Most of us have heard the term real estate “comps” (comparables), but many people aren’t really sure exactly what they are, why they are necessary, nor what the criteria are for determining them. Yet, they are an important tool for getting your home priced and sold, not to mention, they are important for buying your dream home.
So, what are real estate comparables?
The comparables for buyers and sellers are homes that are in the neighborhood where you are looking to buy or close to it. The homes used for comparables are ones that share a likeness to the home you are buying or selling. For example, if you are looking to sell a 3 bedroom, 2 bath, it is helpful to look at other homes that have the same amount of bedrooms and baths and that also have close to the same square footage. Other criteria are outdoor spaces, fencing, garages, parking, or any of the other extras that make a home more valuable and sought after. Also, with the speed at which real estate has been changing, it’s ideal for comparables to be homes that have sold recently.
So, why are real estate comparables necessary?
Comparables are the piece de resistance for determining the value of a home or property. Being aware of a home’s value gives you power. All the parties involved in a transaction, including sellers, agents, appraisers, lenders, and homebuyers can use comparables to make sure that their investment is sound.
You could say that the most important job of comparables is to help sellers determine their listing price. But they are also important for buyers because they can be used to make a reasonable (neither over-the-top nor a low-ball) offer that feels fair and smart. Real estate investors need comparables to ensure that they are getting a deal that affords them a good return on their investment, and lenders need them to calculate their risk. And, of course, comparables give appraisers another tool for determining a home’s value as well.
A lesser-known purpose for comparables is knowing when to upgrade different parts of your home. You don’t want to put $20,000 into a kitchen or $30,000 into a patio that you can’t recoup in the future. Comparables can help you determine how much to invest in a home that you might sell down the line.
So, what are the criteria used for determining comparables?
Comparables are essential because 1) if the home you want appraises for less than the asking price, then your lender may not give you the money that you need, and 2) you may not get the price that you fairly deserve for your home if the comparables aren’t accurate. So how are comparables determined?
✓ Location
Where the home is located and by what amenities (schools, green space, bus stops, waterfront, conveniences, etcetera).
✓ Size
The number of bathrooms, bedrooms, and overall square footage is critical to the comparable but so is lot size.
✓ Features
A home’s special features like a large patio, a deck, fencing, an attached garage, a chef’s kitchen, a finished basement, etc. will play a large role in the comparables as well.
✓ Condition
Of course, the current state of the home is as critical as the age of the home. It’s important to consider the materials (brands and quality) of the home, too. A brick home will have more value than say a home with siding.
✓ Timely
It’s again important that the comparables used are ones that have sold in the last 4-8 weeks.
You can create your own amateur comparables to give yourself an idea about what your home is worth. Of course, corporate real estate sites do that for you by giving your home a base value, but the best way to know what your home is truly worth is to talk to a local agent who is helping people buy and sell homes in your area. They will have a current pulse on real estate in the area and know what homes are going for, what buyers are looking for, and how much homes are going for. A good real estate agent who cares greatly about helping you achieve your goals is going to pull solid, current, and accurate comparables.