What are comps then? Comps or comparables are similar properties in a given market to the property you are interested in purchasing or trying to sell. They are based on several key criteria:
- Size (square footage, inside and out)
- Number of bedrooms and bathrooms
- Year built
- Upgrades and finishes
Comps help you price a home accurately by providing a range for its fair market value. Of course, each home has its own characteristics and features, but the point is to give your desired property a dollar figure that can be used as a strong reference.
When evaluating comps, you will encounter different market situations. Some properties will have an active market, with multiple listings available to compare and contrast, while others will have few or sometimes no comparable properties available.
Why Do You Need Comps?
Sellers, especially a for sale by owner (FSBO), use comps to determine the right listing price. Conversely, buyers reference comps to decide how much to offer on a home. Comps can play a critical role during the search for a new home, but they can also be used as leverage during the purchasing/escrow phases. During escrow, an appraiser can assess the home’s value — using their own analysis. If the appraiser concludes that the home’s value is less than the offer, the buyers can negotiate the price down — or back out of the sale.
How to Identify Comps
It’s important to understand that no comp is perfect. So how do you go about identifying the best ones? One piece of wisdom is to not get emotionally attached to any property. Let your real estate pro side take over to analyze the facts and figures.
In the past, people had to rely on the MLS (multiple listing service), which was mainly available to agents. Today, various real estate sites (such as Zillow) can pull critical data from the MLS, such as location, lot and house size, number of bedrooms and type of home.
However, there are pitfalls to using these sites:
Not everyone updates this price after the fact, so the listing amount and sold amount might differ considerably. This might be due to concessions occurring during escrow, such as negotiated repairs.
Outdated or Incomplete Information
Since much of the information is coming from the MLS, these sites are at the mercy of current data — which may not be the latest.
Some “pocket listings,” such as FSBO properties — might not always show up.
Missing Property Upgrades
Sometimes renovations won’t show up. If a listing undergoes an upgrade in the interim, such as a new room or bathroom, this element could throw off an accurate comp price considerably.
If timely comparables are too limited or unavailable, then older sales can be used — albeit with some caution. If you’re not a real estate agent or don’t have access to the MLS, you can still do comps on your own, however.
Try this pricing tool to find comps in your area. Simply enter your home address to view recent sales. You can narrow the results based on the ones that are most similar to your home, and then calculate a home value.
Elements of Comps
When looking at potential comps, try to find at least three homes that meet the following criteria:
Limit your search to a quarter- to half-mile from your home.
Ideally, include homes that have sold within the past three to six months — or less if your market is changing quickly.
Type of Transaction
Was it a cash sale? And was it more or less a normal transaction?
Type of Home
Don’t compare a single-family home to a condo or townhouse. They’re simply too far apart in terms of structure/property.
Age of Home
Homes built around the same time as yours will be the most accurate comps, because major systems like roofs, HVAC and plumbing will likely be in similar condition.
Try to stay within about 300 square feet of your home’s size.
Include homes with the same number of bedrooms and bathrooms.
Condition of Home
Factor in things like recent renovations, updated interiors or outdated features.
Find homes that align with yours in terms of walkability, shopping/retail, views, public transportation access and school ratings.
Price Per Square Foot
Real estate agents use price per square foot to identify comparables. Divide the sale price of a home by its square footage, then compare that number to your own desired price per square foot.
As part of your evaluation process, here are some steps you can take to glean even more information about your potential comps and their neighborhoods:
Review the Photos
Photographs can tell you a lot. Is the house finished in the same vein as your subject property? Things like fixtures and flooring can vary widely.
Read the Home Descriptions
This section of a home’s MLS page can provide proof of renovations that won’t always stand out in photos, such as a newer roof.
Walk the Grounds
If possible, visit the comp in person. This can be especially rewarding if the photos were biased when taken: The seller or their agent might be cherry-picking photos in order to spin the property in an artificial light.
Drive Around the Neighborhood
This will give you even more perspective. Are the homes and their yards well maintained? Also look at the condition of the cars parked nearby: If the properties and vehicles are mediocre to bad, it’s often a sign that homes are being rented. Owners have more at stake in their property and are more likely to maintain it, which helps local values go up.
The more properties you look at, the more they’re apt to blend. Taking notes with critical information will help you keep accurate information to make better judgments.
Take Time of Year into Account
The holidays at the end of the year are generally slow, and also winters can slow down the market. People generally list their homes in the spring and summer, when people are out and about and have more time to look.
Once you start your research, you’ll likely run into many homes that are currently for sale or pending a sale. It’s best to ignore these as sellers sometimes overprice their home and then wind up settling for less. Another tactic used by sellers is underpricing, with the goal of gathering multiple offers. Until a sale closes, you’ll never get an accurate read on its value in your local market.
Comps that have sold within the last 60 days are most preferable because they reflect current market conditions. However, recent sales aren’t always available, so you may have to pull comps from as long as six to 12 months ago.
Calculating Your Home’s Value
After compiling the information you’ve gathered online and from your site visits, select the three comps that are most like your property and then write out their sold price. To start getting an idea of your desired property’s value, take the price of the comp that falls in the middle and adjust it up or down for differences in size, quality, location, features and upkeep.
Beyond the numbers, your valuation can include harder-to-define elements such as backyard view, curb appeal and frontage space, and backyard slope and privacy.
Once you’ve made a choice on your favorite property, it might be time to call an appraiser to make sure you know where you stand. The average appraisal today will run $300-$500, depending on the market, the appraiser’s experience, etc.
Finding a new home can be stressful. However, patience and solid homework should pay off in the long run. Running comps will give you more perspective on your own market and also more confidence when making that final decision.