So you’ve seen a house you like. How do you know what it’s worth? Can you trust the asking price?
To be comfortable with what you can offer the seller, you’ll need to run your own comps. But, what is a comp?
Comp is short for comparable sale. These are sales of similar homes in the same neighborhood as the property that you are considering buying. The comparable properties should have as much in common with the subject property (the one you are considering buying) as possible in order to give you a solid estimation of the subject property’s market value.
Selecting a good comp is all about comparing like with like. When looking through local comps, there are a number things you need to compare:
1. Distance From Subject Property – in most major cities, you will be able to pull comps located within a 1/4 mile radius of the subject property. If you are in an area with little market activity or a rural area, then pulling comps from a 1 mile radius is accepted.
2. Date of Sale of Comp – in busy markets, you can pull comp sales that have taken place within the last 6 months. If you are in a slow market area, going out to 12 months will work.
3. Construction – if the subject is an all brick house, then pull comps that are all brick houses; if it is a wood or vinyl siding house then pull comps that are wood or vinyl siding.
4. Condition – if the property is new then pull comps on new properties, if it’s older then pull older property comps. This is actually where trying to figure out a “subject to” value or ARV can be tricky. When trying to determine the after repair market value of your rehab property, it is important to take into account the condition of the property after the work is completed. Then try to pull comps in the neighborhood that have also been rehabbed to similar condition.
5. Age – pull comps that are the same age as the property. Try to keep within about 5 years older or younger to your property. A rehabbed property does not hold the same value as a new one.
6. Gross Living Area/Sq Footage – pull comps with the same approximate sq. footage as the subject property. Try to keep it within 100 sq. ft and no more than 200 sq ft. Be sure to consider bathroom counts as well.
7. Number of floors – pull one story, two story, etc. comps that reflect the height of your subject property.
8. Basement – if the subject is on a crawl space or slab, then pull comps on crawl spaces and slabs; likewise if the subject is on a basement, pull comps on basements. Try to keep the sq. footage of the basements as close as possible (same as above), within 100 sq. feet is ideal, but no more than 200 sq. feet, if possible.
9. Garage or Carport – again pull same for same.
10. Lot Size – pull with similar size lots as the subject property
You get the idea. The more similarities, the easier to comp your property. It’s very often difficult to find like kind comparisons. When your comps vary significantly from your subject property they’re not really comps! You’ll need to adjust your numbers accordingly and this takes some experience and training. If it was easy, we wouldn’t need to pay appraisers!
Have you done any comping? What can you share?