When you’re looking at houses and thinking you want to call Express Homebuyers to partner with you on the deal, you first need to provide relevant, accurate and complete information about the property. At our March Meetup last Monday night, there was quite a bit of conversation around determining property values using comps. The purpose of this article is to help you understand what comps are, how to get them and why they’re important.
What Are Comps?
Comps is the abbreviated industry term for comparable sales. It refers to prices paid for recently sold homes that are comparable in size, style, condition, amenities, and location to the property you are evaluating. To determine the value of a house, real estate professionals will typically look for three properties that are actively for sale now and three properties that have sold within the last six months. By knowing how much people have paid for similar homes, you can presume how much the house you’re looking at is worth on the market. Information on sold properties is more valuable since closed deals are what someone actually paid. A list price on an active sale is only a number the seller is hoping to get; they don’t know for sure a buyer will agree on the value and pay that price. Active comps become much more valuable in a rapidly declining market like the one we experienced from 2008-2011. The reason being that the active comp may be priced lower than the last sold comp, indicating that the current market values have declined since the last sale.
Elements to Consider
You’ll often find debate around choosing which sales to include or how large a geographic area to incorporate. For some real estate professionals, the word “recent” means 90 days or fewer. But depending on activity in a given market or neighborhood, others may use six months.
What constitutes comparable in terms of characteristics is another story. If you’re examining a property in a planned development or condo complex, you might be able to find identical homes. More often though, you’re looking at great variation in the houses even when they’re on the same street. It’s also not unusual for houses on one street to be worth more than similar houses just one block away.
A few of the characteristics you should take into consideration are:
- Square footage
- Number of bedrooms
- Number of bathrooms
- Condition of the property
- Whether it has central heating and air
- Distance from the property being appraised
- The neighborhood
Does one home have a garage and your home does not? Figure out what a garage is worth and subtract that from your home. How do you do that? Compare what value a garage creates by comparing similar homes sales prices with and without a garage. Does one of the comps have 100 square feet less? Then find the cost per square foot average in your area and increase your home’s value by that much.
It’s unlikely your seller’s house is in perfect condition; it likely needs at least minor repairs and upgrades, if not major renovations. Obviously the price of a house with avocado colored kitchen appliances and dirty laminate countertops will be greatly discounted against a house featuring new stainless steel appliances and granite countertops. You’ll need to accurately estimate the cost of those repairs and updates.
How to Get Comps
Agents and Appraisers have access to the MLS, (Multiple Listing Service), which allows them to see all the properties in a given area that are listed for sale, pending deals and sold. If you are not a real estate agent, you can search Zillow, tax assessment websites, www.redfin.com, www.eppraisal.com and www.remax.com for sold and active comps. Note though that the MLS will be the most accurate and desirable tool for comps.
Determining property values using comps is the first step. When you’re considering submitting a deal to Express Homebuyers, of course we’ll also need the property address, estimated repairs and asking price. Plus there are a few additional pieces of information you’ll need to share with us as well. Photos of the interior and exterior that clearly give an accurate representation of the property’s condition are a must. Lastly, how much do you want as an assignment fee?
Putting together all this information may seem like a lot of work. However, this is the level of detail successful investors must have in order to properly evaluate a house before purchase and ensure they can make money on it.
If you have a motivated seller and information for all the components discussed in this article, submit your wholesale deal via the form HERE.