Real Estate Comps / Comparable Sales for My Area
By Brandon Cornett | © 2013 All rights reserved
Reader Question: "I have been told I need to look at comparable sales in the area where I want to buy a house. How do I find real estate comps for my area, and how do I use them to do a sanity check on the seller's asking price?"
I love your use of the phrase "sanity check." It's an accurate way to describe this process, actually. Before making an offer on a house, you want to make sure the asking price is sane. One of the ways you can do this is by using comps. Here's a definition for readers who are unfamiliar with the topic:
Comparable Sales Defined
The word "comp" is short for comparable sale. Within the context of real estate, these are similar properties that have sold recently, in the same area where you want to buy. "Similar" means they have certain features in common with the house you are considering. They are comparable to the target house.
You can use real estate comps in your area to determine the realistic market value of a home that's for sale. And it's important that you do. In the absence of such market research, you have no way of knowing if the house is priced realistically.
Remember, sellers often overprice their homes when they first bring them on the market. Sometimes they inflate the price with the emotional attachment they feel for the home. Sometimes they're just trying to make enough to pay off their mortgage balance. But neither of these things has anything to do with the true market value of the home. This is why you need to find real estate comps / comparable sales for your area. It's the sanity check you mentioned in your question.
Both buyers and sellers use real estate comps, but in slightly different ways. Sellers should use them to set their asking price -- if they're smart, anyway. Home buyers should use them to make a well-informed offer on the house they want to buy.
With that in mind, let's talk about how you would find real estate comps for your area, and how you should use them when shaping your offer.
How to Find Comps in Your Area
Now that we know what they are, let's talk about how to find comparable sales in your area. If you have a real estate agent helping you through the process, he or she will gather some comps for you. They should do this for each house you are considering. It's a key part of the agent's job. A good agent will be an expert at evaluating comparable sales in the area.
You can also find recent sales data online these days. In fact, there are quite a few websites designed for this purpose. These websites include Zillow.com (my recommendation), Domania.com and Trulia.com. Type in the address where you want to buy, and then look for "recently sold" homes in that area.
Don't worry if you do not have an exact address yet -- that doesn't matter. You're just trying to find comps in the general area where you want to buy. So pick a random street address if you have to. You can always zoom and shift the map as needed, once you pull up the neighborhood.
Important: You are looking for recently sold homes in the area. You're not looking for homes that are currently listed for sale. Remember, a real estate comp is a home that has sold recently in the same area where you want to buy. It's the sale price that drives market values -- not the listing price. Who cares what a homeowner is asking for? The only thing that matters is what they actually get for the house.
You can also check the county tax records for recent property transfers in your area, though this requires a trip to the county courthouse in most cases. I had to at least point this out, just for the sake of making a well-rounded article. But it's an outdated way to find comps in your area. The Internet has made it obsolete. Save your gas money. Use the Internet tools mentioned above.
Three Important Qualities
In order to be useful, a real estate comp should have three characteristics:
- Comparable -- The home(s) used for comparison purposes should be similar to the one you are planning to buy. If I'm about to make an offer on a two-story colonial with 2,000 square feet, I should be looking at recent sales for two-story colonials of similar size in the same area. This is what the word comparable means, after all.
- Recent -- Market factors change all the time, and home values rise and value in relation to this. The sale price of a home two years ago is irrelevant in today's market. So you need to find recent sales data when analyzing the market. Ideally, your real estate comps will have occurred within the last 90 days. The more recent, the better.
- Local -- Home prices vary by location. So you need to look at comparable sales in the area where you want to buy. The closer, the better.
When you put theses three things together, you have all the ingredients of an accurate real estate comp you can use to shape your offer. You have sales data for homes that are (A) similar in size and style, (B) fairly recent, and (C) in the area where you're buying. This is the only kind of comp worth using.
You'll also hear the phrase cost per square foot used a lot. This is used to determine the value of one home in relation to a group of comparable sales in the area. Here's an example:
Let's say the house you are considering has a value of $220 per square foot. (This information will probably be shown on the Internet listing somewhere.) So you look at the comps, and you find that the average value for similar homes is $190 per square foot. This might indicate that the target house is overpriced -- unless they have some unique features that add value to the property.
On the other hand: If the comparable sales averaged around $250 per square foot, it would mean that the target house is priced below market value (at $220 per square foot). Again, you need to use homes that are similar to the one you are considering, for this process to be worthwhile.
So that's how you would find real estate comps in your area, and what to do once you have them. I hope you have found this article helpful, and I wish you well in your home buying process.
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