What You Need To Know About Comps
If you’ve ever been involved in a real estate transaction, you’ve heard the word “comps.” Shorthand for “comparables,” a comparable is a recently sold property that most closely resembles the subject property. In other words, comparable sales refer to prices paid for recently sold homes that are comparable in size, style, and location and are a critical part of assessing the current market value of a property. Comps refer to homes with similar features as the home you are trying to buy or sell.
Determining the current market value of a property.
To determine the current market value of a property, real estate agents and appraisers analyze recent comparable sales in the area using several components:
· Recent Timeframe of Sale – Generally speaking and depending on the market climate, the price of a home can’t be compared with the selling price of a neighboring property more than six months old and, most likely, 90 days is a more accurate timeframe for assessment.
· Proximity to Subject Property – You’ve all heard the adage “Location. Location. Location.” The real estate market is fundamentally based on location and comparing your immediate surroundings is key. Not only does location refer to the neighborhood, but where the house sits on the street can be equally important. Does it front a busy intersection? Does it have a view? Is the next-door property an eyesore?
· Similar Square Footage – Ideally, you want to compare homes within 10% of the subject property’s square footage. Price per square foot is an important factor. And when it comes to pricing, the bigger the property, the bigger the price tag.
· Similar Age and Condition – Newer homes don’t necessarily command a higher price, but the condition relative to the age of the home does factor into price. A fixer-upper, recently updated, or turnkey all represent the condition of the property and affect its value.
· Similar Lot Size – The size of the lot directly correlates to price. The lot size is computed based on actual square footage divided into the square footage of an acre. When comparing lots, a good rule of thumb is to stay within 0.5 acre. Also noteworthy is the size of the house in relation to the size of the lot.
· Number of Bedrooms and Baths – How many bedrooms and bathrooms the property has and where they are located on the floor plan can have an affect on the price. Also, amenities such as a pool, spa, gourmet kitchen, en suite bedrooms and so on, can command a higher price.
Why should a Seller care about comparable sales?
Sellers rely on comps to determine how best to price their home for the current real estate market. The seller can set expectations but ultimately the market sets the price. Comparing your home with other similar homes is the only way to truly determine the right list price and using comparable sales helps justify the asking price. An overpriced home will sit idle on the market and an underpriced home most likely will miss out on equity that could have been earned in the sale. Well-analyzed comps will give the seller a clearer picture of a home’s value.
Why should a Buyer care about comparable sales?
Buyers look at comps when deciding what price to offer on a home. Comparable sales are used as an example to justify why a buyer doesn’t want to pay more than the last purchaser paid for a similar home. Using well-analyzed comps will give the buyer a clearer picture of a home’s value.
Note: Comparable sales are not active listings, in a contingency status, or pending sales. These values do not carry the same weight as a home already sold (and recently). The sale price of the house is much more indicative of the actual value.
When buying or selling a house, a good real estate agent will help you understand which comps are better and why.