If you have been involved in any type of real estate transaction then you know the importance of comps. They help sellers decide what to list their house for and buyers decide what kind of offer to make. The majority of the time comps are helpful when you are selling your house, but that’s not always the case.
Understanding what a true “comp” is
For a house to be considered a real comp, it needs to be a house in your area that is similar to your house and has recently sold. The more recent the house has sold, the better the comp is. For example, houses that sold a year ago are not a true comparison since the market changes so much over time.
The good side of comps
If you live in a nice area where all the houses are relatively the same, the comps will be incredibly helpful. The comps will paint a true picture of what you can sell for, which will be a good price.
And, the comps will be so similar to each other that buyers won’t have a lot of room for negotiations. It will be clear what the market value of the house is.
Comps will also help you when you are surrounded by houses that are nicer than yours. This means you are in a good area and your neighbors will actually help bring up the price of your house due to the potential.
The bad side of comps
Just like your neighbors can bring up the price of your house, they can also bring it down. This is the bad side of comps. Here are some of the common factors that pull down your market value due to incorrect comps:
The comps aren’t accurate – If you live in an area where your house is not like the others, it can be difficult to get a true comp. For example, if you are only looking at the number of bedrooms between the two, your house could get the short end of the deal if your three-bedroom house is 2,500 square feet and most of them in the area are only 1,500. It’s important that square footage be considered along with number of bedrooms.
The comps are not your neighborhood – If you live in a small town, any comp in the town is a fair comparison if the house itself is similar. But, if you live in a city, the neighborhood the comp is in can make a big difference. If your house is in a great school district, but on the line and the other side has a poor school district and high crime rates any comps from that neighborhood will pull down your value.
The comps don’t exist – When you live in an area that hasn’t had a house sell recently there is a lack of comps to look at. This makes it hard for you to determine the value to list at and gives buyers more reason to negotiate on the price. Your sale will help the others that come after you, but sometimes you don’t want to be the first one.
When you look at comps it is key that you look at all the factors that are playing into the price of the house. If one of the numbers is coming back a lot higher or lower than the rest, see if you can pinpoint why that’s happening. Drive by the houses to see what they look like in person and then work your way into a reasonable number from there.
