Using Comparable Home Sales to Support Your Offer
Smart buyers use comparable home sales to support their offers. This is the best way to evaluate local market conditions. Best of all, you can find this data online for free. You can research these "comps" by using a website like Zillow.com or Realtor.com. In this video, you'll learn how to use comparable sales to your full advantage.
Video transcript: In this video, we're going to talk about real estate comps, which is short for comparable home sales. I'll explain how they apply to the home buying process, and to you as a buyer.
Let's say I'm looking for a two-story home in Greensboro, North Carolina. I find a house that meets my needs, and I'm trying to figure out how much to offer for it. How do I go about it? First, I want to look at similar homes to see what they've sold for. Then I would add or subtract as needed, based on the unique features of the target house. The "target" home in this context is the one I'm thinking about buying.
I want to find other two-story homes in Greensboro that have sold recently. And I want to find out how much they sold for. These are referred to as comps or comparable home sales. This is one of the ways you would evaluate the seller's asking price.
Remember, it's called an "asking price" for a reason. That's what the homeowner is asking to get for the property. But it doesn't mean that's what the home is worth. (Tip: Most sellers overprice their homes when they first come onto the market.)
So, let's say I find a two-story home that sold for $284,000. It was a fairly recent sale, within the last month or so. It has fewer upgrades than the house I'm considering. Then we I another one that sold for $294,000. It's also similar in style, but it's slightly larger than the target house.
Now we have three different homes to compare:
- The target house is the one I'm thinking about buying.
- Comp #1 is a similar home that sold for $284,000 (it had fewer upgrades).
- Comp #2 is a slightly larger home that sold for $294,000.
So we are using comparables home #1 and #2 to evaluate the asking price for the target house. One house sold for $284,000 within the last month. The other one sold for $294,000. The higher-priced home was slightly larger than the target house. The lower-priced home was about the same size but had fewer upgrades.
Obviously, this is a simplified scenario. But this is how comparable home sales work. This is what real estate agents mean when they refer to comps.
Based on this scenario, a good offer amount for the target house would be somewhere between $284,000 and $294,000. Let's say $289,000. This would be a good amount to offer, based on current market conditions.
I could justify this offer by saying, "We evaluated other homes that sold in the neighborhood. Here's a house that's similar but a little larger. It sold for $294,000. Here's another similar home that sold for $284,000. It has fewer upgrades than your home. That's why we have made an offer for $289,000."
If the sellers are smart, they will accept this offer. Or they might make a counter-offer for an amount between the original listing price and the amount I'm offering. If this happens, it's time to negotiate.
In order to be useful, comparable home sales should have the following qualities:
1. Comps should be recent.
A home that sold six months ago isn't a very good indicator of the current market. So you want to try to find homes that sold recently. The more recent the sale, the more it reflects the current market conditions. And this is what drives home prices.
2. Comps should be similar.
If you're looking for a two-story colonial in the $250,000 price range, it doesn't make sense to look at sales data for single-story ranch homes in the $180,000 price range. It's not comparable, so it doesn't help you evaluate the seller's asking price. Comparable and similar are synonyms, after all. They mean the same thing.
3. Comps should be close.
Real estate markets vary widely from one area to another. A house that's selling for $200,000 on the north side of town might go for $165,000 on the south side. So if you want to justify the selling price of a particular home, you need to use comparable home sales from the same area -- the same neighborhood, if possible. This will give you a more accurate picture of the local market.
If you want to use comparable sales to support your offer, you should make sure those sales are recent, similar, and located within the same geographic area.
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So that's how you would use comparable sales when making an offer to buy a house. If you would like to learn more about this topic, you can use the search box at the top of this page. It lets you search a library of more than 1,000 real estate articles.