If your neighbor fails to maintain their home, it can be more than just an eyesore for you — it can actually reduce the value of your property. That’s because sales of comparable properties — usually referred to as comps — are a major factor in determining how much a home is worth.
Whether you’re buying or selling a home, comps are essential for understanding the current market and what homes can be expected to sell for.
Key Takeaways:
- Agents, buyers, lenders, and sellers use recent sales of comparable homes to determine the fair market value of a property. These are commonly called comps.
- Factors considered when evaluating comps include the location, condition, age, and size of a property.
- A real estate agent can find comps from a multiple listing service, or you can do your own research from public records and websites to find comps.
What Are Comps in Real Estate?
In real estate, comparable properties — commonly known as comps — are similar in many ways and relatively close to each other. These would be homes with the same number of bedrooms and bathrooms, as well as similar features, and are in similar condition.
Most people use comps to see what people have paid recently for homes similar to one they are considering buying or selling. This can help you determine how much to offer on a home if you’re buying or get an idea of how much you can get for your home if you’re selling.
“When we check comps, we think about how big the house is, how old it is, where it’s located, and any cool or appealing extras or improvements it has,” says Shannon Feick, co-owner and co-founder of ASAP Properties, a homebuying company in Cincinnati.
What Are Comps Used For?
Real estate comps are used to determine the market value of a home.
Buyers use comps to avoid overpaying for a home. Knowing the relative value of a home helps the buyer determine if the asking price is fair and decide how much they can afford and how much to offer.
Sellers use comps to figure out how much they might be able to get for their home and come up with a listing price. Comps can also help sellers figure out which features to highlight when listing their house.
Licensed home appraisers use comps to help determine a property’s value. Mortgage lenders typically require a home appraisal before they approve a loan to buy a home, so doing your own research in advance will help you be prepared for the results.
For example, let’s say you’re looking to buy a three-bedroom, two-bathroom home in a neighborhood with good schools and that is close to your job. You find one listed for $600,000 in good condition but needs a few tuneups. Your research finds comps that sold for $500,000. You will have to decide if it’s worth meeting that asking price or make an offer more in line with the comp value.
What Factors Are Considered in Determining Comps?
Here are some important factors to consider when looking for comps.
Location
Property values vary widely depending on location. You won’t be surprised to learn that a tiny condo in midtown Manhattan costs a lot more than a much larger house in a rural area. When choosing comps, it’s best to limit your search to homes within a mile of the home you’re considering buying or selling.
Condition
Two homes may be similar in size and style, but one can be worth dramatically less than the other if it’s been poorly maintained. When choosing comps, you’ll want to consider the home’s condition and any recent renovations or improvements that may increase its value. It’s important to get a home inspection before closing on a sale.
Age
You’ll ideally want to choose homes built around the same time as the home you’re buying or selling. This makes it easier to directly compare the condition of the plumbing, heating, cooling, and electrical systems. In general, newer homes tend to be worth more than older homes.
Number of bedrooms and bathrooms
It’s best to choose homes with the same number of bedrooms and bathrooms. An additional bedroom can add as much as $100,000 of value to a home. An additional bathroom can increase a home’s value by as much as 20%. Square footage also affects how much the home is worth, so you’ll want to choose homes that are similar in size.
Lot size
In addition to the size of the home, the overall property size also affects its value. You could have two homes that are the same size, but if one is on a much larger lot, it can be worth a lot more.
Time frame
Recent comp sales will give you a more accurate value of a home than older comp sales. As a rule of thumb, it’s best to use comps from the past six months.
How To Find Real Estate Comps
Your real estate agent or Realtor can pull comps for you from a multiple listing service, a private database of properties listed for sale in a specific area. Real estate professionals can use an MLS to access information about properties on the market. Agents often use an MLS to run a comparative market analysis, which compares a home to three comparable properties that sold recently.
If you don’t have a real estate agent, you can research comps using public websites listing home sales. Just remember these sites may not be as accurate as data from an MLS.
You also can consult public records, which sometimes are available online. These records don’t include seller concessions, so they won’t reflect whether a seller lowered their asking price to compensate the buyer for the cost of making repairs.
Tips for Finding and Using Comps
Here are some tips for finding and using comps:
- Stick with comps that are the same type of home. If you’re looking at a single-family home, don’t use a townhouse or condo as a comp.
- Only use homes that have already sold. Sellers might list a home with a higher asking price than they sell it for.
- Pay attention to the details. Try to find homes that have similar appliances, fixtures, and finishes.
- Visit the comps in person, if possible. You likely won’t be able to go inside, but driving by will give you a better idea of the home’s condition.
“Think about stuff like how many rooms there are, what shape the house is in, and the schools nearby,” Feick says. “This way, you can get a better idea of what your house is really worth or how much you should spend on a new one.”
FAQ: What Are Real Estate Comps?
Here are answers to some frequently asked questions about real estate comps.
If there are no comparable homes in the area that have sold recently, the appraiser may use comps that sold in the not-so-distant past or use comps from a similar area.
It’s best to choose comps that have sold in the last six months.
Appraisers look at a minimum of three comps that have closed a sale.
The Bottom Line on What Are Real Estate Comps
When a home is listed for sale, the owner usually uses comps to determine the asking price. When buyers find a home they want to purchase, they can use comps to decide how much to offer. Appraisers, too, use comps to help determine the fair market value of a home. Regardless of the role you play in the transaction, choosing the right comps will give you the most accurate understanding of the home’s value.
