Understanding Subject vs. Comparable in Real Estate: A Comprehensive Guide

Real estate appraisals and property valuations rely on the concepts of subject property and comparables. These terms are instrumental in determining the value of a property. While the subject property is the property being valued, comparables are similar properties used to assess its value. In this article, we will delve into the nuances of these terms and explore how they are used in real estate evaluations.

What Are Subject vs. Comparable in Real Estate?

When engaging in property appraisals, real estate professionals and appraisers often use the terms subject property and comparables. The subject property is the specific property being priced or evaluated. This could be a house, apartment, or any other form of real estate.

The comparables, on the other hand, are similar properties that are used to gauge the value of the subject property. These properties should be very close or identical in terms of size, age, location, and characteristics. Adjustments are then made to account for any differences between the comparables and the subject property within established guidelines.

Examples of Subject vs. Comparable in Real Estate

Let’s consider an example to illustrate the concept. If the subject property is a 1500 square foot home located in a specific neighborhood, it might be compared to a 1700 square foot home, which is very similar in size, age, and location. An appraiser would make a downward adjustment to the comparable’s value for the 200 square foot difference.

For instance, if the 1700 square foot home recently sold for $350,000, an appraiser might adjust that price downward to accurately reflect the 1500 square foot home. The adjustment might be based on factors such as the home’s condition, location, and any additional features that make it different from the subject property. The goal is to provide a fair and accurate valuation of the subject property.

Real Estate Appraisal and Pricing Using Comps

Successful real estate pricing relies on the careful selection and analysis of comparables. Let’s go through a step-by-step process on how to approach pricing using comparables:

Step 1: Define the Subject Property

The subject property is typically the home you are evaluating to list for sale or a home a client is interested in purchasing. For example, consider a 3-bedroom, 2-bathroom home built in 1980 with a 0.25-acre lot and a three-car attached garage. The characteristics of this home become your guideline for finding suitable comparables.

Step 2: Draw a Circle Around the Subject Home

Using the details of the subject property, you will search the Multiple Listing Service (MLS) for properties that are similar, preferably within the same neighborhood. Start by drawing a small circle around the subject property and run an MLS search for homes that match these attributes. Aim to find at least three comparable properties that closely match the subject property’s specifications.

Step 3: Vary the Radius If Necessary

If your initial search does not yield enough comparables, you can widen the circle. The focus is on finding properties that are as close as possible in terms of size, age, condition, and features. This ensures that the comparables are a good representation of the subject property.

Step 4: Choose the Most Similar Comparables

From the initial list of comparables, select the three or four that are the most similar to the subject property. Pay attention to factors such as:

The number of bedrooms and bathrooms The year the home was built The size of the lot The presence and condition of the garage Any upgrades or renovations Any unique features that the subject property has

These details help in determining the most appropriate comparables and make them more interchangeable.

Step 5: Adjust the Value of the Comps

Once you have a small group of comparables, you will make adjustments to each of their sale prices based on the differences between them and the subject property. The adjustments are made to align the value of the comparables with the subject property, ensuring an accurate valuation.

For instance, if one comparable sold for $350,000 but is 200 square feet larger, you might adjust that price to something closer to the subject property’s value. The adjustments can be made for factors such as condition, location, and any unique features.

Step 6: Develop an Estimated Value

After making the necessary adjustments to the comparables, you can develop an estimated value for the subject property. This involves considering the most similar comparables and their adjusted values to determine a fair and accurate estimate of the property’s value.

This process can be quite complex, as it involves matching properties that may not perfectly align. However, with careful consideration of the characteristics of each comparable, the valuation process can be made more straightforward.

Conclusion

Understanding the difference between a subject property and comparables is crucial for both real estate appraisals and pricing. By carefully selecting and analyzing comparable properties, you can provide a fair and accurate valuation of the subject property. Appraisers and real estate professionals who follow these guidelines have a good chance of achieving a valuation that closely matches market expectations.

Whether you are evaluating a property for a client or listing a home for sale, mastering the art of identifying and using comparables will significantly enhance your ability to provide accurate real estate valuations and pricing.