Comps in real estate are an important factor whether you may be buying a home or selling a home. When you’re looking to buy or sell a home, it’s important to have accurate information about real estate comps. Comps in real estate are a calculation of how much the average price of homes in a specific area has changed over a certain period of time.
Finding comps can be challenging, but there are plenty of resources available to help you get started. However, it is important to have a professional Realtor as they will have access to the most recent and comparable sales.
What are Comps in Real Estate?
Real estate comps, or comparables, are an essential tool for any real estate investor, appraiser, or agent. Comps are used to determine the market value of a property by comparing it to similar properties that have recently sold in the same area. The process of finding and analyzing real estate comps can be complicated, but understanding how to use them effectively is critical to making informed real estate decisions.
The first step in using real estate comps is to identify properties that have similar features to the property being evaluated. This involves looking at factors such as location, size, age, and condition. Location is one of the most important factors to consider, as properties in the same neighborhood or even on the same street can have vastly different values. For example, a property located in a desirable school district may be worth more than a similar property in a less desirable district.
Why Comps in Real Estate are Important?
Once potential comparable sales have been identified, it is important to gather data on the sale price, date of sale, and key features of each property. Keep in mind, comps should be comparing similar features. This information can be found through public records, online real estate databases, or by working with a real estate agent or appraiser. It is essential to ensure that the data being used is accurate and up-to-date, as even small discrepancies can significantly affect the estimated value of a property.
There are reasons why a home will not appraise at the purchase price if a buying a home. Some of the reasons a home may not appraise at value include if the home has unpermitted additions, and a strong consideration is the condition of the property. If the home is overpriced that will impact value.What are Comparables in Real Estate? 8 Important Facts to KnowClick To Tweet
Price per Square Foot
After gathering data on the comps in real estate, it is time to analyze the information and determine a value range for the property being evaluated. One common method is to calculate the price per square foot of each comparable property and apply that to the subject property. For example, if a comparable property sold for $500 per square foot and the subject property is 1,000 square feet, the estimated value would be $500,000.
Price per square foot is not the only factor to consider when evaluating comps in real estate. Other factors that can affect value include the number of bedrooms and bathrooms, the presence of amenities such as a pool or garage, and the overall condition of the property. Adjustments will need to be made to the estimated value of the subject property to account for these differences.
How to Find Comps in Real Estate
Utilize online internet estimates, however, these are not always accurate. Several online databases offer comprehensive real estate comp data covering all sorts of markets and neighborhoods. These internet estimates can provide a “general idea” of value, but do not take into account all the specific nuances of the property that influence property value. Certain upgrades will add to a home’s value such as an upgraded kitchen and bathrooms.
It is imperative to consult with your real estate agent. Your agent may have access to market data that isn’t available through regular online sources. Additionally, some internet estimates are often incorrect as they don’t take into account all the information about the property including any upgrades. Sellers can overprice the home when relying on internet estimates. Ask your Realtor for a list of properties that are recently sold, under contract, and active listings. It is a good idea to see what listings did not sell such as expired or canceled to determine why the property did not sell.
It is important to note that finding exact matches for the subject property may be challenging, especially in areas with diverse property types. In these cases, it may be necessary to use multiple comps to arrive at an estimated value range. The adjusted values are then used to arrive at an estimated value range for the subject property.
When Did The Comparable Listings Sell?
Timing is crucial when considering comps in real estate. An important factor to consider when using real estate comps is the length of time since the properties sold. Properties that sold recently are generally more valuable as comps. Generally, comps that sold within the past 90 days will have more weight than those that sold either 6 months ago or more.
Older comps really do not carry the same consideration when establishing value. They can increase or decrease over time. Real estate in general adjusts with the market. Interest rates can strongly impact home value. Properties that sold quickly in a similar area are more valuable to utilize as a sale.
How an Agent Determines the Listing Price
In addition to using real estate comps to determine the value of a property, they can also be useful in setting a listing price for a property that is being sold. By analyzing the sale prices of similar properties in the area, sellers can set a competitive price that will attract buyers and generate interest in the property.
Real estate agents may also use comps to convince sellers to lower their asking price if it is significantly higher than the estimated value range. Listing agents will utilize comps and discuss with the seller when pricing a home to sell. A listing agent will also factor in what an appraiser will consider.
A home appraisal is necessary if a buyer is obtaining a loan, and the home will need to appraise for the purchase price. Remember, no one wants to overpay for a listing, and at the same time, the seller does not want to leave money on the table.
Realtors Utilize Comps For Buyers
Real estate comps can also be useful in negotiating the purchase price of a property. Buyers can use comps in real estate to demonstrate that a seller’s asking price is too high or that their offer is fair based on the estimated value range. In some cases, buyers may also be able to use comps in real estate to identify properties that are undervalued and may be good investment opportunities.
A listing agent will utilize comparable sales to determine the recommended list price for the property. Ultimately it is the seller’s decision.8 Important Facts to Know about Comparables in Real EstateClick To Tweet
Utilize an Appraiser to Establish Property Value
Sellers can higher an independent appraiser to provide an actual appraisal of the property and that determines the value. An appraisal is going to be closer to the actual value than any internet estimate If a buyer is obtaining a loan, they will have an appraisal. Appraisers will consider recent comparable sales, and make adjustments accordingly.
It is important to utilize a professional to utilize the comps. They have access to the MLS which will show all the statuses of the properties. Pictures can demonstrate similar upgrades if adjustments are made for upgrades. A Realtor will assist a buyer and seller with establishing the value of the property.
About the Author
The blog post “What are Real Estate Comps ? 8 Important Facts to Know” was written by Sharon Paxson, a top Newport Beach Real Estate Agent. With experience since 2005, representing buyers, sellers, landlords, and tenants, we welcome the opportunity to share our expertise with you and guide you through your real estate transaction.