How Do You Find The Right Real Estate Comparables
Have you heard the term "comps" or "comparables" and wondered what the heck the real estate agent was talking about? If you are thinking about listing your home for sale and don’t know how to price it, you might be wondering how it’s done. Mostly, Real Estate agents use information from the Multiple Listing Service, also known as the MLS, to find the right price to list a home for.
Comps or comparables are properties that are closest by comparison to the subject property.
The real estate market is constantly changing, so finding the right price to sell a home isn’t easy. Real estate comps are the most reliable way to price a home, using the MLS information. How to find real estate comparables is another story altogether. A real estate agent needs to be skilled at picking the right comps; otherwise, the value provided will not be accurate. Maximum Real Estate Exposure presents all of the ways to run comps for an accurate comparison between homes.
If you are an investor, it is imperative to understand how to use comps in real estate. Let's take a look at the things you need to know about comparables so that you can price homes correctly.
How Do Real Estate Comps Work?
Comps or real estate comparables are homes that are most similar properties to the one you are selling. These comparables are homes that have been sold and can be searched for in the MLS database.
Real estate agents have access to this database of sold homes and can find good comparisons in the same neighborhood. They are looking for homes with similar characteristics, close in size, the same number of bedrooms, conditions, and age.
The homes used as comparables need to have been sold recently, within the last 6 months, and nearby. Normally only homes within a few miles of the property are considered, but in rural areas, this can be extended further. In many cases, properties five miles away can still be considered comps.
The Benefits of Using the MLS for Comps
The MLS database provides a lot of information about the homes that have been sold. Included is not only the sales prices, but it also shows the price it was listed for and how long it stayed on the market.
The database entries for homes recently sold show the seller or the real estate agent the best price to list the home for. They need to find a price point that gives the seller the highest return while still making the property competitive with others on the market.
Choosing the right price for the home is vital to making sure the seller gets a successful deal. Homes priced accurately tend to sell faster and for more money than those that are not.
However, the value of any property comes down to the amount buyers consider it to be worth. A selling price needs to be found to make sure the owner makes the maximum amount of money without scaring off potential buyers.
Comparables can also show how best to market a property. With information on homes that have sold, the seller can see what buyers expect and what makes their property unique. It can reveal how long the home is likely to be on the market before finding a buyer too.
How Real Estate Comps Are Used
Using comps can help in many different real estate situations. Understanding what the local market is doing and what similar homes have sold for offers many advantages to buyers, sellers, and investors.
Looking at comps will help buyers better ensure that they are offering the right amount and can even help during negotiations. When looking at properties, buyers are getting information about comparable homes without even realizing it. This should give them a better understanding of the local market and how much the homes should be worth.
For sellers, comps show them how to price their home and show which features tend to be more popular with buyers. This will help in the home's marketing, showing what to mention in the description to attract more buyers.
Real Estate Agents
Since real estate agents need to understand their market, comps really help. Real estate comparables show what the local trends are in both prices and popular features. This will allow the agent to create listing descriptions that sell homes quicker and advise their clients.
Real estate comps are vital to appraisers to give them the data to work out how much homes are worth. Data from the MLS can be one of the most important factors in finding a home's value. When completing an appraisal, the appraiser will find three sold comps that align best with the appraised property.
Appraisers will do what is called bracketing or picking a comparable property that has sold higher and lower than the subject home. Appraisers will then make adjustments based upon the various strengths or weaknesses of each home.
It is not unusual to have a real estate contingency found in a contract between buyer and seller that states the home must appraise for the purchase price. Buyers insert contingency language in contracts to protect themselves in the event the appraisal comes in low.
When there are appropriate comps and a buyer is putting ample money down, real estate agents feel more confident when a home is marked as contingent in MLS.
How to Use Comps to Find a Home’s Value
With information from the MLS, properties with the same amount of bedrooms and bathrooms can be compared. This information will help in the understanding of how much your home is worth. But the differences are also important.
If your home has better features than the comps, it should be worth more. If you have an upgraded kitchen and baths, for example, this should increase the value when measured against similar homes nearby.
It works the other way as well, though. If your home is missing some features when looking at comps, it won’t be worth as much.
Finding Real Estate Comparables
Many factors make up a good comp. The location is important, with nearer being a lot better. How recently it was sold matters as well, with more recent sales being more accurate.
The size of the home should be similar, within a few hundred square feet. Compare the price per square foot as well by dividing the price by the size. However, price per square foot is one metric of determining value and should NOT be used as an across-the-board method of determining property values.
The condition and the age, as well as the features and number of rooms, should be similar too if possible.
Finding Comps Without the MLS
Comps can be best found in the MLS, but other online resources can help if you don’t have access to this.
Sites like Zillow, Trulia, Redfin, and Realtor.com all have data that can help you find the value of your home. They will often provide sold data so that you can find your own comparables without looking in the MLS. Investors will often use outside sources, for example, when buying rental properties to ensure they are paying the right amount of money.
Many different factors make up the price a home is marketed for, and comps are the best way to find that information. If you don’t have access to the MLS, you might be able to get comparables from a real estate agent you are working with, or you can use the sources available to everyone.
Whatever you do, as long as you fairly assess your property when comparing it to recently sold homes, you should get an accurate value. Hopefully, you have found this information on how to use comparables in real estate to be useful.