Understanding Real Estate Comps When Buying or Selling a House

When you search for your first home, you might be confused by some of the terms used. Real estate comparables or comps is a term that can be misunderstood, but it is an important part of the process.

We will look at Real Estate comps and what you need to know about them.

What are Real Estate Comps?

Similar homes recently sold in the same area as the home you want to buy or sell are comparables. They are as similar as possible to the home in question, offering similar features, numbers of bedrooms and bathrooms, square footage, and condition.

The point of real estate comps is to help find the fair market value of a home. Sold prices of similar homes are a good indication of how much the subject property is worth.

Real estate agents compile a CMA or comparative market analysis to help find the right price to sell a home for or to suggest the best amount to offer when buying. The more homes found in the same area sold in the last three to six months, the more accurate the analysis will be.

The comps are analyzed to find out how much they differ. These differences are given a value, and the value of the subject property is altered accordingly.

Real estate comps can be utilized in analyzing multiple types of home values, including market value, assessed value, appraised value, and even what Zillow uses to provide pricing data.

When are Real Estate Comparables Useful?

Comps can be beneficial to almost everyone involved in the real estate transaction.

When Buying a Home

Comps show how much other buyers were willing to spend on similar properties. This helps buyers judge how much they should offer for a home they like. This can help avoid making a low offer with no chance of success or offering more than the home is worth.

When Selling a Home

Setting the listing price for a home isn't easy, with sellers often imagining that their home is worth more than it is.

Choosing the right selling price will ensure a buyer is found faster and avoid having to reduce the price later when buyers don't have enough interest.

During an Appraisal

When you are using a mortgage to buy your home, the lender will require an appraisal to ensure the home is worth the amount they are lending. This prevents them from loaning more money than they could recover if the home forecloses.

The appraiser will use comps to find the value of the home in a similar way to a real estate agent.

Real Estate Agents

Comparables help real estate agents better serve their clients, advising them on how much to offer or list a home for.

For Communities to Provide an Assessed Value

When the local assessor determines the market value of properties within the community, they will use appropriate comps. The comparable sales will be used to establish the real estate taxes for homeowners.

How to Find Real Estate Comps?

If you aren’t working with a real estate agent, you can still use comps to find the value of a home. While using an agent will be easier and get a more accurate result, doing this research yourself will give you some idea of prices.

When real estate agents find comps, they use the multiple listing service (MLS) for sold prices. However, this isn’t available if you are looking for comps.

Property websites use data from the MLS; anyone can access these sites. The information on these websites isn’t necessarily up-to-date or accurate compared to the MLS. So if you are using this as your source, you need to be more cautious with the result you get.

Public property records also contain sold prices, and the data is accurate. You can normally find this information online though it depends on the county. If the information isn't online, you must visit your county assessor's office.

While this is official data, it will miss details like seller concessions and repairs the seller agreed to cover. These costs should be deducted from the selling price to find a more accurate comparable property.

Final Thoughts on Comps

Finding the price of a home can be crucial in real estate. It will give you more information to make important decisions when buying or selling a home.

While you can find your own comps to help you decide how much to offer or the price your list your home for, it is easy to make mistakes.

Since your home is usually your largest investment, making mistakes could be costly. Using a real estate agent will ensure the comparative market analysis produces more accurate results.