Using Comparable Sales in the Buying Process

How 'Comps' Help You Determine Home Value

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When it comes to the residential real estate market, buyers and sellers should always consider comparable sales. Known throughout the real estate industry as "comps," comparable sales are the sales prices of similar homes.

When you're buying a home, it's a good idea to have your agent show you at least 10 comparable sales on the market. That way, when you're touring homes, you're comparing homes for sale throughout the entire market, so comps provide the best way to get a feel for availability, prices, and the area.

Key Takeaways

  • Comparable sales, or "comps," offer a way to get a sense of a home's value compared to similar homes in the market.
  • You can look at the comparable sales in an area during the homebuying process to reassure yourself about prices or contest a low appraisal.
  • A home must satisfy several factors, such as proximity, age, condition, lot size, square footage, and more, to be considered comparable.

The Importance of Comparable Sales

A seller can use comparable sales to justify an asking price to the buyer. However, buyers will ultimately pay the amount they believe is fair. You have probably never heard a buyer say: “I should have paid more for that home,” because most will want to pay the least amount possible.

On the contrary, buyers sometimes worry that they might pay too much for a home, especially when buying in a market that favors the seller. No buyer wants to find out that the house they just purchased is worth less than the price they paid.

An appraisal is an excellent way to determine and justify value. However, appraisals are solely an opinion of value. An appraisal is only as good as the experience and knowledge of the person who prepared it. If your appraiser submits a low appraisal, the seller has the option to lower the sales price. If the seller refuses, that’s when you might contest the appraisal by submitting comparable sales.

Appraisers use comps to evaluate a home, but you can submit different comps if you feel that the ones chosen are outdated or otherwise don't represent similar homes to yours.

While it's possible to adjust an appraisal for outstanding factors when the comparable sales are few and far between, the best ones will always be those that fit most closely with the criteria of the property you're looking at.

Components of a Comparable Sale

Comparable sales are neither active listings nor pending sales. Those values don't carry the same weight as a home that has already sold. When a buyer uses comparable sales, they are trying to justify why they don't want to pay more than a similar home's last occupant. There are several factors used by appraisers you can use to estimate a home's current market value.

Recent Time Frame of Sale

Appraisers generally sift through public records from the previous six to 12 months to look at comparable sales. Because the market can change within a few months, data older than this is inaccurate and not a reasonable comparison. If you're comparing homes, it's best to compare homes that have sold within the last three months because it delivers a clearer picture of the housing market in that specific area.

Close Proximity

Ideally, you'd want to consider home sales statistics within a certain radius, typically one-quarter to one-half mile of the subject property. The closer, the better. The best homes for comparative purposes are within the same neighborhood—but this isn't always the case. For example, if you're looking at a home in a community with a lake on one side and a busy street on the other, a house by the lake should not be compared to one on the street side—even if they were otherwise identical.

Similar Square Footage

The price of a 1,000-square-foot home cannot be doubled to determine the value of a 2,000-square-foot home. That’s because the per-square-foot cost of smaller homes is higher than the per-square-foot cost of a larger home. Ideally, you want to compare homes very close in square footage to the property you're looking at.

Similar Age and Construction

It is essential to consider the home's age and the materials used in construction—if you’re fortunate enough to be comparing homes in a subdivision, you might find exact model duplicates to use as comparable sales.

Additionally, any upgrades to the construction of the house should be weighed. For example, a tile roof has a lifetime of about 75 years, while a standard composition shingle roof lasts about 25–30 years. If the tile roof was an upgrade, it might change the home's market value.

Similar Lot Size

In some newer home tracts, you might find a mix of lot sizes. For example, a zero-lot-line means the home doesn’t have much of a yard. The side or backyard might be minimal, without grass or vegetation, which typically doesn't appeal to families with children.

Many areas compute lot size based on actual square footage divided into 43,560 square feet (one acre). A quarter of an acre (.25 acres) is 10,890 square feet. Comparisons shouldn't look at vastly different lot sizes.

Similar Condition

Unless you are working with a neighborhood specialist who is intimately familiar with the interior of homes in a specific area, it can be hard to determine the shape a comparable sale is in. For example, a stripped foreclosure home owned by the bank, missing its appliances and copper plumbing, is worth much less than a turnkey home, updated with new appliances, carpeting, and paint.

Combining Factors

Weighing all of these characteristics together across several similar properties is one of the best ways to assess a home's value accurately. Appraisers and agents can use these to ensure both you and the seller are satisfied with the final sale price. You might also consider thoroughly reviewing comparable sales yourself before finalizing a sale to ensure you're getting the best price possible.

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