Can a Listing Be Used as a Comparable in an Appraisal?

Let’s start off this article by imagining yourself living in a luxurious house in an estate with similar houses like yours, then you get word that a neighbor who lives a few houses from yours has put it on the market for $1.2 million.

You get excited because it definitely means yours must be worth the same too, then you reach out to an appraiser, and when the appraisal comes back, it comes back much lower, and you wonder how that happened, and how the appraiser ignored the most obvious comparison down your street.

Well, the first thing to consider is that just because your neighbor lists their house for $1.2 million for their property does not automatically mean yours is worth that much. At the same time, it does not also mean that the listing price should be ignored. We’ll get into this later.

So, can a listing be used as a comparable in an appraisal? The quick answer is yes, and in some situations, listings can provide valuable information about what is happening in the market right now. Let's get into it.

What Is the Difference Between a Listing and a Closed Sale?

Before we go any further, let's look at the difference between a property listing and a closed sale.

A listing tells us what a seller is asking for their property; it gives us an idea of what they hope to receive, but it does not tell us what a buyer is actually willing to pay.

A closed sale, on the other hand, tells us that a transaction has been completed and provides evidence of what a buyer paid for a property, subject to the details and circumstances of that transaction.

Naturally, you might think a closed sale is always the better option when determining a property's market value. After all, it represents an actual transaction rather than an asking price. However, you have to consider the timeline before the sale was concluded; even a recent sale may have gone under contract several months before closing. This means that the agreed price could reflect market conditions from an earlier period rather than what buyers and sellers are experiencing today.

A listing can offer a different perspective, though, because it shows what properties are currently competing for buyers in the market. Both pieces of information help an appraiser understand the market and its behavior better and more clearly.

Imagine, for instance, that you own a commercial office building, and a similar building in the same business district sold 18 months ago for $3 million. Since then, rental rates have changed, demand for office space has shifted, and there have been few recent transactions involving similar properties.

Now, another office building with similar characteristics has just been listed for sale at $4 million. Would it make sense for an appraiser to ignore that listing simply because it has not sold yet? Not necessarily.

The current listing could provide useful information about the competition your property faces today, what sellers expect to receive, and how the market is responding to those expectations.

A seller can ask $4 million, $4.5 million, or even $5 million for a commercial property, but that does not mean buyers will agree to pay that amount. The listing price simply provides one piece of information that helps the appraiser understand the market and estimate the value of the property being appraised.

Why the Listing Price Is Only Part of the Story

Let's consider a commercial property listed for $2 million; suppose several similar retail buildings in the same commercial district have recently sold, and after examining those transactions, you discover that properties are consistently selling for 5% to 10% below their asking prices.

That information changes how you might interpret the listing.

If the property is asking $2 million, a 5% discount would bring the price to $1.9 million, while a 10% discount would bring it to $1.8 million.

These figures do not establish market value. However, they can help the appraiser evaluate whether the asking price is consistent with actual buyer behavior in the market.

This is why a listing price should not be viewed in isolation. The appraiser should also consider how similar properties have actually sold relative to their asking prices, whether price reductions were necessary, and how buyers have responded to comparable offerings.

Days on the Market Matter

The amount of time a property has been exposed to the market can also provide useful information.

Consider two office properties, each listed for $2 million. One has been on the market for 10 days, while the other has been listed for 300 days.

Even though the asking prices are identical, the market evidence surrounding those listings is very different.

The property listed for only 10 days may simply be too new to draw meaningful conclusions. There may not yet have been enough market exposure to determine whether buyers view the asking price as reasonable.

The property that has been listed for 300 days may provide a different signal. If the typical marketing period for similar properties is substantially shorter and the property has received limited interest, that may suggest resistance to the asking price.

That does not automatically mean the property is overpriced. A longer marketing period can also result from limited demand, poor marketing, inaccurate property information, unusual sale terms, location issues, property condition, or broader market conditions.

For the appraiser, the important point is that asking price, marketing time, price changes, and buyer response should all be considered together. Those factors help provide a clearer picture of how the market is reacting to comparable properties.

What About Listings With Multiple Price Reductions?

Price changes can provide another useful piece of information to appraisers.

Let's say an owner initially lists a commercial warehouse for $3 million. After several months without an acceptable offer, they reduced the asking price to $2.8 million, then later reduced it again to $2.6 million.

What does that tell us? It may indicate that the original asking price was above what buyers were prepared to pay, prompting the seller to adjust their expectations.

However, the reductions alone do not establish the property's market value. The appraiser would still need to examine the building's characteristics, location, condition, potential uses, and any available evidence of actual buyer interest.

It would also be useful to look at other warehouses that have sold in the same market and determine whether their sale prices support the current asking price.

For commercial properties, the appraiser may also need to consider factors such as rental income, operating expenses, occupancy levels, and the property's potential to generate income. These details can help explain why one property attracts buyers at a particular price while another struggles to sell.

When Can a Listing be More Useful Than an Older Sale?

There are situations where a current listing may provide particularly useful market evidence, especially when recent comparable sales are limited or when older sales occurred under materially different market conditions.

Consider an office building that sold 18 months ago in a market that has changed significantly since the sale. During that period, rental rates may have moved, vacancy may have increased or decreased, financing conditions may have changed, and investor demand may be very different.

The sale is still relevant, but the appraiser may need to make a market conditions adjustment or otherwise account for those changes when applying it to the subject property.

Now consider a very similar office building that is actively listed for sale today and is competing for the same pool of buyers. Although the listing has not yet resulted in a closed transaction, it may provide useful insight into current seller expectations, current competition, and the price level at which the property is being exposed to the market.

This becomes even more important in markets with limited transaction activity or when valuing specialized commercial properties, such as industrial facilities, warehouses, owner-user buildings, or properties designed for a specific use. In those situations, there may be very few recent closed sales that are truly comparable. Relying only on older transactions may therefore provide an incomplete picture of current market conditions.

The appraiser still has to weigh the quality of each piece of evidence. An older closed sale provides confirmed transaction data, while a current listing reflects present market competition but remains an asking price. The appraiser should consider the relevance of the older sale, the extent of any necessary adjustments, the listing’s exposure time and pricing history, and whether the listing is actually attracting buyer interest.

The objective is not to decide whether a sale or a listing is automatically better. It is to determine which evidence is most relevant to the market as of the effective date of the appraisal.

What Should an Appraiser Consider Before Using a Listing?

When evaluating a listing, the asking price is only one part of the analysis. The appraiser should look at the property itself, the history of the listing, the income characteristics, the seller’s motivation, and how the listing fits within the broader market.

Key considerations include:

1. Property characteristics: The listing should be compared with the subject in terms of location, building size, condition, age, use, access, site characteristics, and other features that market participants would consider important.

2. Listing history: The appraiser should review how long the property has been on the market, whether the asking price has changed, and whether there have been multiple price reductions or prior listing periods.

3. Income and occupancy: For income-producing properties, the appraiser should consider rental income, occupancy, lease terms, operating expenses, and whether the property’s income profile is similar to the subject.

4. Seller motivation and transaction terms: When possible, it is helpful to understand the seller’s motivation, whether concessions or unusual terms are being offered, and whether the property has generated meaningful buyer interest.

5. Other market evidence: A listing should never be viewed in isolation. It should be considered alongside closed sales, pending transactions, other competing listings, and broader market trends..

These factors help an appraiser determine how useful a listing is and how much weight it should receive when estimating the property's market value.

So, can a listing be used as a comparable in an appraisal?

Yes. Listings can provide valuable information about current market competition, seller expectations, and where the market may be heading. They can be particularly useful when comparable sales are limited or when older transactions may not fully reflect current market conditions.

However, a listing price should never automatically be treated as market value. It always needs to be considered alongside actual sale behavior, the property's listing history, and other relevant market evidence.

If a commercial property is listed for $2 million, that does not mean another similar property is automatically worth $2 million. The appraiser still needs to understand how the properties compare, what similar properties have actually sold for, and how buyers are responding to current pricing.

Ultimately, a good appraisal does not ignore listings, nor does it accept them without question. It considers what they tell us, examines how that information fits with the rest of the market, and gives each piece of evidence the weight it deserves.

If you are a property owner, buyer, attorney, lender, or investor and need help understanding how current listings, pending sales, and closed transactions affect value, Bluemark Valuations can help. Call (727) 337-6390 to discuss your property or assignment.