Whether you’re buying or selling a home, real estate comparables or “comps” play a big role in determining the cost of the transaction. Comps help you and your real estate agent arrive at a price realistic for your housing market, and beyond that, you can leverage comps to make more informed decisions when considering offers on your home.
What are real estate comps?
Real estate comps — an abbreviation for “comparable sales” — are recently-sold homes in your area with similar characteristics to yours.
The sale prices of comps can give you a better idea of your home’s fair market value or the value of your home based on what buyers in your market are willing to pay. Fair market value is different from the appraised value of your home, which is determined by an appraiser (although appraisers do take comps into account in their valuation), and also the assessed value of your home, which your local assessor determines for property tax purposes.
Real estate comps can provide critical insight, especially if they are very similar to your home. For example, let’s say you’re looking to sell a four-bedroom, two-bathroom home with 1,750 square feet of living space. Ideally, the comps you weigh your home against would have some or all of those same features. The more aligned your comps, the closer you are to an accurate picture of your home’s value on the market and what you can expect to profit from a sale. When your home is priced properly, it’ll sell quickly and for maximum dollar, avoiding the need to make price cuts or relist at a later date (which comes with its own set of headaches).
Who uses comps?
Real estate agents rely on comps when pricing a home for sellers, but homebuyers and appraisers also utilize them. Here’s how:
- Home sellers – Real estate comps can help sellers get the best possible price for their home with respect to current market conditions. Sellers can also look at comps to identify standout features that could potentially command a higher asking price. (The inverse can be helpful, too — a swimming pool in a neighborhood where pools are not common, for example, might not warrant more money from a buyer, despite what the seller thinks.)
- Homebuyers – Homebuyers use comps to better understand the market, which helps them make the best and most appropriate offers.
- Real estate agents – Comps help real estate agents fine-tune their pricing strategies.
- Appraisers – Appraisers evaluate homes based on a variety of factors, including comps. If the appraised value of a home is too far off from the buyer’s offer, the deal can fall through.
How to find comps
Compiling accurate comps is key. Here are two ways to do it:
- Consult with a real estate agent. Real estate agents have access to the Multiple Listing Service, or MLS, a database of listings in your area, and can quickly run a search for recently-sold properties similar to yours. An agent can also pinpoint the timeframe that qualifies a home as “recently sold” — in fast-moving markets, that might mean days or weeks versus months. Then, once your agent gathers comps, they can help you interpret them and price your home appropriately.
- Conduct your own research. You don’t have to engage a real estate agent to find comps; it’s possible to find them yourself, especially if you’re confident in your market knowledge. Search real estate sites for homes in your area with similar features. Although the price information on these sites might not be as accurate, it can give you a ballpark figure. You can also try looking through public records via your local assessor’s website, although this can be time-consuming and, again, might not yield the most accurate results.
Tips for finding the best comps
- Focus only on sold homes. It’s tempting to include homes under contract (“pending”) or currently for sale in your group of comps, but that could artificially inflate your price since sellers don’t always get the price they’re hoping for. It’s best to stick to sales that have been finalized.
- Consider the condition and style of the homes. A home similar to yours, but in better condition or newer upgrades, might sell for more.
- Stay as close to your neighborhood as possible. The closer the comp’s location to yours, the more accurate it might be.
- Keep the timeframe tight. Don’t look at sales from a year ago — the housing market is dynamic and moves quickly, so look for the most recent sales possible.