For Buyers and Sellers, a Background on Comparables

         Establishing the asking price for a home may not quite qualify as science fiction, but it can be a bit of an adventure in time and space—at least when it comes to establishing the comparables.

The logic behind valuing a property by looking at recent comparable sales—the “comps”—is immediately clear. You don’t have to study economics to realize that the value of something (including a house or condo) will ultimately be the amount that someone is actually willing to pay out for it. So recent sales of comparable homes should be the best benchmark of pricing when listing your property for sale.  

But like so many things that are wonderfully simple in theory, when it comes to establishing comparables for the purpose of setting a fair asking price or mortgage amount, practical matters can complicate things. So for anyone looking to buy or sell a home, demystifying the factors that come into play as appraisers and bank loan officers identify valid comparables is good background information.

Among the most important factors are size of the dwelling and (this never gets old) location, location, location! So comparables are similar-size homes or condos that have sold recently, close by. What could be simpler, right?

Not so fast—it’s much more of an adventure.

First, the space part. The fact is, there are different ways to look at the size of a property. Square feet may be a number you can measure, which might be total square feet…but there is also taxable living area, which could be more important. The difference is that anything below grade (for instance, a half-finished out man cave garage) may not be counted—or may be partially counted (an “adjustment”). For condos, one of those half-height storage areas may be another “adjustment,” as could be a balcony or parking space—valuable to some buyers, but not part of the “taxable living area.”

There’s another aspect to the space part of the adventure. Even within a single neighborhood, some streets have homes that are more upscale (and pricey) than others. Or there can be nearly rural parts of a suburban (or even an urban) community—so using the distance from one point to another may not be an accurate way to determine if nearby neighborhood comparables are really, well, comparable. In other words, although within a short distance, to be truly comparable a nearby sale could call for yet another ‘adjustment.’

Then there’s the time part of the adventure, which comes when we try to figure out what qualifies as a ‘recent’ comp. Within 90 days definitely qualifies as an ideal. But what if there aren’t enough of those? Some lenders will go back 6-12 months—a warping of the time-space continuum (and where would science fiction writers be without those?)

If you will be buying or selling anytime soon, the comparables will come into play. Call me to explore what they look like in your own immediate real estate future!