Understanding Comps in Real Estate Sales
Do you know what are real estate comparables? How about “comps”? These are slang terms some folks use to talk about similar properties. Setting a price of a home can be confusing to figure out.
Many people, including real estate agents and appraisers, use the Multiple Listing Services or MLS to determine the right price for both the seller and future buyers.
Property values can constantly be changing due to the nature of the local real estate market. Sometimes home values are rising, while at other times they are falling. Occasionally, they will remain rather stable.
No matter what type of real estate market holds at the time, the proper way to analyze the market value is to run comps. Running house comps is a slang term real estate agents use to describe comparable or similar properties.
Researching comparable properties that have been sold has become the gold standard and one of the most respected ways to set any listing price.
If you’re interested in selling a home, it’s going to be handy for you to understand how comps on the MLS can help set the right price for your property. On the other hand, if you’re buying a home for the first time, it will also be valuable to understand house comps as well.
Nobody wants to overpay for a property and especially when you are starting with your first house. Whether you are buying or selling a home, it will be essential to grasp how comparables work.
Let’s take a look at what you need to know about comps or comparable sales.
What Are Real Estate Comps?
Okay, we know that people use real estate comps to help determine a home’s cost, but what exactly are they?
A house comp is a property that is like the one you’re attempting to buy or sell. These similar homes can help to figure out the actual value of the property in question.
Housing comps or comparables as they are known can be found from the info on the MLS. The multiple listing service (MLS) is a database that holds information on all real estate currently being sold or has sold in the local area.
Real Estate agents can access this information when needed to find matching homes in the neighborhood, allowing them to draw comparisons.
When pulling this information, agents tend to seek out properties similar to their conditions, features, size, and age. It is also ideal if these properties were sold less than 6 months ago at the very maximum—additionally, the closer the comparable property to the subject’s location, the better.
When running comps, it is always best to be comparing apples to apples.
Why Use Real Estate Comparables?
MLS comparables are used because sellers can compare data from successful sales in a selected market. The information allows sellers to find properties like their own. Having this information will allow sellers to set the right price for their home when a real estate agent presents the data.
The reason this is even important is that it’s vital to pick the right price, which is critical to the success of selling a home.
Regardless of what the property offers in terms of its features or appearance, if a seller can not correctly put the right price, it probably will never sell.
A price should maximize profits as well as not turn off potential buyers away from the property. MLS house comps also provide posting and selling dates, demonstrating the quantity of days properties stay available.
Reasons Behind Using Comparables in The First Place
Almost everyone involved in the selling process can utilize MLS comps to help make their lives a whole lot easier.
Although we’ve already touched on why they might be advantageous to sellers and buyers, we want to go over this in a bit more detail as well as outline why other people in the industry can use them; appraisers and real estate agents.
- BUYERS: Purchasers should explore comps before they truly submit an offer, as they can assist with not paying too much for a home. By understanding the comps, buyers can put in realistic offers on a property they want to become theirs.
- SELLERS: Comps from the MLS are a critical aspect of the home selling process. They help a seller establish the correct price for a home. The MLS information also becomes the basis for which future sellers will rely on to price their properties accurately. Whether they are working with or without a Realtor, the MLS data is invaluable to the whole property selling process.
- APPRAISERS: Appraisers utilize similar properties on the market to gauge the true cost of a home. MLS comps give a gauge of comparative homes nearby, permitting appraisers to lead their work all the more productively. This cycle is essential for the purchasers and sellers, guaranteeing homes are estimated reasonably for both parties involved in the buying and selling process. Many real estate contracts will have appraisal contingencies based on the appraiser’s findings.
- REAL ESTATE AGENTS: Comp properties are a vital segment of a Realtor’s everyday duties. Comparable homes help both buyers and sellers make smart decisions in a real estate transaction.
Key Things to Look For With Real Estate Comps
Knowing exactly what you should be looking for when running comps will help you to determine the correct comparable properties to be used. Without having the right comparable sales, your market value is bound to be off.
Here are some things that should be considered:
- LOCATION: as mentioned previously, a couple of mile radius is what you should be setting your limits to when you’re trying to compare one property to another in the local area
- VALUE PER SQUARE FEET: Find the cost per sq ft by isolating a home’s cost by its area and contrast that number with your own cost per square foot. Price per square foot is one measure of value, and short not be used on its own to determine value.
- THE TIME SPAN OF SALE: Try to zero in on properties sold inside a 3 to 6-month time span. This might be troublesome if you have a housing market that changes quickly. If so, you might need to consider zeroing in on a considerably more modest time span.
- PROPERTY SIZE: Accurate comparables ought to be inside 200-300 sq ft of your property.
- CONDITION: Try to discover properties in a moderately similar condition. Always make certain to consider any remodels and upgrades.
- NUMBER OF ROOMS: Be certain to look for houses with a similar number of rooms.
- BEDROOM AND BATHS: It goes without saying that bedrooms and baths hold significant weight in the market value of one property to the next.
- AGE: Accurate land comparables ought to be buildings that have been created around a similar time as yours.
- NEIGHBORHOOD FEATURES: Real estate comps ought to have similar area highlights like distance to shops, lakes, and anything else that could increase value. Additionally, remember the neighborhood schools and admittance to public transportation.
Final Thoughts on Real Estate Comparables
Understanding comparable sales are one of the most crucial aspects of setting a property’s correct list price. Comps are also the basis for determining the ultimate value of a home as well. When you are unsure about the comps, it is always wise to get help from a professional.
Hopefully, you have found the information on comps to be useful.
Other Helpful Real Estate Resources
Look at a couple of other excellent articles to help buyers and sellers make wise decisions.
- What should I photograph before moving – when you are selling a home, it is wise to take photos of certain this before moving on to your next home. Get some sound tips in the article at Format about the photography you should consider taking.
- Who are the top self-storage companies – when you are moving from one home to the next, you may need storage space. It will be wise to work with one of the best self-storage facilities. See a rundown of some of the top storage companies to consider.
Use these moving resources to make your next move a smoother one.