Real estate comps are a powerful tool for anyone venturing into the complex and potentially volatile real estate market. Comps allow you to effectively compare similar real estate sales so you’ll better understand what to expect in your own situation. Whether you’re selling a piece of property, buying a home, or simply investing in the real estate market, understanding comps will help you make the best choices possible with your funds.
Understanding Real Estate Comps
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Comps is short for comparables in the real estate industry. This term refers to the real estate prices for similar listings that were recently sold. Understanding real estate comps can help both buyers and sellers get the best possible price for their properties. Real estate comps are important for both residential and commercial properties.
Real estate agents are continually monitoring and evaluating real estate comps to help them better understand the ever-changing state of the market. When examining a comparable property, you must consider several factors to make sure you’re getting an accurate comp for the type of property you’re investing in.
How Buyers Can Use Real Estate Comps
As a real estate buyer, you should look at real estate comps to help you understand the appropriate offer to make on a piece of property. Getting your offer right is crucial, as this can make the difference between getting the home of your dreams and settling for something less than ideal.
If you’re shopping in a seller’s market, you’ll usually find that inventory is scarce. Unless your real estate comps show that a home is grossly overpriced, you’ll usually want to offer at least the list price. If you’ve found a home that’s everything you could want and more, you may even want to offer more than the asking price, particularly if real estate comps show that similar homes have sold at equally high prices in the area. If you don’t make the offer, it’s likely in a seller’s market that someone else will.
If you’re shopping in a buyer’s market, you have more negotiating power. In this market, you can use real estate comps to help you determine the lowest possible price for a comparable piece of real estate. When inventory is high, sellers are more motivated to accept offers, even when they’re below the list price. You could probably make an offer for around 10% below the list price and still garner consideration if the seller isn’t getting a lot of offers.
With a well-informed real estate comp to inform your decision-making, you can confidently make a purchase offer that you know is reasonable. This will help you make sure you don’t offend the seller while also protecting your interests and ensuring that you don’t spend more than you have to.
How Home Sellers Can Use Real Estate Comps
As a real estate seller, you can use real estate comps to determine the appropriate list price for your property. You don’t want to list your home so high that buyers don’t consider it, but you don’t want to price your home so low that you’re not getting what it’s worth.
A real estate comp will also help you understand how to handle offers from buyers. If you know that you’re listing your home above the general real estate comps for the area, you’ll probably be more likely to accept a lower offer. If you’re right on the line with other comps in the area, you probably won’t want to take much less than the list price, if you’re willing to negotiate at all.
In a buyer’s market, you may find that your house lingers on the market for weeks or even months. You can periodically review the most recent real estate comps and use them to determine whether you need to adjust your list price. These comps will let you know if prices are trending downward and if you need to make a similar adjustment to keep up.
How to Find Real Estate Comps
The MLS is the most detailed and accurate source of real estate comps. This database is only available to licensed real estate agents and appraisers. If you’re not in the industry yourself, it’s worth partnering with a licensed real estate agent whenever you’re buying or selling a property. An experienced agent will do all the leg work of looking up the appropriate real estate comps and translating this data into actionable advice.
If you’re in the early stages of home buying or selling and simply want to do some exploratory research, you can look up some real estate comps on your own. Websites like Realtor and Zillow will show you pending and recent home sales. Though the data is slightly less accurate than the MLS, it will give you a good starting point for your own ventures into home buying or selling in the early stages before you’ve hired a real estate agent.
What to Look For On Real Estate Comps
There are several key features that you should consider when you’re evaluating real estate comps. Remember that you only want sales prices for properties that are comparable to the one you’re dealing with. This means that the comps you examine should be the same or very similar in areas such as:
- Square footage.
- Number of bedrooms and bathrooms.
- Property size.
- Number of floors.
- Home features such as a designer kitchen, finished basement, or included appliances.
You should only consider the prices for homes that have sold within the last three to six months. The most accurate comps come from home sales that are pending because these give you live market data. The more recent your sales window, the better your information is in this ever-changing marketplace.
If you’re ready to get started in real estate investing, our team at Titan Funding can help. We offer private money lending for a variety of different purposes. Our agents can assist you with commercial hard money loans, rental property loans, fix and flip loans, multifamily loans and more. Contact us today to learn more!