20% +/- Square footage "Rule" for Comparing Comps

[ZMonet]

Can anyone point me to any written rule or guideline that specifies the max percentage square foot differential between two properties for the purposes of an appraisal? I've seen lots of posts stating that comps should be within 20%, but it would be very helpful to me if I could find some authority for that number. I've run into a situation on a subject property where the comps used are at 30 to 45% of the size and I'm looking to contest. For what it is worth, there are other properties closer to the subject in size, but those sales are more than a year old.

Any help GREATLY appreciated. Thanks!

 

[bnmappraisal]

There's no set rule

 

[Randolph Kinney]

Generally speaking, comparables should bracket the GLA of the subject. There is no hard rule to go by.

The problem becomes the larger percentage difference between the subject and a comparable, you can run into nonlinear correlation effects where adjustments are overstated or understated.

If you have few sales to begin with, you are stuck with sales that you have which may exceed the so called 20% "rule".

 

[Randolph Kinney]

Can anyone point me to any written rule or guideline that specifies the max percentage square foot differential between two properties for the purposes of an appraisal? I've seen lots of posts stating that comps should be within 20%, but it would be very helpful to me if I could find some authority for that number. I've run into a situation on a subject property where the comps used are at 30 to 45% of the size and I'm looking to contest. For what it is worth, there are other properties closer to the subject in size, but those sales are more than a year old.

Any help GREATLY appreciated. Thanks!

Fannie Mae Selling Guide
Published June 5, 2019

B4-1.3-09: Adjustments to Comparable Sales (01/31/2017)

Fannie Mae does not have specific limitations or guidelines associated with net or gross adjustments. The number and/or amount of the dollar adjustments must not be the sole determinant in the acceptability of a comparable. Ideally, the best and most appropriate comparable would require no adjustment; however this is rarely the case as typically no two properties or transaction details are identical. The appraiser’s adjustments must reflect the market’s reaction (that is, market based adjustments) to the difference in the properties.

For example, it would be inappropriate for an appraiser to provide a $20 per square foot adjustment for the difference in the gross living area based on a rule-of-thumb when market analysis indicates the adjustment should be $100 per square foot. The expectation is for the appraiser to analyze the market for competitive properties and provide appropriate market based adjustments without regard to arbitrary limits on the size of the adjustment.

If the extent of the appraiser’s adjustments to the comparable sales is great enough to indicate that the property may not conform to the neighborhood, the underwriter must determine if the opinion of value is adequately supported. (For further information regarding comparable selection, see B4-1.3-08, Comparable Sales.)
When there are no truly comparable sales for a particular property because of the uniqueness of the property or other conditions, the appraiser must select sales that represent the best indicators of value for the subject property and make adjustments to reflect the actions of typical purchasers in that market.

B4-1.3-09, Adjustments to Comparable Sales (06/04/2025)

This topic contains details on selected adjustments to the comparable sales, including

www.fanniemae.com

 

[Mr Rex]

There is no set rule but common sense would indicate GLA differences beyond 20% are not reasonable comparables in most markets.

 

[George Hatch]

Appraisers try to find the most similar properties they can find for comparison because the more similarities there are the less reconciliation it takes to refine those value indicators.

Ideally, we want to find a half dozen sales of the same floorplan on the same block that sold within the last 36 hours. Unfortunately the market doesn't usually cooperate by providing us with the quantity of highly comparable data that we would prefer to use. We are usually compelled to work with less than what we want because that's all there is in the market. Sometimes those datasets involve a larger number of the more similar properties (life is good) and it makes the analysis easy. But sometimes it's a struggle to find even a couple of relevant sales that have transpired within a reasonable time frame (life sux) and it makes the analysis more difficult.

What appraisers are not supposed to do is to use the outer limits of what they think they can get away with in terms of similarity and then filter them by price as a means of returning the highest possible value conclusion. The plan is to start close and expand only as less proximate" or as "less similar" as it takes to find a usable dataset. In terms of data selection we want to start from the inside and work our way out, not start at the outside and work our way in.

 

[glenn walker]

When I do my comp search I always use a 25% variance on the first run, because if you run 20% then you often miss a good comp that may only be 1% to 5% larger or smaller. Anyway If I was the reviewer the only one I would be looking hard at is the one with the 40%-45% variance. Are there no other more similar sales available say even if you have to go 12 months ? When our underwriters ran CU it prefers 8 to 12 month old sale's "V" a newer sale that has considerable differences in GLA.

In Summary :
The 20% is just a guideline and designed to try and keep the appraiser in the center lanes, So now you have to decide if that Sale with a 45% difference in size is really a true comparable ? or just a sale. I always give myself the what if test and ask myself if I could defend it's use if I got involved in litigation or if -it was refered to my State Board for review ?

 

[J Grant]

Can anyone point me to any written rule or guideline that specifies the max percentage square foot differential between two properties for the purposes of an appraisal? I've seen lots of posts stating that comps should be within 20%, but it would be very helpful to me if I could find some authority for that number. I've run into a situation on a subject property where the comps used are at 30 to 45% of the size and I'm looking to contest. For what it is worth, there are other properties closer to the subject in size, but those sales are more than a year old.

Any help GREATLY appreciated. Thanks!

There is no rule about % size differences, nor is there a rule about using comp sales over a year old. A year old is a fannie guideline, not a rule , and appraisers are free to use year old plus sales, just explain why (closer to size and appeal to subject than more recent sales ) and make a time adjustment if indicated.

In general, it is better to compare the most similar substitutes to subject as teh comps as possible, and that includes similar living area. However, there can be compelling reasons for an appraiser to use different sf comps, but if more similar sf comps of same quality, equivalent location etc the appraiser should not ignore them.

You can certainly contest an appraisal, ask for a reconsideration of value and send in the comps you believe should have been used and state why. If you need more than that you can pay to have the appraisal reviewed b a local comptent reviewer, but what that would yield you is questionable unless you have an interest in property as an estate etc. If you think the appraisal that was done rises to the level of negilacence or misleading you can take things further to a board complaint but explore the other options first.

 

[Tim Hicks (Texas)]

There is no rule. But, a 1500 sf home just is not a good comparable sales for a 1000 sf home unless there is nothing else to compare. A sale in the 800-1200 sf range would be for a 1000 sf home would ideally be more desirable. Think about it. a 2400-3600 range for a 3000 sf home, 1600-2400 for a 2000 sf home is just more practical. Of course, when they agent is protesting your value with 1000 sf home that sold for $150 psf, but your home is a 2000 sf home in the $130 psf range they fail to realize that the lot for 2000 sf home is not double the size of the 1000 sf home.

 

[RCA]

Hmmm. Well aside from whatever guidelines you may be working with, the only rule I believe is that you get a good model that can adjust for the GLA range you want to use. For example, let's say you have 120 sales comps for your area for the past two years, you run MARS or Earth and get an R2 of 0.80 on a GLA range of 800sf-3500sf, first run. You score the comps based on first model, create the residuals, rank and score the residuals and then rerun MARS on the residual scores. You will then likely get an R2 of 0.98 or better. Then you select your best 12 comps based on all factors, in particular Quality/Condition/Appeal/etc - really whatever your model tells you are the most important features for value. After running adjustments against the subject, you get 3-4 comps within 0.5% of the average, 3-4 comps between 0.5 and 1% of the average and the rest between 1 and 2% of the average. If your comps range from 800sf to 3500sf, it's demonstrating the power of your model, it's confirmation you know what you are doing. .... IMO JUST REMEMBER: Same treatment for all comps, - be consistent.