A Guide to Using Comps
In most situations, home prices are not set in stone. There will always be an “asking” price but that number rarely the same as the “sold at” price. And this is where the value of using comps comes into play.
“Comps” refers to comparable sales in a specific area. They are based on relatively recent sale’s prices of similar properties in the neighborhood. Comps are important tools for home sellers because they help them calculate an asking price while home buyers use comps to help determine what makes for a competitive home offer.
Below is a breakdown of the most common comps and how both buyers and sellers can approach using them.
What makes for good comps
When it comes to deciding which comps should be used and which comps should be ignored you will want to adhere to the old adage of comparing apples to apples. It is important for the comps that you choose to be as close to your own house or property you’re interested in as possible.
While the specifics of what makes a great comp can vary from market to market these are the general metrics that you will want to consider when making your list.
Timing of Sale
Because the real estate market can change on a monthly basis, it is important that your comps are drawn from sales as recent as possible. While the more recent the better, you will want to extend your timeline no more than the past 6 months. In areas that have had little sale’s movement you might be able to go back as far as 12 months. However, this would be the exception, not the rule.
Location
When looking for comps the most ideal proximity are those properties located within a half-mile radius of the home. While this is not always possible, you will want to make sure that any properties you use are close enough in distance to be considered relevant.
Size
It is important that when comparing properties you make sure that you are in the same ballpark when it relates to the size. For example, a house that is 2500 square feet would not necessarily be a good comp when compared to a house that is 3700 square feet.
Beds & Baths
While taking into consideration the overall size of the home is important, it can be argued that the number of bedrooms and bathrooms a house has should take priority. When considering whether or not a property is a good comp, check to see how many bedrooms and bathrooms are included. A 3200 square foot house that has 4 bedrooms and 3 bathrooms might not stack up against another 3200 square foot house with two beds and two baths.
For this reason it can make sense to give preference to the number of beds and baths over the size of a house.
Again, comps can be used by both home sellers and home buyers. If, as a home seller, you receive a lowball offer you will be able to counter showing relevant comps to help justify your price. At the same time, buyers can offer comps to sellers to help explain why their home offer is what it is.