When you are looking to sell your home, it is essential to have a fair and accurate price. Overpricing leads to failure. Under pricing leads to money left on the table.
On the other hand, when you're buying a home, the last thing you want to do is overpay. This is where "comps" come into play. Real Estate comps are comparable properties that have recently sold in your general area.
The value of a home is determined by looking at several factors including the time of year, market trends, property location, and most importantly, the real estate comps.
Finding out what other similar properties have sold for forms the basis of completing a comparative market analysis. A CMA in real estate will be used to put together a report that outlines the value of a property and how a conclusion was formed.
If you're looking to buy a home and don't want to spend more than you should. Finding comparable homes in the area can help you understand what a house is worth before making an offer.
Real estate comps can be used to determine the value of a property, which can be helpful for a variety of purposes across the real estate spectrum, from buying and selling to investing and making housing market predictions.
Let's look at everything to know about comps in real estate sales.
Real Estate comps are usually determined by one of two parties - a licensed appraiser or a real estate agent. Appraisers or real estate agents will hand-select similar properties in the same neighborhood if possible or a nearby area.
For example, if you are selling a home with 3000 square feet, you will want to compare it to other like properties in the same general area. It would not make sense to be comparing a home to properties that are 2000 feet of living area in some other location.
If possible, it also makes sense to use comps that have other similar characteristics such as the same number of bedrooms and baths, similar age, similar amenities, and similar lot.
Finding an identical home is unrealistic so "adjustments" are made from house to house. Appraisers and real estate agents will make pricing adjustments up and down based on the strengths and weaknesses of the comps compared to the subject property.
When the comps have been determined, they will be put into a report. For an appraiser, it will be a uniform appraisal report. For a real estate agent, it will be in the form of a comparable market analysis (CMA).
Real Estate comps are used by several different parties including sellers, buyers, real estate agents, appraisers, and attorneys to name a few.
There are numerous reasons why you may want a comparative market analysis.
Let's have a look at each of these parties and their usage of house comps.
Besides the obvious of finding out the correct list price for your home, comps can also help you look at relevant statistics for other similar homes that have sold.
For example, how long were other homes listed for sale? Days on market is always an essential home selling statistic. What is the average list price to sale price of other similar sold properties?
You may also glean some helpful selling points for the way other like homes were marketed.
Comparing prices of houses is an excellent way of not making a financial mistake. Real Estate comps back up your thought and opinions about a given property.
You want to have verification that the list price reflects fair market value. Not only do comparable sales provide a basis for where to start your offer but also where you end up paying.
An excellent buyer's agent should be guiding you on how to interpret the housing data so the comps make sense.
A real estate agent will search the multiple listing service (MLS) in order to provide the most accurate comps. It is these comparable sales that will be used to form the basis of providing a real estate CMA to their respective clients.
When a buyer is using a mortgage lender, on most occasions a home appraisal will be required. In certain instances when there is ample equity in the property a lender may waive an appraisal. Otherwise, a professional licensed appraiser will be hired to assess the property.
Like a real estate agent, an appraiser will rely on comparable properties as a basis for determining value. The comps will be carefully selected based on similar characteristics of the subject property.
An appraisal report will be completed and submitted to the lender usually within a week of an appraiser's visit to the home.
A real estate appraisal becomes a critical component in a real estate transaction, as lenders rely on their information as the basis for granting a loan.
A real estate attorney is another party that may rely on comps. Often lawyers are tasked with negotiating a divorce of an estate sale. In these situations, an accurate valuation of housing is needed.
Comps are often needed in order to settle disputes between parties. Even in cases where things are amicable, comparables will be used to determine fair splits of property.
Setting the correct price for a home is one of the most essential skills a real estate agent provides to their clients. It is crucial to get it right, as buying or selling a home is such a significant financial decision.