What Are Real Estate Comps?
One thing that’s constant is that property values keep changing. For this reason, it can sometimes be challenging to determine the value of a home.
When selling or buying a house, utilizing real estate comps with similar characteristics can help you to make accurate & rational decisions.
Being able to find and analyze real estate comps is important for any real estate investor, wholesaler, buyer, & seller. Comparing similar properties can be confusing at first when selling, buying, or flipping houses. Don’t be discouraged, though! As you familiarize yourself with real estate comps, you’ll get a better understanding and be able to analyze them with ease over time.
What Exactly Are Real Estate Comps?
Comps refer to comparables. They can be defined as a list of recently sold assets that are used to set or determine a similar asset’s value. The assets included in this list have the same characteristics as the asset that a person wants to sell or buy. For example, a real estate comp’s list can comprise of properties sold in the past 6 months around your subject property.
The idea behind comps in real estate is that similar assets are likely to reflect the asset’s current (and true) market value. For this reason, comps are an ideal indicator of the best sales price of a house.
An estimated value of a property should be derived from using at least two or three comps. Although, the more real estate comps you have to work with, the better.
Here are common factors real estate professionals use to evaluate real estate comps:
- Livable square footage of the property structure
- Total square footage lot size
- Bathroom count
- Number of bedrooms
- Condition of the home
- Age and style of a property
- Access to schools & freeways
- Quality of neighbors
Why Should I Use Real Estate Comps as a Real Estate Investor?
In short, Real Estate Comps can help determine the success or failure of an investment. Here are some of the major reasons to use comps when investing in real estate:
To Lower Risks
Performing a comparative market analysis is the best way to determine the best listing price of a property based on its current value. When you evaluate similar properties, you know the fair market value of a property and this enables you to avoid overpaying for it. Using comps is, therefore, a sure way to get a great deal on an investment property.
To Make More Profits
Comparables enable sellers, investors, real estate agents, and buyers to determine properties that will yield higher margins in terms of profits. This is crucial because the goal of any real estate investor is to maximize returns.
To Negotiate Deals
Negotiating a deal is a crucial aspect of any real estate investment. Analyzing comparable properties enables a real estate investor, agent, buyer, or seller to negotiate deals with ease since they now have the true & accurate numbers.
Save Money & Time on Property Appraisals
Home appraisals help real estate professionals to determine the price of a property. If you know how to use real estate comps to determine the house value, then you can potentially save paying an appraiser to determine the value for you. Not only are you saving money, but you’re saving time by being able to analyze real estate comps for yourself!
How Do I Find Real Estate Comps?
As mentioned, comparables are simply sold listings with similar characteristics to the subject property you are analyzing, and there are many ways them! Here are some of the ways to find real estate comps:
Check your local Multiple Listing Service
Your local Multiple Listing Service (MLS) is the best place to find comparable sales price information. This is because all of the real estate professionals input all relevant information about a property into the MLS. The sales data in the MLS also spans back to when it was first created in your area. Typically, this is 10+ years or more of sales data!
Check the Public Property Records
There are public sales records for specific comparables in most counties. These records can be searched online or by visiting your local courthouse. However, it’s important to note that county records might not reveal all of the seller concessions. For example, if a seller lowered the sales price due to a required repair credit, then it’s possible that only the reduced price shows in the records and not the initial asking price. This is where the MLS comes in handy because a real estate agent usually adds this information onto the sold listing sheet about the property.
Real Estate Agents
An experienced real estate agent knows how to navigate multiple listing services to find the best real estate comps. An experience agent should be very familiar with their local real estate market and should be able to interpret real estate comps better than others.
Are There Free Resources for Real Estate Comps?
Yes. There are many free resources for finding comps in real estate. These are online websites that make determining the estimated value of a house easier. Thus, finding comparable data is now easier than ever as long as you can access the internet. Although some of the online resources for finding comps may not be as accurate as others, you can use them to determine the approximate property value range even without the help of a pro.
Zillow.com is one of the largest websites for comps in real estate. This website has a feature known as Zestimate. This feature provides automated estimates based on sales comps and public records. Visitors to this website can also search sold listings when determining their comps.
Redfin.com is also another online resource for finding real estate comps. It’s an online brokerage that features a tool for property valuation.
Can I Use the MLS (Multiple Listing Service) to Find Comparable Properties?
Yes. It’s possible to pull comps from the MLS. As mentioned, the MLS is a database of the properties that are currently listed for sale or have already been sold in a specific area.
A real estate agent can access multiple listing services to identify a sold home in your neighborhood and draw comparisons. An experienced agent will look for listings with similar square feet, age, features, and condition. You’ll typically want comps that have sold within the past 6 months, within a .5-mile radius of your subject property, and in the same zip code.
For rural areas, you can definitely expand your search radius for comps because properties are distanced further from each other.
Final Thoughts on Comps for Real Estate
It’s crucial to find comps before investing into a home as a real estate investor or retail buyer. It’s also important to always check multiple sources for your sales data. Don’t take the information you collect online at 100% face value. Always do your due diligence and double (even triple) check the source where your sales data came from.
To make informed decisions, every real estate investor should estimate the value of a potential investment property by understanding & leveraging real estate comps.
Hope this helps you on your real estate journey!