Real Estate Comps Explained: How to Use Real Estate Comps

The terms "real estate comps" and "real estate comparables" are used by real estate professionals to describe similar properties to one being bought or sold. A similar property is one with comparable square footage, lot size, number of bedrooms, school district, walkability, and tax status.

A home seller may use real estate comps to determine an appropriate asking price for their home. Buyers also consider real estate comps to see if a listing price matches that of similar homes within the real estate market.

Real estate comps are used when conducting a comparative market analysis for properties in a region. Realtors, appraisers, home sellers, homebuyers, and lenders use real estate comps in a variety of ways.

1. 1. Appraisers: Appraisers rely on comparable sales prices and other factors to conduct home appraisals on single-family houses, townhouses, condominiums, and other forms of real estate.
2. 2. Home sellers and buyers: Home sellers may look at comps to determine appropriate list prices for new home sales. Homebuyers may look at house comps to determine whether the home they are interested in is appropriately priced for the local market.
3. 3. Real estate agents: When helping their clients sell property, real estate agents research comps to establish a fair market value that feels agreeable to both the current homeowners and buyers on the housing market.
4. 4. Lenders: Lenders use valuations within a local market under the present economy to establish home loan terms. They can assess whether a sale price is appropriate for the current market and whether a mortgage loan will reflect the true value of a home.

The simplest way for a homebuyer or a home seller to find comparable homes in their area is to enlist the aid of a real estate agent or realtor. These real estate industry professionals use a database called the multiple listing service (MLS). The MLS includes a comprehensive record of recent sales and the pricing of homes presently on the market.

If you do not have access to MLS comps, you can also use consumer services to find the best comps for your subject property. These services typically provide partial access to property records including selling prices from recent transactions. While you may not be able to assess comparable property values with the same precision as a realtor, you can come close.

As you consider real estate comps for a property you want to buy or sell, keep the following factors in mind.

1. 1. Square footage: Two houses may have the same number of bedrooms, but how many square feet are those bedrooms? Square footage can define the difference between a spacious house and one that feels a bit too restrictive.
2. 2. Number of rooms: Two house comps can have the same square footage, but they can function very differently depending on how many rooms they have. If most of a home's square footage is dedicated to a massive family room, it does not compare one-for-one with a house broken up into many small rooms.
3. 3. Lot size: If you like to spend time in your yard, pay attention to lot size. If two homes have the same square footage but sit on very different-sized lots, they aren't actually comparable properties.
4. 4. School district: Families with school-aged children may care about the home’s school district. If you do not have school-aged children or if you have enrolled your kids in private school, this housing comp may mean less to you. However, it may affect your eventual resale value.
5. 5. Walkability: If you care about having amenities within walking distance, factor that into your real estate comps. Conversely, if you prefer to be out in the country far from noise, consider that factor as well.
6. 6. Taxes: Different municipalities charge different amounts of property tax. Consider taxes when deciding whether two homes are truly comparable.
7. 7. Local markets: Real estate comps only work within the same market. For example, a condo in New York City is not going to cost the same as a condo in St. Louis. Keep your real estate comps local so that buyer and seller can remain on the same page.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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