When it comes to real estate, homes are often worth what a buyer is willing to pay for them. If you are a buyer looking to purchase, it might appear that the prices homes are listed at are just pulled from thin air but the prices might be based on comparable home prices in the area, known colloquially as "comps". To get a good deal, buyers need to understand all about what is meant by this term, so read for more information.
What is a comp?
Simply put, a comp is a price created by using the recent sales prices of homes in the same area or neighborhood. The way comps are calculated is not as simple as that, however. Both sellers and buyers use comps when participating in real estate transactions. Sellers use comps to help set the listing price of the home and buyers use comps to find out if the home is a good deal.
What is being compared?
The best-case scenario calls for comparing homes that are similar in several ways and the more similar, the more accurate the comp will be. You should not be trying to compare homes that are drastically different from each other, in other words. Homes are usually evaluated for comparable prices using the following factors:
1. Location: While the exact distance for the two homes being compared can vary from state to state, comps that compare homes within a half-mile or so of each other can bring more accurate results.
2. Size: The two homes don't have to be exactly the same size, but they should each be in the same ballpark size. For example, the square footage of two homes might be less than 250 sq ft in difference to make a good comparison.
3. Bedrooms and Bathrooms: In some cases, the number of beds and baths are more important than the square footage. These two factors should be exactly the same in both homes.
4. Features of the exterior: The views and the style of the home should be similar. A home with a mountain view might fetch considerably more than one of a freeway. Normally, end units in townhouses can be worth more than interior units due to the privacy and quiet being on the end might bring the residents.
5. Interior features: Recent remodels, new kitchens and bathrooms, a new deck, a pool, and more can raise or lower a home's value.
6. Recent sales: The real estate market can change each month so sales prices that are fairly recent, say within the last six months or so, can be a more accurate indicator.
Lucky for you, the chore of finding comps can be relegated to your real estate agent. It is, however, important that you know what the term means in regard to the property that is holding your interest. Speak to your agent to learn more about home selling and buying.
Share25 September 2018
When I started looking for a new home, I realized that there were a few things I needed to be careful about. For instance, I really needed to focus on finding a home that would appreciate in value, so I began thinking about investing in the right property. After quite a bit of research, I was able to find a great neighborhood that had a big support system for my family. After we found a house we loved, we worked with a real estate agent to procure it, and it was really nice to feel like we belonged somewhere. Read this blog about ways to find amazing pieces of real estate the first time around.