Real estate comps or comparables is commonly referred to as Comparative Market Analysis. Comps are used to determine the value or the price of the property based on previous selling price of other similar assets.
As a real estate investor, knowing how to run comps is important because a research-based list can help you in trading a property with a market-competitive price. Aside from this, using comps is useful as well in selling, buying, renting and refinancing homes.
Here is the 3-part guide for you to better understand how comps work:
As an illustration, let us say you are planning to sell your house. Your neighbor is also selling his house which is almost the same as your house in terms of architecture and area, with a selling price of $200,000. In this case, your house and your neighbor’s house may not be absolutely the same as there is no exact same asset. However, properties having a lot of similarities can be compared to each other. If you are planning to sell your house for $500,000, the value may be too high. On the other hand, if you are planning to sell it for $100,000 your property may be undervalued. In this case, you can set the price of your house at a more competitive price if you know the information on its current value based on comparables.
If you are just getting started in real estate investing, you can hire a real estate professional to do the comps for you. However, it is better if you know and learn how to run the comps by yourself. Here are the key terms to understand in learning comps:
The subject property refers to the property you are analyzing. There are different types of a property such as residential (single family, home, condominium, townhome, duplex house, etc) or a commercial property. Knowing the type of the property is necessary for you to know its current market value based on its type.
Universe means a group of recently- sold properties in the area that has similarities to the property subject. Within the universe, it is best to have at least three or four properties to use as the basis for valuation
MLS or Multiple Listing Service
The MLS is the database of the properties sold or purchased in a specific area. It is maintained by cooperating real estate investors and brokers to provide source and data about listed real estate. The MLS is accessible to the public, however, relying on it will subject you to high competition because the listed information is available to everyone.
In Real Estate IQ, we have automation tools that can help you in analyzing comps. You can get instant comps and analyze investment properties with confidence! Set your own parameters and see the pictures, location, agent comments and relevant information for properties recently sold using our Fast CMA
Understanding comparables can help you specially in the following aspects
- Assists in appraising assets accurately
- Helps the sellers to set a competitive price in the market
- Helps the buyer in understanding property valuation in entering a deal
- Useful in refinancing homes
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