1. Property classification
2. Building age
3. Building square footage
4. Land square footage
5. Exterior construction
What you need to know about comps
- Comps, or comparables, are prices paid for similar homes sold recently.
If you’ve bought or sold property, you’ve certainly heard the term “comps.” While most homebuyers and sellers know that “comps” is shorthand for “comparables,” not everyone understands what comps really are or how real estate professionals use them.
What are comps?
The terms “comps,” “comparables” and “comparable sales” refer to prices paid for recently sold homes that are comparable in size, style and location.
“Comparable sales are a critical part of assessing the current market value of a property
To determine the current market value of a property, agents and appraisers analyze recent comparable sales in the area. But simply choosing which sales to include, or even defining the area, can be subjects of debate.
Take, for example, the word “recent.” For Najm, that means 90 days or fewer. But according to Doug Perlson, co-founder and CEO of alternative brokerage RealDirect.com, “recent” can look back as far as six months, depending on the activity in the local market.
Whether a nearby property is in fact comparable raises more questions. “Ideally, we’d like to find at least three properties with identical characteristics,” Najm says.
And as always with real estate, location matters. Proximity is a key component of comps but so is the neighborhood, and they aren’t always the same thing.
“Knowledge of the neighborhood and the school district are critical for determining comps,” So while a comp might be close in terms of distance, it might not be appropriate if the two properties straddle opposite sides of a neighborhood dividing line.
Real estate agent versus appraisers
Real estate agents and appraisers often arrive at different comps.
“Real estate agents will want sales that help to close their transaction. That’s their job,” says Mark Linne, executive vice president of AppraisalWorld of San Jose, Calif. “Appraisers are an objective participant in the transaction and are being asked to provide an understanding for the lender of the true market value.”
Having a stake in the game means agents are more likely to come up with a higher price. But they are also more likely to find value in a property’s intangible qualities. According to Najm, that could mean considering recent upgrades, quality of workmanship and other factors likely to motivate buyers.
Najm says a real estate agent is much more likely to know if recent sellers were motivated to accept a lower price because of financial hardship or divorce. “On the other hand, appraisers may drive through a neighborhood to verify a comparable sale, but they are not likely to have physically walked through those properties,” Najm says.
Regulations add to the gulf between comps generated by real estate agents and those generated by appraisers. New regulations are designed to keep lenders and mortgage brokers from influencing appraisers. But while appraiser independence is good in theory, Shulman says, appraisers often are hired to evaluate properties in places they’re not familiar with.