Real Estate Comps: A Comprehensive Guide for Appraisals

When it comes to figuring out how much a property is worth, whether you’re buying, selling, or just curious, real estate comparables (or “comps”) are a key tool. They help establish a property’s market value by comparing it to similar homes that have recently sold or are currently on the market.

Here’s a comprehensive guide to understanding and finding the right comps, along with what appraisers look for when selecting them.

What Comps in Real Estate?

Real estate comps are properties that are similar to the one you’re valuing, used to gauge its market value. These comparables provide a snapshot of what similar properties have recently sold for, which can help you set a fair price for your home or determine whether you’re getting a good deal on a new one.

Characteristics of Good Comps in Real Estate:

Location: Comps should ideally be in the same neighborhood or a similar area nearby.

Square Footage: The size of the property should be similar.

Number of Bedrooms and Bathrooms: Homes with similar counts in these areas are preferred.

Condition: The property’s state, including any recent renovations or maintenance, impacts its value.

Property Style and Age: The style and age should align closely with the property.

Amenities: Special features like swimming pools, high-end kitchens, or unique upgrades should match.

How to Find Real Estate Comps

Finding accurate comparables real estate involves a few crucial steps:

Understand Your Property’s Specs: Start by listing out all relevant details about your property. This includes location, size, number of bedrooms and bathrooms, lot size, and any unique features or upgrades. Don’t forget to note factors like the local school district and proximity to amenities, as these can impact value.
Search for Similar, Recently Sold Homes: Look for properties that have recently sold or are pending, which share similarities with yours. If you’re working with a real estate agent, they’ll likely use the MLS (Multiple Listing Service) to find these comps. If you’re doing it yourself, websites like Zillow and Redfin can be helpful. Make sure to filter your search for sold properties, as listing prices aren’t always reflective of actual sale prices. Set your search parameters to the same neighborhood and property type—condos should only be compared with other condos, for example.
Narrow Down Your List: Once you have a list of potential appraisal comps, review them to find the ones that are most similar to your property. Ideally, you should select 4-6 strong candidates. If you’re in a very active market, be more specific with your criteria. For instance, if your home has a pool, focus on other properties with pools. If your home is unique or in a less populated area, you might need to broaden your criteria a bit.
Analyze the Data: Compare the sale prices of your selected comps. To get a rough estimate of your property’s value, you can calculate the price per square foot (PPSF) for each comp. Average the PPSFs and multiply this by your property’s square footage to get an approximate value.
For example, if you have four comps with PPSFs of $200, $217, $222, and $233, the average is $218. If your home is 2,100 square feet, you’d multiply $218 by 2,100 to get an estimated value of around $457,800.

Guidelines for Selecting Good Real Estate Comps for Appraisals

As an appraiser, you should use comps to determine a property’s market value, and selecting the right ones is essential. Here’s what they look for:

Location: The comps should be in the same or similar neighborhood as the property being appraised. Lenders typically suggest using comps within a 1-mile radius, though this can vary. If not enough comps are available nearby, appraisers might need to look further afield or consider older sales.

Age and Condition: Comparables should be of a similar age and condition. For example, a newly renovated home should be compared with other recently updated properties. The condition and quality of the property—ranging from brand new (C1) to poor (C6)—affect its value.

Amenities and Features: Special features and amenities should be comparable. Homes with luxury upgrades, like high-end kitchens or swimming pools, generally have higher values. Ensure that the comps have similar amenities to provide a more accurate appraisal.

Size: It’s generally recommended to choose comps within 25% of the size of the subject property. For instance, if your home is 1,200 square feet, comps should ideally be between 900 and 1,500 square feet. Larger deviations can lead to less accurate comparisons.

Additional Considerations for Appraisers

Site Size and Topography: Lot size and usability are important. For instance, a flat, usable lot is usually more valuable than a sloped or irregularly shaped lot. The view from the property can also impact its value, with desirable views (water, cityscapes) generally adding more value.

Bracketing: Appraisers often use a method called “bracketing,” where they choose comps with superior and inferior features compared to the subject property. This approach helps in making a more balanced valuation.

Adverse Influences: Any negative factors affecting the property, such as being near a commercial building or having a busy road nearby, should be accounted for. Ideally, comps should have similar adverse influences.

Property Type: Ensure that the comps are of the same property type. Comparing a single-family home with a condo, for example, isn’t appropriate.

Conclusion

Real estate comparables are a fundamental tool for determining property value, but finding and using them effectively requires careful consideration. By understanding and applying the principles of location, size, condition, and features, you can get a clearer picture of your property’s value. While comps are incredibly useful, they aren’t perfect, and working with a knowledgeable real estate agent can provide further insights and ensure that you’re making informed decisions.

Remember, while real estate comps provide valuable information, each property is unique. Differences, no matter how small, can impact value, so it’s always beneficial to consult with experts who can help you navigate the complexities of the real estate market.