You've probably heard professionals working in the real estate industry throw around the term 'comps' a few times. However, you might not understand them or know what they mean for you and the homebuying and selling process.
Whether you're looking for a place to call your own or need to sell a property, knowing a bit about comparable sales, or comps, can go a long way.
Comps 101
When trying to buy or sell a home, one of the tools many professional real estate agents use is a list of comps. With these, an agent can see how much a property sold for and when, noted Bankrate. Typically, an individual will consider whether the home is in the same area, about the same size as well as the current condition. Similar properties can be used to determine what a fair asking price is or how much to offer a seller when looking to buy a new home.
"Comparable sales are a critical part of assessing the current market value of a property," Ziad Najm of Cedar Real Estate said, according to Bankrate.
This is a great way to have a deeper understanding of the local housing market and its current health.
What's the most important comparable feature
If you decide to use comps to figure out what the appropriate selling price for a home is, Zillow, an online real estate company, indicated the location of a home is the most important factor you should consider when looking for the most comparable home value. Location is essentially the highest priority and the best way to figure out the value of a home.
You will want to stay within a specific neighborhood or school district. If you find a comp outside of these boundaries it is not nearly as dependable for figuring out a fair price for the home you are selling or looking to buy.
Also look for similar features
In addition to the location of a home, another way to find appropriate comps is to compare features. If you have a fireplace, updated kitchen and new roof for the home you are trying to figure an appropriate value for, look for these features in the comparable home as well.
This goes the same for the number of bedrooms, bathrooms and size of the house too.
Consider the sale date
According to Zillow, when you use recent sales for comps, make sure you pay attention to the sale date. It is crucial to use sales that were completed within the last six months. The more recent the sale, the more accurate the comp selling price is to the current value of similar real estate.
It's also important to note that using an older comp that reflects a higher property value to price the house you are selling or make an offer on a home you're interested in will likely not wind up working in your favor. Buyers and sellers are aware of the market, or should be, and trying to make an out-of-date comp work for you is not the best idea.
Foreclosures and short sales impact on market value
Comps can become a bit tricky when you factor in foreclosed properties and short sales, noted Bankrate. Buying or selling may determine whether you want to include these types of comps when determining the market value of a home.
"It's definitely tricky," Najm said, according to Bankrate. "From the buyer's perspective, all sales, including bank-owned and short sales, should count to establish market value. However, standard sellers with equity should consider the lower, distressed sale comps. (But they) should also realize that prospective buyers may be willing to pay market, or above market, price for a standard sale."
Enlist the help of a real estate professional
An agent can provide you with a great deal of assistance when figuring out market value. According to Forbes, professionals working in the real estate industry have better access to these tools in addition to other properties, agents and additional individuals working in the industry.
You can benefit a great deal by harnessing the help of an agent.
While it is interesting to be able to use comps to figure out the market value of a home, gaining the insight and assistance from a professional who has expertise in the industry will ensure you don't make any mistakes. Pricing a home to high or too low when selling can wind up losing you potential sales. Making an offer that's too low might mean you miss out on the house of your dreams.
Real estate agents are there to help you as you embark on the homebuying or selling process. Take full advantage of their services while still being knowledgeable and have a better understanding of the current real estate market in your neighborhood. After all, two heads are better than one.