Running comps can become a complex process for inexperienced real estate agents. There are many variables involved, and each one has to be accurately defined so that the result is as adequate as possible to the market value. If you make a mistake when running comps, it might affect your future sale –either because the property price is below or over the market value–. It can even impact the loan amount you can get if you need one.
Therefore, you can see why it’s essential to pay attention to detail when doing the property value assessment. To learn all the secrets involved in it, Real Estate IQ invited Fabián Toledo, an experienced realtor, to host the webinar “Learn to appraise properties.”
What is the appraisal process like?
From Toledo’s point of view, the appraisal value is nothing more than an opinion. “The goal is to be as near as possible to the exact market value of the property. However, the price is just an opinion, and it varies from person to person. Although we’ll never know it for sure, there are ways to approach it based on information. The more data we have, the easier it’ll be to form our opinion”, he stated.
The key in this quote is to concentrate on the information. The fact that the price is an opinion doesn’t mean that each real estate agent can fix the price he or she wants. Several parameters help determine an accurate market value at the time of the sale, making the process a bit more objective.
What you need to know is the after-repair value or ARV. It consists of the property price ready to be sold, and it comes in handy when applying for a loan and finding out what your profit might be. Hence, you’ll run comps to determine it, which means you will compare a property of your choice with similar ones.
6 essential things you can’t forget when running real estate comps
It’s critical when you are running comps that you choose properties with similar features to the house you’re interested in. It’s not helpful to compare a house with a condo, for instance. Toledo listed six things to keep in mind when running comps:
- The properties should have been recently sold (the nearer they are to the target property, the better).
- They should have the same amount of stories, bedrooms, and bathrooms.
- They all have to belong to the exact property type (all single-family homes, all condos, all townhouses).
- Their size and year built also have to match (with a difference of more or less than 10%).
- The aesthetic needs to be similar, too (if all the other variables are compatible but one property has been repaired, the comparison won’t work).
- The properties should be near, preferably in the same neighborhood.
Taking these items into account will allow you to run a reliable comp and achieve a suitable property price. Beware, as Toledo advised, that if the properties chosen to compare are slightly different, you’ll need to make the necessary adjustments (i.e., subtract or add the value equivalent to an extra room).
Once the comparison is finished, what you did was a comparative market analysis, also known as CMA! And what you got from it was the average value of the square foot. With this information, you’re ready to understand if the house you spotted is an excellent opportunity –or not so much–.
Remember that there’s a rule of thumb to make an offer if your goal is to fix and flip. You should offer 70% of the property’s market value (ARV) minus the repair costs (and the wholesaling costs, if necessary). The other 30% is divided between your profit and the costs incurred until the sale (closing costs, taxes, maintenance, and financing).
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.
