8.3 Elements of Comparison
Key Takeaways
- Elements of comparison are the characteristics that explain price differences between the subject and each comparable sale.
- Transactional elements are property rights conveyed, financing terms, conditions of sale, expenditures made immediately after purchase, and market conditions (time).
- Property elements include location, physical characteristics, economic characteristics, use/zoning, and non-realty components of value.
- Transactional differences are analyzed before property differences because they put each sale on a cash-equivalent, arm’s-length, same-date basis.
- Only differences that the market recognizes and that can be supported should be adjusted; not every observable difference is a value difference.
From Similar Sales to Explained Differences
Even well-chosen comparables are not clones of the subject. AQB ECO IV.c Elements of comparison requires you to identify what differs and whether the market pays for that difference. Elements of comparison are the organized checklist of transactional and property characteristics used in the sales comparison grid.
Two categories:
- Transactional elements — about the deal (rights, money terms, motivation, post-sale spend, date/market)
- Property elements — about the real estate (location, physical, economic, use, non-realty)
| Category | Elements (classic list) |
|---|---|
| Transactional | Real property rights conveyed; financing terms; conditions of sale; expenditures immediately after purchase; market conditions |
| Property | Location; physical characteristics; economic characteristics; use; non-realty components of value |
Memorize both lists. Exam items often ask which element a vignette illustrates, or which adjustment comes first (sequence is Section 8.4).
Transactional Elements
1. Real Property Rights Conveyed
The sale price is a price for a bundle of rights, not merely a building. If the subject is fee simple (or the rights specified in the assignment) and a comparable sold as leased fee, leasehold, life estate, or subject to a burdensome easement, the prices are not automatically comparable.
| Rights scenario | Issue |
|---|---|
| Comp sold subject to long-term below-market lease | Leased fee may be worth less than fee simple unencumbered |
| Comp included transferable development rights subject did not | Rights richer than subject |
| Comp excluded mineral rights that subject includes | May need rights adjustment if minerals have value |
| Comp was a partial interest (undivided 50%) | Not a 100% fee sale without expansion |
Exam focus: Match rights appraised to rights sold, or adjust/reject.
2. Financing Terms
Market value definitions usually assume cash or cash-equivalent financing at market rates. Nonmarket financing can change the contract price:
- Seller-paid buydowns or large concessions that inflate price
- Below-market purchase-money mortgage from seller
- Assumable loan at a rate far below current market (when assumptions are allowed and valuable)
- Atypical land contract terms
Cash equivalency restates the price to what a cash buyer would have paid. If a buyer pays a higher contract price because the seller provided cheap financing, part of the price may be payment for financing, not for real estate.
| Financing fact | Typical SCA response |
|---|---|
| Market-rate new loan, normal points | Often no financing adjustment |
| Seller pays 3% closing costs common to market | May already be “in” market prices—compare like with like |
| Seller buydown unique to one sale, price elevated | Financing/concessions adjustment toward cash-equivalent |
| Related-party note at 0% interest | Strong cash-equivalency or rejection concern |
3. Conditions of Sale
Conditions of sale address motivation and whether the transfer was arm’s-length under typical market exposure.
| Condition | Market-value concern |
|---|---|
| Arm’s-length, normally marketed | Ideal |
| Related parties (parent–child, partners) | Price may not be market |
| Urgent relocation / job transfer | Possible discount |
| Assemblage buyer needing site | Possible premium |
| REO / short sale / foreclosure | Possible discount; analyze exposure and condition |
| Auction with poor exposure | May not equal negotiated market price |
Adjust only when the atypical condition affected price and you can support the amount. Sometimes the correct action is rejection, not a guesswork percentage.
4. Expenditures Immediately After Purchase
Buyers sometimes price a property knowing they must spend money immediately after purchase to make it usable as intended—examples: deferred roof replacement required by lender, demolition of a worthless structure, mandated life-safety repairs, or environmental cleanup the buyer assumed.
If the comparable’s sale price is low because the buyer had to pour in post-sale dollars, adding those expenditures immediately after sale (when supported) puts the sale on a basis comparable to a property that did not need that immediate spend.
Logic: Price paid + required immediate expenditures ≈ what the buyer effectively invested to obtain a property in the post-repair state.
| Example | Treatment sketch |
|---|---|
| Comp sold for $300,000; buyer must spend $25,000 immediately on roof the market required | Analyzed price basis may be $325,000 before other adjustments |
| Buyer’s optional luxury remodel six months later | Not “immediately required”—do not add |
| Subject also needs the same roof | Do not create a false difference |
Exam trap: Confusing optional renovations with necessary expenditures known at purchase that influenced the price.
5. Market Conditions (Time)
Market conditions adjustments account for changes in supply, demand, and prices between the comparable’s sale date and the subject’s effective date. This is often called a time adjustment.
- Rising market: older sale may need upward adjustment to the effective date
- Falling market: older sale may need downward adjustment
- Flat market: zero time adjustment
Support comes from resales, paired sales over time, price indexes, median sale trends, absorption, and listing-to-sale relationships—not from an arbitrary 1% per month without data.
| Effective date | Comp sold | Market | Direction of time adjustment to comp |
|---|---|---|---|
| June 2026 | Jan 2026 | Prices +6% over period | Increase comp’s price toward June |
| June 2026 | Jan 2026 | Prices −4% | Decrease comp’s price toward June |
| June 2026 | May 2026 | Flat | Often $0 |
Remember: you adjust the comparable to the subject’s date, not the subject backward to each sale date.
Property Elements
6. Location
Location differences include neighborhood desirability, access, linkages, externalities, view, traffic, school quality signals buyers pay for, flood or nuisance exposure, and corner vs interior influence when the market cares.
Location is not automatically “Comp is 0.5 miles closer, adjust 5%.” Support with paired data or other market evidence (Chapter 9 topics). Same-subdivision comps often need little location adjustment; cross-neighborhood comps may need a lot—or should not have been selected.
7. Physical Characteristics
Physical elements are the broadest grid section in residential work:
- Site: size, shape, topography, view, utilities, landscaping
- Design/appeal and quality of construction
- Age and condition (effective age)
- GLA / room count / bath count
- Basement, garage, porches, pools, outbuildings
- Energy features, smart systems, when market-priced
- Functional utility (layout, ceiling height, dock doors, parking ratio)
Only adjust for differences the market recognizes. A $40,000 custom fountain the buyer ignores may contribute little or nothing (contribution principle).
8. Economic Characteristics
More prominent for income-producing property: income, operating expenses, lease terms, tenant quality, management intensity, rent levels vs market, expense ratios, and remaining lease term. Two similar buildings can sell at different prices because one has a below-market long-term lease (ties back to rights) or higher structural vacancy.
Residential owner-occupied comps less often use a separate “economic characteristics” line, but HOA fees, transfer fees, or rental income in 2–4 units can matter.
9. Use (Zoning / HBU Consistency)
Comparables should share the same use and, ideally, the same highest and best use. A residential teardown sale in a commercial redevelopment corridor is a different use story than an ongoing single-family residence. Zoning that allows denser use can create a location/use premium.
| Subject use premise | Risky “comp” |
|---|---|
| Continued SFR HBU | Sale bought only for apartment land residual |
| Retail HBU | Sale of converted house still priced as residence |
| Agricultural interim use | Urban subdivision lot pricing without timing analysis |
10. Non-Realty Components of Value
Sale prices sometimes include personal property (furniture, equipment), trade fixtures, or business/intangible value (franchise, going concern, assembled workforce). Market value of real property requires isolating or removing non-realty components when they are material.
| Included in sale price | Action |
|---|---|
| Refrigerator and washer typical for market | Often minor; be consistent |
| $80,000 of restaurant equipment in a free-standing retail sale | Extract from real-property price |
| Going-concern hotel sale | Allocate real estate vs business/personal property |
| Transferable liquor license | May be intangible—do not bury in real estate $/SF |
Transactional vs Property: Why the Split Matters
Transactional elements answer: Was this a normal market deal for the real property rights on a cash-equivalent basis as of a known date?
Property elements answer: How does this real estate differ from the subject in location, physics, economics, use, and personalty?
If you adjust for a nicer kitchen before you correct a related-party financing deal, you are polishing a non-market price. That is why sequence (next section) puts transactional adjustments first.
Worked Identification Drill
Subject: Fee simple SFR, effective date today, average condition, no personal property of consequence.
| Comp fact | Element |
|---|---|
| Sold with $15,000 seller buydown that raised contract price | Financing terms |
| Seller was relocating employer-forced in 10 days with poor exposure | Conditions of sale |
| Buyer budgeted $12,000 immediate foundation repair disclosed and priced in | Expenditures immediately after purchase |
| Sold 11 months ago in a market that rose 5% | Market conditions |
| Sold subject to a life estate | Property rights conveyed |
| Has two-car garage; subject has one-car | Physical characteristics |
| Superior school attendance zone buyers pay for | Location |
| Included $20,000 of staged designer furniture transferred by bill of sale | Non-realty components |
| Long-term tenant at below-market rent (if 2–4 unit) | Rights and/or economic characteristics |
What Not to Adjust
- Differences the market does not price
- Differences already removed by rejecting the sale
- Differences created by inconsistent measurement (fix the data, don’t invent an adjustment)
- Owner’s sentimental features with no market support
- Double-counted items (size in $/SF and again as full GLA line without method)
Bridge to Adjustment Sequence
You now have the vocabulary of what can differ. Section 8.4 covers how to adjust: always comparable → subject, transactional sequence first, then property elements, and the choice of percentage vs dollar adjustments—with a full multi-step grid example.
A comparable sold for a low price because the buyer had to spend $30,000 immediately after closing on a failed HVAC system that was known and required to make the dwelling marketable. The subject’s HVAC is adequate. Which element of comparison is primarily involved when the appraiser adds the $30,000 to analyze the sale?
Which list correctly groups transactional elements of comparison?