The Secret to Precise Valuations? It's not what you think.
When real estate professionals talk about “comparable properties,” or “comps,” they’re referring to the backbone of property valuation. Whether you’re preparing a Comparative Market Analysis (CMA) for a seller or advising a buyer, comps are the essential reference points that help determine a property’s market value.
But what exactly makes a property “comparable,” and are we missing something by focusing solely on the technical side of the equation?
The traditional definition of a comparable property
If you’ve ever taken an appraisal course or leafed through a real estate textbook, you’ll find a familiar checklist for what constitutes a comparable property:
Architectural Style: Properties should share the same or very similar design and structure.
Age: Homes built around the same time are more likely to have similar systems, layouts, and potential issues.
Location: Proximity matters—not just the same city, but ideally the same neighborhood or even the same block.
Market Conditions: Sales must have occurred in a similar economic climate to ensure that price comparisons are valid.
Size and Features: Square footage, number of bedrooms and bathrooms, lot size, and amenities like garages or pools all factor in.
These criteria are essential for creating a level playing field when comparing properties. They ensure that the “product” being evaluated is as close as possible to the subject property and that the “community” context is consistent. This technical rigor is the foundation of accurate valuation.
The missing ingredient: Human behaviour
However, there’s a crucial element that traditional valuation models often overlook: the human factor. Real estate is not just about bricks, mortar, and numbers—it’s about people, their motivations, and their emotions.
One of the most important, yet underappreciated, questions when selecting comps is: Is the price range within the buying power of the target market? In other words, when listing a property, what is the actual buying ability of a typical buyer for this home? When working with buyers, are the comps within their realistic financial reach?
In my own career, I’ve always wished for unlimited resources to spend time interviewing buyers directly about their decisions.
During the early days of the Urea Formaldehyde Foam Insulation (UFFI) controversy, when buyers began purchasing homes with UFFI, I conducted direct interviews with about 100 buyers. I wanted to understand only what they bought, but why they bought.
The answers were rarely just about price, size, or location. They were about family, aspirations, fears, and sometimes, simple gut feeling.
Why emotions matter in valuation
Traditional appraisal methods rarely measure the emotional level of buyers or sellers, yet these emotions can have a profound impact on value. A home that “feels right” to a buyer may command a premium, even if it’s not the best deal on paper.
Conversely, a property with a stigma (like one with a history of UFFI, for instance) may sell for less, despite meeting all the technical criteria for a comparable property.
Buyers are influenced by school districts, proximity to family, neighborhood reputation, and even the colour of the front door. Sellers, too, may hold out for a higher price because of sentimental attachment, or accept a lower offer for a quick sale due to life changes. These human factors are difficult to quantify, but they’re real—and they move markets.
Bridging the gap: A holistic approach to comparables
So, what’s the takeaway for Realtors and appraisers? While it’s essential to follow the technical guidelines for selecting comps, don’t lose sight of the people behind the transactions. When preparing a CMA or advising a client, consider:
*Who are the likely buyers?
*What is their financial capacity, and what motivates them?
*What emotional factors are at play?
*Are there features or stories that might add or subtract value in the eyes of buyers?
*How do recent sales reflect buyer psychology?
*Did a bidding war break out over a home with a unique feature? Did a property linger because it “felt wrong”?
By combining rigorous technical analysis with an understanding of human behavior, Realtors can provide more accurate, nuanced, and ultimately more valuable guidance to their clients.
A science, and an art
Comparable properties are the cornerstone of real estate valuation, but they’re only part of the story. The most successful real estate professionals recognize that behind every sale is a human drama, full of hopes, fears, and dreams. By acknowledging both the science and the art of valuation, we serve our clients—and our industry—better.
Article courtesy of Barry Lebow
Barry Lebow, FRI, ASA, ABR, SREA, SRES, IFAS is an active Realtor and highly regarded real estate authority in Canada.
But what exactly makes a property “comparable,” and are we missing something by focusing solely on the technical side of the equation?
The traditional definition of a comparable property
If you’ve ever taken an appraisal course or leafed through a real estate textbook, you’ll find a familiar checklist for what constitutes a comparable property:
Architectural Style: Properties should share the same or very similar design and structure.
Age: Homes built around the same time are more likely to have similar systems, layouts, and potential issues.
Location: Proximity matters—not just the same city, but ideally the same neighborhood or even the same block.
Market Conditions: Sales must have occurred in a similar economic climate to ensure that price comparisons are valid.
Size and Features: Square footage, number of bedrooms and bathrooms, lot size, and amenities like garages or pools all factor in.
These criteria are essential for creating a level playing field when comparing properties. They ensure that the “product” being evaluated is as close as possible to the subject property and that the “community” context is consistent. This technical rigor is the foundation of accurate valuation.
The missing ingredient: Human behaviour
However, there’s a crucial element that traditional valuation models often overlook: the human factor. Real estate is not just about bricks, mortar, and numbers—it’s about people, their motivations, and their emotions.
One of the most important, yet underappreciated, questions when selecting comps is: Is the price range within the buying power of the target market? In other words, when listing a property, what is the actual buying ability of a typical buyer for this home? When working with buyers, are the comps within their realistic financial reach?
In my own career, I’ve always wished for unlimited resources to spend time interviewing buyers directly about their decisions.
During the early days of the Urea Formaldehyde Foam Insulation (UFFI) controversy, when buyers began purchasing homes with UFFI, I conducted direct interviews with about 100 buyers. I wanted to understand only what they bought, but why they bought.
The answers were rarely just about price, size, or location. They were about family, aspirations, fears, and sometimes, simple gut feeling.
Why emotions matter in valuation
Traditional appraisal methods rarely measure the emotional level of buyers or sellers, yet these emotions can have a profound impact on value. A home that “feels right” to a buyer may command a premium, even if it’s not the best deal on paper.
Conversely, a property with a stigma (like one with a history of UFFI, for instance) may sell for less, despite meeting all the technical criteria for a comparable property.
Buyers are influenced by school districts, proximity to family, neighborhood reputation, and even the colour of the front door. Sellers, too, may hold out for a higher price because of sentimental attachment, or accept a lower offer for a quick sale due to life changes. These human factors are difficult to quantify, but they’re real—and they move markets.
Bridging the gap: A holistic approach to comparables
So, what’s the takeaway for Realtors and appraisers? While it’s essential to follow the technical guidelines for selecting comps, don’t lose sight of the people behind the transactions. When preparing a CMA or advising a client, consider:
*Who are the likely buyers?
*What is their financial capacity, and what motivates them?
*What emotional factors are at play?
*Are there features or stories that might add or subtract value in the eyes of buyers?
*How do recent sales reflect buyer psychology?
*Did a bidding war break out over a home with a unique feature? Did a property linger because it “felt wrong”?
By combining rigorous technical analysis with an understanding of human behavior, Realtors can provide more accurate, nuanced, and ultimately more valuable guidance to their clients.
A science, and an art
Comparable properties are the cornerstone of real estate valuation, but they’re only part of the story. The most successful real estate professionals recognize that behind every sale is a human drama, full of hopes, fears, and dreams. By acknowledging both the science and the art of valuation, we serve our clients—and our industry—better.
Article courtesy of Barry Lebow
Barry Lebow, FRI, ASA, ABR, SREA, SRES, IFAS is an active Realtor and highly regarded real estate authority in Canada.
