What are comps and how to use them?
Not a lot of the general public understand the term “comps” in real estate. You might be asking yourself, how do comps affect me as a buyer or seller? What do they mean and how do you find them?
What is a comp?
Comps or comparables are homes with approximately the same characteristics of an identified property (you might be selling your home or you might be buying a home – we use comps for both sides). Comps help us determine the value of a property with current market data.
How to use comps in real estate?
Ideally, comps that are pending or sold are good indicators of valuation rather than withdrawn listings. It is typically seen to search within a narrow radius of homes within the neighborhood with about the same square footage, bedrooms/baths, lot size and upgrades. If the market has had few sales, we widen the radius and date range to find what we are looking to see. Sometimes, with unique properties we might have to go a number of years back or get creative to find comparable properties. When this is the case, we look at what the overall market was doing at the time.
How do comps affect you in a real estate transaction?
From a buyer perspective you don’t want to overpay for a home. If you are using financing, you’re appraisal ordered through your lender will protect you from this. You can read more if your home doesn’t appraise in my article What Are Appraisals and how do they work?
From a seller’s perspective you want to come to market within a competitive range of what other homes like yours are selling for. Your listing agent can help pull this data for you to review together.
From the lending side of things your appraisal, done by a neutral party, will ensure what the bank is lending on is worth the value in the current market.
In conclusion, comps can help us get a more accurate view of what is going on in the market and get a valuation. With that being said, value is always determined on what a willing seller is willing to sell at and what a willing buyer is willing to pay.