Real estate comparables – known as comps for short – are one of the most important tools used to determine how much a home is worth. Whether you’re trying to price your home for sale, buy a new one or just gauge how much home equity you’ve accumulated, here’s a rundown of everything you need to know about comps, how to find them and the role they play in assessing value.
What are real estate comps?
Real estate comps are a set of properties that share similar characteristics, making them ideal for price comparison. Typically, comps also come from the same area and the same, recent time period. For example, if you’re trying to sell a two-bedroom, one-bathroom house, your comps would include other two-bed, one-bath houses in your neighborhood that have sold in the past several months. They might also include properties that are currently on the market.
Comps are important because they provide valuable context. “Real estate comps are imperative to fully understand the state of today’s real estate market,” explains John Ameralis, a licensed associate real estate broker at Compass in New York City. “They include active, in-contract and recently sold properties in the trailing six months.”
Some of the key factors that are generally considered when identifying comps include:
- Size or square footage
- Property style and age
- Home improvements, renovations or amenities
Who uses comps?
Comps aren’t just a tool for home sellers and buyers, however. Many real estate experts along the way utilize them too. If you’re working with a Realtor, for example, he or she will use a set of comps to analyze properties in your price range.
“Banks will use comps to determine the fair market value by hiring a third-party appraisal company for when homeowners refinance a property,” Ameralis adds. And appraisers will also use comps to inform their assessment of what a property is worth.
How to find comps for your home
All it takes to find appropriate real estate comps is a little bit of research. Here’s how to go about it in five easy steps:
1. Understand your home’s specs
To find appropriate comps for your home, your first step is to get clear on the property. Make a list of all the details that define it, such as where it’s located, its size, how much land it sits on, the number of bedrooms and bathrooms, amenities and any special finishes or upgrades.
To drill down even further, identify other factors that could also impact your home’s value, such as the school district it’s in or its proximity to public transit or parks.
2. Search for similar recently sold homes
Once you have an understanding of your home’s attributes, the next step is to look for recently sold or pending properties with similar characteristics. If you are working with a real estate agent, he or she will use the local MLS (Multiple Listing Service) to give you a rundown. If you’re starting out on your own, sites like Zillow and Redfin can give you a sense of the local market. It’s important to search for “sold” homes, not “listed” ones, because listings only show the asking or list price, not the price a property actually sold for.
Set the search to the same neighborhood you live in and to similarly sized homes, as well as the type of property you’re comparing. If you’re selling a condo, for example, search for condominiums, not single-family homes. Pay close attention to other amenities, too, such as whether parking is included.
Ameralis typically recommends looking for properties that have sold within the last six months. If the housing market in your area has been slow, you may have to look beyond the six-month mark — but that’s not likely these days. In today’s hot market, with some homes selling in just a few days, a six-month window can feel like a lifetime. So you may want to think about looking at only the most recent activity — the past two months, for example — to get a pulse of the market.
3. Narrow down your list
Once you’ve identified comparable candidates, inspect them more carefully to find the ones most similar to yours. Ameralis suggests compiling a list of four to six comps in order to appropriately evaluate your property.
If you live in a very active housing market, you may want to get ultra-specific about your criteria. For example, two homes with similar square footage and finishes, within a quarter mile of each other in the same school district, both with in-ground pools, are likely to have very similar values.
Conversely, if the home you’re evaluating is unlike what has sold nearby, or is in a rural or sparsely populated area, you may need to relax your search criteria.
4. Get the whole picture
There’s only so much information you can gather online. Some properties might look like a near-perfect match on a screen, but in reality, they could have key differences that impact their value. One home might be on a cul-de-sac with stellar curb appeal, for example, while another might have ever-present noise from being near a highway. If possible, see the properties in-person — or reach out to the agents who sold them to get additional details that may not be obvious in an online search.
5. Do the math
Once you’ve settled on your four to six comps, simply compare the sale prices of each to get a rough idea of your home’s fair market value.
Or, try crunching some numbers to get another perspective. For instance, you can look at the square footage of each comp and divide its sale price by its number of square feet. This will indicate the home’s price per square foot, or PPSF, a frequently used metric in real estate. You can then take the average PPSF of all the comps on your list, and using that dollar value, multiply it by the number of square feet in your home.
For example, say you pulled four comps with PPSFs of $200, $217, $222 and $233. The average of those figures is $218. If you multiply $218 by the square footage of your home, for instance 2,100 square feet, your home’s value based on comparable PPSF might be around $457,800. With this calculation, you now have a ballpark estimate of what your home may be worth.
House comps are not foolproof
An important caveat on comps: Unless you’re looking at a row of exactly uniform properties (think brand-new, adjacent townhouses), there are going to be slight differences. “Every property is unique in its way. So, although you can find closely comparable properties, none will be identical,” says Ameralis.
While pulling comps on your own will give you an estimate of your home’s value, working with a licensed real estate agent and an appraiser is the most reliable way to know exactly what your home is worth. Many agents offer a complimentary analysis, called a comparative market analysis or CMA, so you won’t have to pay out of pocket to get expert insight.
You do have to pay for a home appraisal, however. But appraisals go much deeper than simply looking at neighboring properties. An appraisal will take comps into account, but it also considers the city or county’s valuation for tax purposes, the site, hazards, improvements and overall condition. It will also examine factors such as rental income or fees, HOA dues and the cost to build a similar home from scratch.
No matter how much time you spend looking at real estate comps, assigning a value to a home isn’t an exact science. Ultimately, a home is worth what someone is willing to pay for it. By understanding the factors that impact your home’s value, you’ll be better equipped to make informed choices.