Understanding Real Estate Comps
When you are part of a real estate transaction there can be a lot of real estate jargon that is tossed around. Understanding what the meanings will help you along the way. A word that you will hear often, both when buying or selling a house, is “comps.” So what is it and why does it matter?
What are Comps?
Comps is short for “comparables.” Simply put, a comp is a house that has recently sold and is comparable to the house that you are looking at buying or selling.
Real estate agents look at the comps in the area when determining the market value of a house. Sellers use comps to determine an asking price and buyers use comps to determine how much to offer on a property.
What to Look at When Looking at Comps?
To be considered a comp a house has to meet a few requirements. It is important to make sure that you are comparing houses that are very similar in order to get an accurate market value.
Here are some of the things that are looked at when seeing if a house is comparable:
Location – Houses need to be in the same area as each other. In rural areas this means the same town. In cities this could be staying within ½ mile of the house.
Size – The houses need to be roughly the same amount of square footage to be considered a comp.
Beds/Baths – For a house to be a comp it should have the same number of bedrooms and bathrooms.
Sale Date – Comps should be houses that have sold no more than six months ago. The more recent the house sold the more accurate the market value will be.
Other Details – Other factors will play into how a comp compares as well. If a house is only one year old and the other was built sixty years ago and never updated this will need to be accounted for.
You need to look at what the best features are of each house and how they compare to each other. The houses may be across the street from each other, but in different school districts. All of these things will affect the market value of a house.
How to Use Comps
If you are getting ready to sell your house you can use a comps report to help determine an asking price for your house. You can choose any price that you want, but keep in mind that buyers are going to be looking at comps as well when determining how much they are willing to pay. If you overprice the house most buyers are going to know anyway and make you a low offer.
There are no set rules for how to choose an asking price or an offer amount. Comps can be used to show you what other buyers and sellers in the area were willing to pay for similar houses, but in the end the decision is yours. Using comps will help you to make an educated pricing decision.