Comps are an important tool, whether you are buying or selling a home! Real estate agents can help you perform a comparative market analysis (CMA) to determine the price range of a specific home – removing personal bias and other factors that may skew the perception of what a property is worth.
What are House Comps?
A house comp in real estate refers to a comparable sale. This means a property that was recently sold in the same area that has similar characteristics to the home you are looking to buy or sell.
The most important aspect of comps is recency – it looks at today’s real estate market to get an idea of what a particular home may sell for. Most comps consider homes sold only within the past few months so that they can get the best idea of what will actually sell in the market.
While comps try to look at comparable properties, they don’t have to be the same. The homes used can vary by square footage, lot sizes, current condition, and year built. What truly matters is the proximity to the house that is being bought or sold.
Houses that are on the market but have not officially sold yet are not included, since there is no way to know for sure what the final price will be.
There are also other factors, like when the seller pays the buyer’s closing costs, that can affect the sale price of a home – so although comps are a great tool, they are not perfect.
Where can you get Comps?
One of the best sources for comparative market analysis is a local real estate agent. They are professionals at this and can make appropriate adjustments to account for your specific home’s square footage, recent renovations, or other factors that can change the analysis.
They will usually use the multiple listing service (MLS) to pull the comps as that will show the most recently sold homes in your immediate area.
If you want to put together the comp yourself, you can do so by using a website like Zillow, but it can be tricky to navigate this process on your own.
Importance of Comps
Comps are an important part of the process, regardless if you are selling or buying a home. They can prevent you from overpaying for a house and give you a realistic expectation of what your home can sell for.
From the Buyer’s Perspective
The main benefit of using comps when buying a home is to help you determine what a fair offer is.
Consider a scenario where the seller of the house that you are interested in purchasing is asking for $250,000. If you run the comps and homes in the same neighborhood that have the same characteristics have sold between $215,000 and $220,000, you should consider making an offer below the asking price.
The house comps also play an important role when it comes to securing a mortgage. Generally, the lender will request an appraisal of the home before approving the loan to ensure that you are not overpaying – they don’t want to extend a loan for more than the home is worth!
From the Seller’s Perspective
When you are selling a house, it is necessary to look at a comparative market analysis to determine the asking price. If you have lived in the home for a long time, you may have an emotional attachment to it that will lead to unrealistic expectations of what the value is.
Before you list your home, look at comps to get an idea of what you may be able to sell it for – if you do this, you have a much better chance for a quick sale!