What Are Comps in Real Estate and How Do They Work

How much is a house worth? It is a difficult question to answer when you are either buying or selling a house. Many things contribute to the value of a property. The location is very important, as are the local market conditions, and even the time of year plays a role.

The way a house value is normally found is by using comps. Comps allow the price of a home to be set correctly.

Comps will be used by a real estate agent when creating a broker's price opinion or comparative market analysis comparative market analysis. This data will shape the real estate evaluation and current fair market value.

Let's have a look at everything to know about real estate comps.

What Are Real Estate Comps?

Comps are real estate comparables, homes that are similar to the home being valued. Properties in the same local area that have sold recently, should have a similar value.

It is important to find home comps in the same neighborhood with very similar features to make sure an accurate valuation is found. If the comps aren’t close in terms of stats to the house in question, you could offer too much for the home.

For example, if one home sits on 5 acres of usable land and another has one acre it will make a difference. It is important for buyers to understand how many square feet are in an acre so when they see a lot size they have some understanding of what it means.

Another example would be adjusting the comps if one home has more bedrooms and baths than another property. It isn’t only useful to have an accurate valuation when buying, there are many uses for real estate comps.

They are also necessary when selling, when investing, during appraisals, or if you want to find the direction in the local housing market.

House Comps When Buying

Comps give you a better understanding of how much you should offer when you have found your ideal property. Comparables can make it clear if the listing price is reasonable and help guide your strategy so that you don’t pay more than you need to.

One of the services your buyer's agent will provide is helping you analyze a comparable market analysis with the appropriate comps. Without comparable sales it would be awfully hard to determine what to offer for a house.

Real Estate Comparables When Selling

Comps will show you what the right price is to list your home. This should allow your home to be attractive to buyers without setting the price too low.

Similar homes that have sold in the neighborhood can also indicate what buyers are looking for. This will show the things that should be highlighted with your property to make it sell faster.

Real Estate Agents

To help their clients, agents use the information in the multiple listing service (MLS) to find comparable homes. They use this data to create a comparative market analysis that assesses the value of the home.

Appraisers

When you are buying a home with help from a lender, they will require an appraisal to ensure you aren’t offering too much.

When a home appraisal is created, the appraiser will use comps as a large part of their assessment. If they find the value of the home is lower than your offer, it could be the end of the home purchase. Appraisal costs become part of a buyer's closing fees.

How to Find Comps

Whichever side of the house buying transaction you are on, finding good comparable homes is important for your finances.

Your real estate agent can dive into the MLS to find the best comps for the home you are interested in buying.

The MLS is the best source of data and is only available to licensed Realtors and appraisers. Hiring a real estate agent will give better home comps and the expertise of someone experienced in assessing comparable homes.

If you are buying a home in a rural area, or if the home is unusual in the neighborhood, this will be more important as there will be fewer good comps. Without help from a real estate agent, you can do your own research to find comps.

You can check listing websites like Zillow to find similar homes in the right area. Though you need to be careful with the result you get, as the homes you find might not be as similar as you think.

Things to Consider When Looking for Comps

If you are trying to find comps for yourself, you should try to copy the same strategy the professionals use to get a more accurate valuation. Let's look at some of the important features of comparables:

• Location: any comp should be within a mile of the home unless in a rural location.
• Condition: a home with many maintenance issues isn’t going to be worth the same as one in perfect condition. You may know a home inspection revealed issues on one of more of the comps.
• Lot: the size of the lot will make a difference to the price.
• Rooms: the number of bedrooms is important to the price, though the size of these rooms also needs to be considered.
• Age: newer tends to be better than older constructions.
• Recent sales: how long ago the home was sold changes the accuracy of the comp.

When you are preparing to sell your home or considering making an offer on a new one, comps are very useful. There is a lot of money involved in a home transaction, so it is vital to make sure you are making the right decision.

Final Thoughts

Comps are vital in all real estate transactions to establish proper listing prices for sellers and to help buyers make appropriate offers.

Before making an offer and having your funds put into escrow, it is crucial to have a good understanding of market values. Analyzing the data correctly is essential to make sound decisions.

Lean on your real estate agent for assistance when you're unsure whether a comp is appropriate or not.