Real estate comparisons, commonly known as “comps,” are a means of determining a property’s value by comparing it to similar properties. The more features your home shares with the comps, the more accurate the comparison will be.
What are real estate comparisons?
Real estate comparisons provide a set of properties that share similar characteristics with your property, making them ideal for price comparison. Typically, comps come from the same area and the same recent timeframe. For example, if you’re trying to sell a two-bedroom, one-bathroom home, your comps will include other two-bedroom, one-bathroom homes in your neighborhood that have sold in the past several months. They may also include properties currently for sale.
Comparisons are important for the valuable context they provide. John Amiralis, a co-broker at Compass in New York City, says, “Real estate comparisons are essential for understanding the current state of the real estate market.” “Comps include active listings, pending sales, and those that have sold within the last six months.” Evaluating them can help arrive at a fair market value for the home you’re trying to sell or consider purchasing.
How to find real estate comparisons
All you need to find the right comps is a little research. Here’s how to do it in four easy steps:
1. Understand your home’s specifications
To find suitable comps for the home—whether it’s one you want to sell or buy—the first step is to clarify the property details. Make a list of all the specifics that define the home, such as its location, size, lot size, number of bedrooms and bathrooms, whether it’s part of a homeowner’s association, and any special amenities or upgrades (like skylights or a high-end chef’s kitchen or swimming pool).
For more detail, identify other factors that may also affect the home’s value, such as the school district it resides in or its proximity to public transportation, shopping, and parks.
2. Search for recently sold similar homes
The next step is to look for properties that have recently sold or been listed and share similar features. If you’re working with a real estate agent, they can pull information from the local multiple listing service to give you an overview. If you’re starting on your own, sites like Zillow and Redfin can give you insight into the local market.
When conducting online research, it’s essential to filter for sold homes, not just listed ones: listings only show the asking price or listed price, not the actual sale price. Additionally, adjust your search for the same neighborhood and homes of similar size, as well as the same type of property you are comparing. In the case of a condo, for example, look only for other condos. A broad search that includes single-family homes might yield misleading information. Also, pay attention to the presence of other amenities, like whether parking is included.
Amiralis recommends looking at properties that sold within the last six months. If the housing market in your area is slow, you may need to look at a period longer than six months—but this is unlikely in most places these days.
3. Narrow down your list
Once you’ve identified potential comps, examine them more closely to find those that most closely resemble your home. Amiralis suggests compiling a list of four to six comps to adequately assess your home.
If you live in a very active real estate market, you may want to be very specific about your criteria. For example, you are likely to have two homes with similar square footage and finishes, located a quarter mile from each other in the same school district, both with in-ground pools. On the other hand, if the home you’re evaluating is unique, and unlike what has sold nearby or in a sparsely populated area, you may need to relax your search criteria.
Remember,
There are limits to the information you can gather online, so it’s important to get the complete picture. Some properties may look like a perfect match on the screen, but in reality, they might have major differences that affect their value. For instance, one home might be on a cul-de-sac with excellent curb appeal, while another might suffer from constant noise from a nearby highway. If possible, visit the properties in person, or reach out to the real estate agents who sold them for additional details that may not be clear from online research.
4. Do the calculations
Once you’ve settled on four to six comparables, simply compare the sale prices of each to get a rough idea of the home’s fair value.
Or, try doing some calculations to get another perspective. For example, you can look at the square footage for each comparable and divide the sale price by it. This will indicate the price of the home per square foot, or PPSF, which is a metric frequently used in real estate. You can then take the average PPSF for all the comparables on your list and use that dollar value to multiply it by the square footage of your home.
For example, let’s say you found four comparables with PPSFs valued at 200, 217, 222, and 233. The average of those numbers is 218. If you multiply 218 by the square footage of the home in question – for example, 2,100 square feet – the value of the home based on the PPSF comparables could be around $457,800. With this calculation, you now have a rough estimate of the home’s value.
Who uses comparable properties?
Comparables are not just a tool for home sellers and buyers. Many real estate experts use them too. If you’re working with a real estate agent, for instance, they will use a set of comparables to analyze properties within your price range – this helps listing agents determine a competitive listing price, and it informs buyers’ agents how much they should offer when bidding.
Banks and professional appraisers also utilize comparables. If the home purchase is being financed, the lender will require an appraisal of the home to ensure its value. Appraisers use comparables to inform their assessment of the market value of the property, although they also consider many other factors, including the city or county assessment for tax purposes, location, risks, homeowners association fees, improvements, and general condition.
The next steps
Comparables can help you accurately price your home when selling or ensuring you’re not overpaying when buying it. They’re a useful tool for getting an idea of a home’s value, but they’re not entirely foolproof – so don’t overlook working with an experienced local real estate agent. Many agents offer free analysis, known as comparative market analysis or CMA, so you won’t have to pay extra for expert insight. A good agent can not only help you get an accurate estimate of the home’s value, but they can also assist you in navigating the confusing and complex real estate process.
Frequently Asked Questions
How are comparables determined?
Real estate agents can conduct an in-depth Comparative Market Analysis to identify comparables with great accuracy. But you can also find general comparables yourself by searching online for recent sales in your neighborhood, finding homes most similar to yours, and checking their sale prices to see how much they sold for.
Are comparables used to determine the estimated value or the listing price?
Yes, this is typically done, but it is just one piece of the puzzle. Real estate comparables can provide a rough estimate of a home’s value based on recently sold similar homes in the area. However, appraisers take many other factors into account when estimating values, as do real estate agents when determining appropriate listing prices.
How much
The number of comparisons that are typically used?
You want to have enough comparisons to give you a good sample, as some cases might be outliers – for example, a house that is very close to yours and has the same number of bedrooms and bathrooms but is in particularly poor condition. Generally, between four and six will be sufficient, according to Compass’s John Amiralis.
Source: https://www.aol.com/real-estate-comps-them-180850464.html
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