This story was originally posted by Jennifer Bradley Franklin on Bankrate.com.
Knowing how much your home is worth helps you gauge how much equity you have available and price your home effectively when it comes time to sell.
One of the tools used to determine a home’s value are real estate comparables. Here’s what you need to know about comps, and how to use them to estimate what your home is worth.
What are real estate comps?
Real estate comps are industry-speak for “comparables,” or a set of homes that meet similar criteria that make them ideal for a value comparison. Many times, comps are recent sales in a given market from a specific time period, such as the past three or six months, and homes with a similar layout, such as the same number of bathrooms.
Comps are important because they provide valuable context. Some of the key factors that are generally considered when identifying comps include:
- Size or square footage
- Style and age of the property
- Home improvements or amenities
“Real estate comps are imperative to fully understand the state of today’s real estate market,” explains John Ameralis, a licensed associate real estate broker at Compass in New York City. “They include active, in-contract and recently-sold properties in the trailing six months.”
Comps aren’t just a tool for buyers and sellers looking to purchase or sell, however.
“Banks will use [comps] to determine the fair market value by hiring a third-party appraisal company for when homeowners refinance their property,” Ameralis notes.
How to find comps for your home
Whether you’re looking to access the equity in your home, list it for sale or are otherwise interested, you can find appropriate real estate comps with a little bit of research. Here’s how.
1. Understand your home’s specs
To find comps for your home, your first step is to get clear on the property. Make a list of all the details about your home, such as where it’s located, its size, the land it sits on, amenities, the number of bedrooms and bathrooms and any special finishes or upgrades.
To drill down even further, you can also identify other factors that could impact your home’s value, such as the school district it’s in or proximity to public transit or parks.
2. Search for similar recently sold homes
Once you have an understanding of your home’s attributes, your next step is to look for recently sold properties with similar characteristics. It’s important to search for “sold” homes, not “listed” ones, because listings only show the ask or list price, not the sale price.
There are many home search tools available online. Ideally, use one that allows you to define the search criteria, such as the date of sale, neighborhood and size of the property.
Ameralis recommends looking for properties that have sold within the last six months, though if the housing market in your area has been slower, you may have to consider homes sold beyond the six-month mark.
Set the search to the same neighborhood you live in and to comparably sized homes, as well as the type of property you’re comparing. If you’re selling a condo, for example, search for condominiums, not single-family homes.
3. Narrow down your list
Once you’ve identified comparable candidates, inspect them further before making a determination of value. Ameralis suggests having a list of at least four to six comps in order to appropriately evaluate your property.
If you live in a very active housing market, you may want to get ultra-specific about your criteria, as well. For example, two homes with identical square footage and similar finishes, a quarter of a mile apart in the same school district, both with in-ground pools, are likely to have very similar values.
Conversely, if the home you’re evaluating is unlike what’s sold nearby, or is in a slower market or a rural or sparsely populated area, you may need to relax your search criteria.
4. Get the whole picture
There’s only so much information you can gather online. Some properties might look like a near-perfect match on paper (or on a screen), but in reality, they could have key differences that impact their value.
One home might be on a cul-de-sac with stellar curb appeal, for example, while another in the same neighborhood might have ever-present noise from a highway close by. In another instance, a home search tool might indicate that a property sold for $300,000, but not disclose that the seller paid $20,000 in upgrades, repairs and closing costs, which would peg the real sale price of the home at $280,000.
So, if possible, see the properties in-person, or reach out to the agents who sold them to get additional details that may not be obvious in an online search.
5. Make comparisons and do the math
Once you’ve done your research and settled on a list of four to six comps, you can simply compare the sale prices of each to get a rough idea of your home’s fair market value, or, crunch some numbers to get another perspective.
For instance, you can look at the square footage of each comp and divide its sale price by the amount of square footage it has. This will indicate the home’s price-per-square-foot, or PPSF. You can then take the average PPSF of all the comps on your list, and using that dollar value, multiply it by the number of square feet in your home.
For example, say you pulled four comps with a PPSF of $200, $217, $222 and $233. The average of those figures is $218. If you multiply $218 by the square footage of your home, for instance 2,100 square feet, your home’s value based on comparable PPSF might be around $457,800. With this calculation, you now have a ballpark estimate of what your home may be worth.
A caveat on comps
If after your research you arrive at a value that seems accurate, know that unless you’re looking at a row of exactly uniform properties (think brand-new, adjacent townhouses), there are going to be slight differences.
“Every property is unique in its way. So, although you can find closely comparable properties, none will be identical,” says Ameralis.
So, while it’s possible to pull comps on your own and estimate your home’s value, working with a licensed real estate agent and an appraiser is the most reliable way to know what your home is worth. Many agents offer a complimentary analysis of comps, called a comparative market analysis, or CMA, so you won’t have to pay out of pocket to get expert insight.
You do have to pay for an appraisal, however, but it will thoroughly analyze your home’s value, taking into account comps, the city or county’s valuation, the site, hazards, improvements, overall condition and other factors, such as rental income or fees, HOA dues and the cost to build a similar home from scratch.
Ultimately, valuing a home isn’t an exact science; the home is worth what someone is willing to pay for it. By understanding the factors that impact your home’s value, you’ll be better equipped to make informed choices when it comes to selling your home or tapping your equity.