How much is a house worth? Knowing the value of a home can be crucial when buying or selling.
The location and market trends will be very important, but they aren’t everything. What decides how much your house is worth are the real estate “comps.”
What is a comp in real estate?
A real estate comp is industry lingo for a comparable home to the property you want to buy or sell. Comparable homes are similar properties sold in the same area recently. The idea is to find properties as similar as possible to the one you are looking at to give the best indication of the value.
Who uses real estate comps?
Comparables are very useful to professionals in the real estate business, along with people buying and selling homes. This information can prove invaluable when making decisions and negotiating on a home.
Let’s look at who benefits from real estate comps:
When you want to make an offer on a home, real estate comparables can help you see if the listing price is reasonable. It could show that a lower offer might work if the home is priced higher than the comps.
When pricing your home, comps will give you an idea of what to list it for. They can also show you the key selling points for buyers looking for homes similar to yours.
Real estate agents
Both buyer’s agents and seller’s agents use comps as a regular part of the services they provide their respective clients.
Agents will use data from the multiple listing service (MLS) to find comps. They use this to compile a comparative market analysis to advise their clients when buying or selling a home.
Creating an analysis of value provides the information necessary to price a home accurately.
Lenders want to ensure they aren’t lending more than the home is worth, so they require an appraisal. The appraiser will use comparables to judge the value of the home accurately.
Using accurate comps lowers the chances of having an appraisal gap.
How to find comparable homes
Using comps will assist you whether you are a buyer or a seller. There are a few options to find comparables:
You can do your own research to find comparable homes. Checking on sites like Zillow or Redfin will make it easy to find sold home prices.
While it might seem like you are finding good comparable homes online, they might not be as accurate as they appear. Though it will give you some idea of the value of your home, a real estate agent will be able to find better comps.
You can also look at the county records for more details of the properties that look like good comps.
Your real estate agent can pull data from the Multiple Listing Service (MLS). They will be experienced in finding comps and assessing the home’s compatibility. This help will be particularly useful when there aren’t many comps in your neighborhood or if you are looking for a more unusual property.
How to compare comps
To get the best comps, certain things should be compared:
The best comps will be close to the home you want to value, generally within a mile. Since location can change house prices considerably, the closer, the better for accurate results.
How much land the home sits on will affect the value. While the home might be similar, it could be worth much more if it sits on more land.
Newer homes usually have a higher value. Try to avoid comparing a home that is 10 years old with another that is 40 years old.
The square footage, as is the number of bedrooms and bathrooms, is essential. You might not think an extra bedroom will make much difference, but it can.
Differences in the condition of the homes will make a big difference in the value. But it isn’t only the maintenance that plays a role. If the home has a new roof, it will be worth much more than one with a roof needing repair.
When it sold
With changes in the market, you need to find comps that sold recently. If you try to compare a home sale from two years ago, don’t expect it to be accurate.
Only use comps that sold in the last 6 months.
Final thoughts on real estate comps
Comps are a great way to make better decisions when buying or selling a home. Using accurate data could give you a better deal on your next property or sell your home for more.