because it won’t sell.
Conclusion
It is my opinion that you should always be able to find sales to price your listings. With that being said, the comparables you use may vary in different features from that of the subject.
For example, you may have to expand distance guidelines or go a little further back in time if no recent sales have occurred within the immediate subdivision.
I hope the information I have provided here will give you food for thought when you think there are no comps to price your listings. If you have any questions feel free to contact me and as always thanks for reading.
Great article, Tom. I just spoke with an agent today about a situation like that where the current market is completely lacking for something similar both in listings and sales. I then talked about the market trends for the neighborhood overall since it last sold. I love seeing all of the other blogs!
Thanks, Glen. I think communication is key when agents and appraisers are working together. Good to see you are providing a great education to local agents.
Tom, do you think it best for agents not trained in the techniques of appraisal to avoid trying to equalize property values on a grid and, instead, stick to the sales (or non-sales) data for pricing purposes?
That’s a great question, Randy. I share with agents how appraisers perform appraisals in regards to choosing comps and how we look at square footage and price per square foot. With that being said I realize that it is beyond most agent’s skill sets to analyze and develop dollar adjustment amounts to apply to your listings. Adjustments are property and location specific and will change, however, something that I recommend and have written about is to use a qualitative approach to come up with a list price. When you use this approach you don’t need to know dollar adjustments since you look at how the subject property compares to the comparables. I recommend you check out that post and if you have any questions please let me know.
Thanks Tom. Good advice here. I’m a big fan of going back in time. Sometimes we need to see a history of trends and sales to understand the market for today. This doesn’t always work, but it’s like tunnel vision if we’re only looking at the past 3-6 months at times. In fact, the other day I appraised something where my best comp was from 2015. This was for a private client. I can only imagine the struggle an appraiser is going to have when doing this for a lender though….
Thanks for sharing, Ryan. I’m glad you brought up the fact that appraisers are able to use older homes in private appraisals more easily than with mortgage appraisals. Sometimes that older sale is the best one and it is okay to use it but we should explain exactly why we did it.
Awesome article Tom, I will have to share. I hear many agents sticking to 1 mile and 6 month guidelines which do not really exist as guideline we as appraisers follow. I do so much more than residential lending but it is a great idea and point to check expired and canceled listings to gauge what price point we’re not attracting buyers or more so if any of those properties closed off of the MLS, similar with checking buy owner sales on internet site, I will not name. Canceled and expired listings are key to many of my commercial assignments and over 1 year to even 2 is part of my search for complex or unique properties.
Thanks for sharing your experience, Ernie. You made a good point that I really did not touch on but have done myself. Checking to see if an expired or withdrawn listing closed outside of the MLS is a good method too. Going further back in time is sometimes the best thing we can do especially in markets with limited sales. We just need to explain why we did it.
Hey Tom!
Great post! The points you made are spot on. If agents use your tips instead of trying to derive a value using a price per sq ft method, they will be ahead of the game in terms of accurate pricing.
Thanks, Jamie. I hope that it gives them additional options to consider. I know some that don’t know that they can go a little further away and back in time.