5 Things You Should Know About Real Estate Comps

5 Things You Should Know About Real Estate Comps

Posted by Kiavi Editorial Team, Nov 5, 2018

What are real estate comps?

Real estate comps—short for comparables—are sold homes in the same neighborhood and similar in size, age, condition and features as the property you are trying to buy or sell. Understanding how to find comps will help you determine a fair and competitive asking price for your potential investment property.

Why are real estate comps important for investors?

Running comps can help investors avoid overpaying for a property and selling for a lower profit than necessary. Simply put, comps help you determine your return on investment (ROI) for a specific real estate deal.

Fix and flip

Fix-and-flip investing includes buying and selling within one overall project. Real estate comps will help you evaluate a property you may want to purchase to flip and when your property goes to sell.

As a fix and flip investor, running comps before purchasing a house will help you secure a property that allows for a renovation budget, closing costs and profit. Knowing ahead of time what your renovation budget should look like based on your evaluation of comps gives you the added benefit of balancing the extensiveness of your renovation.

Buy and hold

Comping properties could be considered even more prevalent when deploying a buy-and-hold, or rental, strategy. Because buy and hold is a long-term investment strategy in which an investor purchases a home and holds on to it as a rental property for an extended period, it's necessary to research comps in three phases throughout the process:

  1. Comping the initial property of interest before buying
  2. Looking at rental comps to set your price and understand the market potential
  3. Comping if or when its time to sell the property to get the highest return

What to consider when searching for real estate comps

Finding real estate comparables can be daunting for beginners, but knowing what to look for beforehand will help you accurately determine which homes qualify.

Home Square Footage

Finding comps with the exact same square footage as the property you're working on isn't necessary. Properties considered acceptable comps should come within 25% of the square footage of your potential purchase. So if your property is 1,500 square feet, look for comps in the 1,125-1,875 square feet range.

Bedrooms and bathrooms

Be sure to only search for homes with an equal number of bedrooms and bathrooms as your property. For real estate investors, the number of bedrooms and bathrooms is of utmost importance, especially when combined with the square footage.

Amenities

Amenities are any home features that add or subtract property value, depending on the buyer to whom you plan to sell. Big backyards, property space to add an expansion, and recently updated features all add to the house's value.

Neighborhood

As a property investor, you aren't just investing in the property but also in the neighborhood. A lot can change from one neighborhood to the next, impacting the home's value significantly.

Recent Sale Prices

When you find a handful of comps with similar square footage, bedrooms, bathrooms, and amenities, it's time to find out what they were priced at and how long they stayed on the market before they were sold. You should only research properties sold within the last six months.

How to determine home value using comps

Search recently sold listings

Your first step in finding comparable properties is to search for recently sold listings in your area, ideally within the last six months. While there are plenty of helpful online resources that you can use to approximate home value, confirm your research with a reputable Realtor.

Free home value websites

Below are five of the most popular free home value resources:

Confirm the accuracy of comps

Get expert advice

After estimating house comps, seek a second opinion from a Realtor who has inside knowledge about market conditions.

Get an appraisal

To confirm a property's value, consider having it appraised for a non-biased estimate.

Leveraging comp value for your real estate investing business

Start your search with all properties within a half-mile radius of the subject property. Ensure these homes have the same number of bedrooms and bathrooms as the property in question and within the same square footage range. If no suitable results appear, gradually expand your search parameters.

Real estate comps example

Rita, a house flipper, found a charming four-bedroom single-family home in a suburban neighborhood. She conducted thorough research on the comps and, with her Realtor's help, determined competitive offer prices based on similar nearby sales.

The bottom line

Real estate investors often have to make quick decisions that could significantly impact their return on investment. The fastest and most effective way to do this is by understanding and leveraging the real estate comps. With diligent research and experience, you can integrate comps into your investment routine effectively.