Picking the Best Comps
Buyers never want to pay too much, and sellers don't want to leave money on the table. So, what to do? In the words of real estate professionals, you "pull some comps."
When you work with an agent, they will do the homework on pricing, and comps play the biggest role in setting a price. Once you have a list of recently sold homes that have something in common with the one you're looking at, your own knowledge of homes in the area is the best tool you have, whether you are buying a home or selling one.
Here are 4 tips for choosing the best comps from a list:
Location, Location, Location
Select comps as close to your address as possible. However, there are some exceptions to this rule. For example, a comp within a block or two of yours might not be a good comp because it sits higher on the hill, and has phenomenal views, or it's closer to a main arterial or freeway. Likewise, a house similar to yours could be a mile away, but still is part of the same market area since neighborhoods are not always carved out in neat, rectangular-shaped boundaries. This is a good comp, even though it's farther away.
Also, ideally, homes in developments should be compared against comps from the same development since these homes were all built together at a specific time, by the same builder/developer.
Select Recent Comps
Ideally, the most recently sold homes will have the strongest bearing on what your home will bring, but in slower markets, you might not have that luxury. Rule of thumb: Getting comps from the previous 3-4 months is ideal, but if not, then look back 6-8 months. In some cases, transactions that occurred two years ago are still considered comparable.
Price Per Square Foot
Price per square foot is a time-honored method of real estate valuation. However, it doesn't account for a choice location nor for condition of the property. Similar homes in the same area can vary widely in price if their interior finishes are not the same. One home may be finished with high-end interiors such as granite countertops, custom cabinetry, marble baths and hardwood floors while another may be finished with laminate, vinyl and stock cabinetry. You should also factor in how the property was measured and whether the square footage includes the garage or other detached buildings on the property. Lot size can also be a significant factor. While a few hundred square feet difference may not impact market value, a private wooded 3-acre lot will fetch much more than a similar house on a cookie-cutter half-acre for example. In such cases the dollars per-square foot figures can be very unrealistic. Most practioners today would discourage the use of the square footage method in pricing homes outside of new construction within the same development by the same builder.
You have your data, you've compared the numbers, but here come the individual characteristics. These things are more difficult to quantify, but could boost or detract from a home's value. In order to be comparing apples to apples, you need to consider these "soft" features when pulling together your comp list. For example, consider:
- Curb appeal -- The house sits on the "nice" side of the street; it's neatly landscaped and has sidewalks.
- Condition of exterior -- Visually make notes of the condition of the roof, paint, chimney, driveway, fences, etc.
- Nearby amenities -- Walking distance to cafes, shops, and restaurants.
- Neighborhood -- Is the house well-kept but all others around it falling apart?
- Traffic/noise -- Is it located on a busy street or near a noisy freeway?
- Schools -- Is it in a good school district? Whether you have kids or not, owning a home in a top school district adds tremendous value to a home.
By Diane Tuman
The work you do here will go a long way in determining the fair market value of a home.
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