How Home Buyers and Sellers Can Work with Comps
Buying a home is not like going to buy food at the grocery store. There is no set price. This is where housing comparables, or “comps” for short, come into play.
Comps are a tool to help you decide a home’s market value. Since a listing for a house might have an asking price, that price can be up for negotiation. And that’s what makes comps so important for buyers and sellers.
Understanding “Good” Comps
For a good comp you want to compare your house to another similar house. In other words, you want to compare apples to apples, not apples to grapes or oranges or lemons.
While each market varies, here are some of the areas to look at for a good comp:
- Proximity: When it comes to determining if a comp should be used, location is important. A half mile radius is best, but that perimeter might not work for all markets.
- Square Footage: A good comp will have similar overall square footage.
- Beds/Baths: You will want to use a comp that has a similar number of bedrooms and bathrooms. This factor might even edge out square footage when it comes to what is most important. The reason for this is because the utility of a property is important. So, comparing houses with the same number of bedrooms and bathrooms might work better than a comp with the same square footage but a different number of bedrooms.
- Recent Sales: When looking at comps you will want to check out the most recent sales. Because the housing market changes month to month, you’ll want to look predominately at homes that have sold in the last six months. If you absolutely have to, go up to a year back but no more than that.
- Style: You will want to look at houses that are the same style. For example, condos should look for condos, single family homes at single family homes. etc. Also factoring into this are elements like where the property sits and the views can also come into play. This means that a home with water views should be compared to other similar homes with similar views (whenever possible).
Listing Price vs Sale Price
Now that you know what to look for in a comp, it is time to find them. Once you have compiled a solid list, you can then dig into the numbers. While you can look online and find the listing prices of homes, the final sale prices is the info you need. With this information in hand, you are now prepared for the final steps.
Using Comps
When properly researched, comps can either justify your listing price or help back up your asking price. For example, if your home is listed at $175,000 and buyer comes in with a low offer at $125,000, you can use the comps to backup your price.
This works for buyers as well. If someone is selling a property for $450,000 and the comps all come point closer to $400,000, you can use the comps to justify your offer being lower than the listing price.
Keep in mind that using comps in buying and selling houses is more of an art than a science. Different real estate pros can look at the same comps and draw different conclusions.
Nevertheless, knowing the comps for your home or the home you are looking to purchase is an important piece of buying and selling properties. It can save you thousands on both ends of the real estate process.