Real Estate Comps And How To Find Them

Understanding Real Estate Comps

When it comes to evaluating the value of a home, real estate comps play a vital role. Comps, short for comparables, are a set of properties that share similar characteristics to the home being evaluated, such as location, size, and amenities. They provide valuable insights into the current state of the real estate market and help determine the fair market value of a house [1].

Importance of Real Estate Comps

Real estate comps are essential tools used by buyers, sellers, and real estate professionals to gain a better understanding of a property's value. By analyzing comps, one can assess the market trends, identify pricing patterns, and make informed decisions. Comps serve as a benchmark for buyers to ensure they are paying a fair price and for sellers to set a competitive listing price. Additionally, lenders and appraisers rely on comps to determine the value of a property when assessing loan applications or conducting appraisals.

Types of Real Estate Comps

When searching for real estate comps, it's important to consider several types that provide a comprehensive view of the market. These types include:

Active Comps: These are properties currently on the market that are similar to the one being evaluated. Active comps offer insight into the competition the property may face and help determine an appropriate listing price.
Sold Comps: Sold comps are properties that have recently been sold. They provide information about the actual sale prices and can be used to assess market trends and determine a fair market value.
In-Contract Comps: In-contract comps refer to properties that are currently under contract but have not yet closed. These comps give an indication of the current demand and prevailing prices in the market.

By considering these different types of real estate comps, one can gather a comprehensive set of data to make informed decisions when buying or selling a property.

While real estate comps serve as invaluable references, it's important to note that every property is unique in its own way, and there will always be slight differences between comps. Therefore, it's crucial to work with a knowledgeable local real estate agent who can provide expertise and guidance throughout the process of evaluating comps.

Finding Real Estate Comps

When it comes to determining the value of a home, real estate comps play a crucial role. Comps, short for comparables, refer to a set of properties that share similar characteristics to the home being evaluated, such as location, size, and amenities. These properties can be used as a reference point to estimate the fair market value of a house. Let's explore how to find real estate comps effectively.

Researching Home Specifications

To begin your search for real estate comps, it's important to thoroughly research the specifications of the home you are evaluating. Take note of the location, size, land, number of bedrooms and bathrooms, and any special amenities or upgrades. These details will serve as the foundation for finding comparable properties.

Searching for Comparable Properties

Once you have a clear understanding of the home's specifications, you can start searching for comparable properties. There are several ways to conduct this search.

One option is to work with a knowledgeable local real estate agent who has access to multiple listing services and can provide you with accurate and up-to-date information on recently sold or pending properties with similar characteristics.

Alternatively, you can leverage online real estate platforms that allow you to search for properties in a specific area and filter the results based on your desired criteria. Some popular platforms include Realtor.com and Zillow. These platforms provide detailed information about properties, including their sale status and listing prices.

Narrowing Down Comparable Properties

After compiling a list of potential comparable properties, it's important to narrow down the selection to the most relevant and similar comps. Consider key factors such as property type, size, neighborhood, and amenities. While it's essential to find properties that closely resemble the home being evaluated, it's important to note that every property is unique in its own way, and there will always be slight differences between comps.

As you narrow down the list, focus on recently sold or pending properties within the past six months. These properties will provide a more accurate representation of the current real estate market. Keep in mind that active listings can also serve as comps, as they reflect the current market conditions.

By conducting thorough research, searching for comparable properties, and narrowing down the selection to the most relevant comps, you can gather valuable insights into the fair market value of a home. However, it's important to remember that real estate comps are not foolproof, and working with a knowledgeable local real estate agent is recommended to ensure an accurate assessment.

Analyzing Real Estate Comps

Once you have gathered a list of real estate comps, it's time to analyze them to gain insights into the market and determine the fair market value of a property. This analysis involves comparing sale prices and calculating the fair market value using various methods.

Comparing Sale Prices

One of the primary ways to analyze real estate comps is by comparing the sale prices of similar properties. By examining the prices at which other properties with similar characteristics have recently sold, you can get a rough idea of a home's fair market value. However, it's important to note that each property is unique, and there may be slight differences between the comps [1].

To compare sale prices effectively, create a table that includes the key details of each comp property, such as location, size, number of bedrooms and bathrooms, and any special amenities or upgrades. Then, analyze the sale prices and look for patterns or trends. Pay attention to any significant differences between the properties to better understand how they may affect the sale price.

Calculating Fair Market Value

Another approach to estimating the fair market value of a property is by calculating the price per square foot (PPSF) of each comp and determining the average PPSF. This method takes into account the size of the property and provides a more standardized comparison across different properties.

To calculate the PPSF, divide the sale price of each comp by its total square footage. Sum up the PPSF values of all the comps and divide them by the total number of comps to obtain the average PPSF. Multiply the average PPSF by the square footage of the property being evaluated to estimate its fair market value based on square footage.

It's important to approach this method with caution as it is a simplified estimation technique. Factors such as location, condition, and unique features can significantly impact a property's value. Working with a knowledgeable local real estate agent is recommended to gain a more accurate understanding of the fair market value [1].

Analyzing real estate comps is an essential step in determining the value of a property. By comparing sale prices and utilizing methods like calculating the average price per square foot, you can gain valuable insights into the fair market value of a home. However, it's crucial to remember that comps are not foolproof, and professional guidance from a local real estate agent is highly recommended for a comprehensive evaluation.

Utilizing Real Estate Platforms

When it comes to finding real estate comps, utilizing online platforms can be a game-changer. These platforms provide valuable data, property listings, and other resources that can assist in your search for comparable properties. Three popular platforms for real estate professionals and enthusiasts are Mashvisor, Realtor.com, and Zillow.

Mashvisor and Its Data Analytics

Mashvisor is a well-known and trusted real estate platform that provides data analytics and features to analyze different types of investment properties across the US housing market. With Mashvisor, you can access comprehensive data on rental properties, including rental rates, occupancy rates, and investment property performance metrics. The platform's data analytics tools enable you to quickly evaluate the potential profitability of a property by analyzing rental income, expenses, and cash flow.

By leveraging Mashvisor's powerful analytics, you can identify real estate comps and make informed decisions based on reliable data. This platform simplifies the process of finding and analyzing comparable properties, saving you time and effort in your real estate investment journey.

Realtor.com for Property Listings

Realtor.com is an online marketplace where licensed real estate agents can list properties for sale throughout the US housing market. It offers a search engine and additional filters to narrow down property searches. By utilizing Realtor.com, you can browse through a vast selection of available properties and find potential real estate comps that match your criteria.

The platform provides detailed property listings, including essential information such as property size, number of bedrooms and bathrooms, location, and listing price. Realtor.com also offers photos, virtual tours, and property descriptions to help you assess the suitability of a property as a potential comparable.

Zillow for Buying and Selling

Zillow is a website focused on buying and selling rental properties, offering millions of available listings and resources related to financing options for investors. With a database of 135 million listings, regularly updated to provide up-to-date information on the real estate market, Zillow is a valuable resource for finding real estate comps.

Zillow provides a user-friendly interface that allows you to search for properties based on various criteria, such as location, price range, and property type. The platform offers detailed property information, including historical sale prices, tax assessments, and estimated property values. These features enable you to compare properties and determine their suitability as real estate comps.

By utilizing these real estate platforms, you can access a wealth of information and resources to aid your search for real estate comps. Whether you're analyzing rental properties, browsing property listings, or assessing market trends, these platforms offer valuable tools to support your real estate investment decisions.

Assessing Real Estate Deals

When it comes to assessing real estate deals, there are several key factors to consider before making an investment. This section will focus on two important aspects: calculating rental rates and analyzing return on investment.

Calculating Rental Rates

Determining the rental rates of a property is crucial in assessing its potential income-generating capacity. To calculate rental rates, you should consider factors such as property price, tenant demographics, location, property appreciation, and market demand.

One popular rule of thumb is the 2% rule, which suggests that the property should rent for at least 2% of the purchase price [5]. This guideline helps to ensure that the property generates sufficient cash flow to cover expenses and provide a profitable return.

To calculate monthly cash flow, subtract rental costs and expenses (such as mortgage, insurance, property taxes, maintenance, and vacancies) from the estimated revenue. This will give you an idea of how profitable the property will be on a monthly basis.

Analyzing Return on Investment

Analyzing the return on investment (ROI) is an important step in assessing real estate deals. It helps determine the profitability and potential financial gains from the investment. There are various methods to calculate ROI, including the gross rent multiplier (GRM) and net operating income (NOI).

The GRM compares the property's purchase price to the gross rent generated annually. It provides a quick assessment of the property's value relative to its rental income. A lower GRM indicates a potentially better investment opportunity.

The NOI, on the other hand, calculates the property's profit after deducting operating expenses from the rental income. This method provides a more comprehensive analysis of the property's financial performance. It takes into account expenses such as property management fees, maintenance costs, and utilities.

By analyzing the ROI using these methods, you can assess the potential financial benefits of investing in a particular property.

Assessing real estate deals requires a thorough evaluation of various factors, including rental rates and ROI. It's important to consider not only the current market conditions but also the long-term prospects of the investment. By conducting diligent research and analysis, you can make informed decisions and maximize the potential returns on your real estate investments.

Sales Comparison Approach

The Sales Comparison Approach (SCA) is a widely used method in real estate appraisals to determine the value of a property by comparing it to recently sold properties with similar characteristics in the same area. This approach relies on the analysis of comparables or other recently sold properties to estimate the value of the subject property. Real estate agents and appraisers utilize the SCA to evaluate properties for sale, taking into account the impact of individual features on the property's value [6].

Using Comparable Market Analysis

The Sales Comparison Approach is commonly implemented through a process known as Comparable Market Analysis (CMA). The CMA involves examining recently sold properties that share similarities with the subject property in terms of location, size, condition, and other relevant factors. By identifying common features among these comparables, appraisers can estimate the value of the subject property based on these characteristics.

Comparable Market Analysis relies on local real estate market data to determine a property's value accurately. It entails thorough research and analysis of comparable properties to ensure an accurate assessment. By considering the sales prices of these comparables, adjustments can be made to account for any differences in features, condition, and other factors that may affect the property value.

Steps in the Sales Comparison Approach

The Sales Comparison Approach involves several key steps to arrive at a reliable property valuation. These steps are as follows:

Identify the Property: Begin by identifying the subject property for which the appraisal is being conducted.
Select Comparables: Choose recently sold properties that are similar to the subject property in terms of location, size, condition, and other relevant factors.
Collect Data: Gather data for both the subject property and the selected comparables. This includes information such as sale prices, property features, amenities, and any unique characteristics.
Perform Adjustments: Analyze the differences between the subject property and the comparables and make adjustments to account for these variations. Adjustments may be made for factors such as square footage, number of bedrooms or bathrooms, upgrades, or location.
Reconcile Adjusted Values: After making the necessary adjustments, reconcile the adjusted values of the comparables to determine a final value for the subject property.
Estimate Property Value: Based on the reconciled adjusted values, estimate the fair market value of the subject property.

The Sales Comparison Approach is favored by many real estate professionals due to its grounding in real market transactions, easy understanding, and wide acceptance within the industry. However, it is important to consider the varying quality and quantity of comparable sales data, subjective adjustments for differences, and the need to select truly comparable properties for accurate valuation. Through careful analysis and application of the Sales Comparison Approach, real estate professionals can make informed decisions regarding property values.