What are Comparables? And why do they matter to buyers and sellers?
There are a variety of parameters that should be considered when looking at comps for a home. It is important for the comps to be similar to the property being considered.
Length of time: It is usually best to consider properties that have listed and sold in the last 90 days. As market conditions fluctuate, a narrower window is wiser when comparing prices. For example, a home that was sold last year may not be reflecting what homes in the neighborhood are currently worth. Values may have gone up or down depending on a variety of factors.
Area: It is ideal to consider homes in the exact neighborhood when possible. Especially when condos or townhomes are being considered. However, when not possible, homes in nearby similar communities are also a good place to start.
Size of Home: It is important to consider the size of a home when looking at comps. Finished square feet, bedrooms, bathrooms, and bonus rooms all make a big difference in price A two bedroom in the neighborhood will sell much less than a four bedroom home in the same area. Likewise, a home that is three stories and has 5,000 finished square feet including the basement will sell for more than a similar three story home that only has 3,500 finished square feet and an unfinished basement.
Adjustments: There are times that additional details need to be considered. For example, end unit townhomes will sell at a higher price than the interior units. When it comes to condos, different views and floors may bring higher prices depending on the area. For all properties, it is also prudent to consider upgrades that have been done in the home; while not all may add value, some such as an upgraded kitchen may be highly desirable.
So how do comps help?
For sellers, the comps provided by your listing agent offer guidance on a realistic market value for your home. If there is a notable difference in your list price your agent will need to be able to explain the difference in value to buyers. It is important to try and list as close to the market value as possible to ensure enough activity and strong offers. Depending on the market, if a home is priced too high and sits on the market for more than 30 days it can become stigmatized and lose appeal to buyers. On the other hand pricing too low in an effort to generate a bidding war can backfire if buyers are concerned there may be an issue with the property as the reason for the low price.
For buyers, it is important for their agent to go over comps to ensure they are putting in a strong offer for a home they like, while not over paying for it. When buyers like a home and decide to put on offer on it, some may decide to go in full price. Upon looking at comps though, their agent may point out that the home is priced well above market value and the offer should be lower. They can send the comps along with their offer to explain the lower price. On the other hand, a buyer may feel a home is priced high and want to submit a lowball offer. After an agent looks at comps they may discover it is a fair market value and the low offer could be rejected. Overall it is just as important for a buyer’s agent to run comps as it is for a seller’s agent.
These are general guidelines for looking at comps. Different areas and different agents may use slightly varied parameters and reach slightly different conclusions. Comps are an important and strong tool in selling and buying property.
Questions? Need comps of your own? Contact us today! And remember, with us, advice is always free. Reach us at [email protected]