Real Estate Comps: What Are They And How Do You Find Them?
Whether you’re looking to buy your first home or sell your current one, the first thing you should do before entering the real estate marketplace is explore the comps or “comparable sales” of nearby homes.
Let’s explore what real estate comps are, why they’re so important and how to find them.
What Are Comps In Real Estate?
Real estate comps are recently sold homes that are similar to the property you’re trying to buy or sell in terms of location, size, condition and features. Comps are often used by real estate professionals to determine a home’s fair market value.
Individual comps are assembled into what’s known as a comparative market analysis (CMA) and then presented to clients by their real estate agents. The listing agent uses comps to help sellers set an asking price, while the buyer’s agent helps home buyers determine the amount they should offer on a house.
Real estate agents can use the sales comparison approach as the foundation of a comparative market analysis to estimate the value of a property. The sales comparison approach uses the principle of substitution to determine what a home is worth. According to this principle, you can figure out the value of a home by finding out how much it would cost to purchase a similar, equally desirable property.
The more similar comps are to a property, the more accurate the pricing of the property will be. While the location, square footage and condition of the properties should be nearly identical, there are other, more intangible elements of homes to take into consideration. That’s where choosing the right agent makes all the difference.
How Do Comps Work In Real Estate?
The housing market at the local level is an exercise of supply and demand. That means your house may command a higher asking price in a seller’s market and a lower price in a buyer’s market, regardless of any significant changes in its condition.
When looking at comps in your neighborhood, there are key property features that will help you determine which homes to compare.
The features include:
- The number of bedrooms and bathrooms
- The total square footage of the home
- The age and quality of construction and design
- The lot size and special features like garages, swimming pools and fireplaces
- The comps should have sold in the last 3 – 6 months
By analyzing real estate comps, you can determine how they differ from your home and then calculate how these differences affected their sales price. To get a clear idea of what are considered comparables, you’ll want analyze at least three or four different comps.
Who Uses Real Estate Comps?
Real estate comps are used by all parties involved in real estate transactions. Let’s take a quick look at how home buyers, sellers, appraisers and real estate agents benefit from the information comps provide.
Comps demonstrate how much buyers paid for similar, recently sold properties, making them a very useful resource for current home buyers. After finding a home they’re interested in, buyers can look up comps in their desired area to help them get a sense of how much they should offer.
Because they can see what other buyers paid, buyers can ensure they don’t offer more than a home is worth and avoid making a lowball offer that’s likely to be rejected by the seller. Buyers can also use the knowledge they’ve gained from the comps to negotiate for a lower price or seller concessions.
Comps are important because they help sellers set a realistic benchmark of what their home is worth. Analyzing comparable sales gives sellers a more objective way to determine the appropriate listing price for their home.
Since comps provide a window into a home’s fair market value, sellers can use them to keep their expectations in check and help ensure their home sells faster. Comps are also useful for sellers when negotiating counteroffers. If buyers make lowball offers, sellers can use comps as evidence that their home is worth more.
When determining the valuation of a property, home appraisers will inspect the property, review public records and source comps from the multiple listing service (MLS). By reviewing the comps, appraisers can determine what buyers have been willing to pay for similar homes recently sold in the area, which is paramount to assessing a home’s current fair market value.
Real Estate Agents
Real estate agents rely on the MLS to find comps and then use the information from each comparable property to run a comparative market analysis. The CMA is a report agents provide to both buyers and sellers.
The report compares a home to similar properties that recently sold or are currently on the market and helps real estate agents arrive at an estimate of a home’s fair market value.
Finding Real Estate Comparables
When looking for real estate comps in your area, it’s best to work with a real estate agent. Although this strategy is highly recommended, it doesn’t mean you can’t find real estate comps without an agent.
Here’s how you can find and analyze comps with a real estate agent and alternative methods to find and use comps.
Working With A Real Estate Agent To Find Comps
The ideal way to find real estate comps in your area is to explore your local multiple listing service. But the MLS can only be accessed by licensed real estate agents. The database provides extensive information on the homes that are currently on the market and the homes that have already sold.
Access to the MLS enables you to explore recently sold properties and obtain enough information to determine whether those homes are similar enough to your property.
Finding Comps Without An Agent
Although it’s best to consult a real estate agent, you can find comps for free without the help of an agent. There are a number of websites that aggregate information from the MLS. These websites let you explore recently sold homes in your area and provide insight into the value of the homes. However, the information on these websites is often inaccurate or outdated, so you need to be careful when using them to look for real estate comps.
A more accurate source for finding comps would be public property records. You’ll need to visit a county assessor’s office in person or online to access records of all local sales transactions. However, the public records won’t show a property’s original asking price or any negotiated seller concessions.
Seller concessions are the closing costs or repairs a seller agrees to pay. They are particularly important to know when analyzing comps because they can distort value. For example, if a comp is purchased for $450,000, but the seller agreed to pay $13,500 of the closing costs, the sales price of the comp would need to be adjusted based on the concessions.
The value of any seller concessions must be subtracted from the sales price of the comp to determine the true value of a property. In this example, the comp sold for $436,500, not $450,000. This shows that you can’t use a property for comparison unless you know the specific terms of the sale.
Is It Best To Use A Real Estate Agent When Finding Comps?
While you can find comps for free, keep in mind that searching for comparable properties is only the first step when creating a comparative market analysis to determine the fair market value of a home. Once you’ve found comps for the property, there are three more steps you need to complete to determine the value of the property you’re interested in.
- Analyze the comps to see how they differ from the property and calculate the approximate cost of those differences.
- Adjust the sales price of each comp to determine how much each sold for.
- Review the range of adjusted sales prices. You’ll need to weigh each comparable home based on how similar it is to the property and apply those weights to determine the market value of the property.
How To Adjust Sales Prices Based On Comps
Here’s a brief look at what you might do when comparing home sales. You’ll need to estimate how much the differences in the comps add to the value. For example, if you see a home that is similar in size and has the same number of rooms as your home sell for $250,000, but other comps are similar in size with an extra bedroom and are selling for around $20K more, that bedroom might be making up the $20K difference.
If you were to list your house with one less bedroom at the higher amount, you could have trouble selling since buyers could get an extra bedroom for a similar price.
This process is lengthy and requires a lot of research and a full understanding of how specific property features increase or decrease their overall value. Real estate agents have access to the most accurate information and possess the knowledge and skills necessary to run a comparative market analysis and arrive at an appropriate price for properties.
That’s why it’s highly recommended that you enlist the services of an agent when using real estate comps to estimate the value of a property.
Real Estate Comps FAQs
Let’s address some of the most frequently asked questions about real estate comparables.
How are comps determined?
Comps are determined by comparing a home to similar houses that sold in the last 3 – 6 months. Real estate comps also factor in the location, size, condition, amenities and other property features of comparable homes.
Are comps used to determine the appraised value or list price?
Comps are used to determine the appraised value and the list price. The appraised value uses the homes sold to help estimate the market value of the property. The list price is the seller’s asking price for the property and is typically based on the sales price of similar properties.
How many comps are typically used?
The number of comps you should use will depend on the homes and factors like market conditions. However, it’s generally recommended to use at least five comps when establishing the value of a property.
The Bottom Line: Understanding Real Estate Comps Helps Set The Price
Real estate comps are a crucial tool for determining the market value of a property. Working with a knowledgeable real estate agent – and having a Verified Approval Letter in hand – can be your best shot at finding the right home and getting it at the right price.
Ready to take the first step toward making your homeownership dreams a reality? Apply online now to get started.